Added MKL

Yesterday, MKL reported earnings which seemed quite decent to me. The stock, which had already turned negative for the year, tumbled nearly 6% more at one point during the day to $811.

It closed the day, down 2.5%, at $844.

I don’t know what the reason for the huge swing was. The trading volume was nearly 10x the usual.

Sure, there was Hurricane Mathew, which will result in a $40-$100M loss (wide range, I know!). This will impair the performance of the insurance unit, although it is unclear whether the combined ratio will climb over 100%. In any event, I don’t think the long term earnings power of MKL has declined.

When I did my last valuation, I came up with a wide $800-$1200 valuation range. The stock was trading at $950 at that time, and I thought it was reasonably valued.

A fewthings have changed at MKL. Book value increased from $590 to $609 (increase of 3.2%). Investments/share climbed from $1162 to $1199, resulting in a decline in the leverage from 2.25 to 1.97.

TTM EBITDA at Markel Ventures saw robust growth: its value (assuming 8x EBITDA) increased from $57/share to $85/share. This is starting to be significant contributor to MKL’s overall value.

According to the two column method, my estimate of fair value increased from $1219 to $1284. This was the richest of the three valuation methods I used. A simpler, and reasonable 1.5 BVPS estimate gives us $913.

Again it is hard to pin-point the exact value of MKL. However, it seems that at $810 it was trading at the lower end of its valuation range. For a high-quality business like MKL, I took this opportunity to add 20% to my position today.

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