Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Aspen Insurance Holdings Limited (AHL) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Aspen Insurance Holdings Limited (Aspen Holdings) is a Bermuda-based holding company. The Company conducts insurance and reinsurance business through its principal Operating Subsidiaries: Aspen U.K. and AUL, Aspen Bermuda (Bermuda) and Aspen Specialty and AAIC (United States). The Company operates in the global markets for property and casualty insurance and reinsurance. The Company operates in two segments: Aspen Insurance and Aspen Reinsurance (Aspen Re). The Company’s insurance segment is comprised of: property and casualty insurance; marine, aviation and energy insurance; and financial and professional lines insurance. The Company’s reinsurance segment is comprised of: property catastrophe reinsurance (including the business written through Aspen Capital Markets); other property reinsurance; casualty reinsurance; and specialty reinsurance.
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Defensive Investor – must pass all 6 of the following tests: Score = 4/6
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â FAIL
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â FAIL
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3
- Earnings Stability – positive earnings per share for at least 5 years -Â FAIL
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $48.72 |
| MG Value | $135.34 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $54.13 |
| Value Based on 0% Growth | $31.73 |
| Market Implied Growth Rate | 2.28% |
| PEmg | 13.05 |
| PB Ratio | 0.91 |
Balance Sheet – June 2015
| Total Debt | $625,000,000 |
| Total Assets | $10,954,000,000 |
| Intangible Assets | $18,000,000 |
| Total Liabilities | $7,592,000,000 |
| Outstanding Shares | 62,900,000 |
Earnings Per Share
| 2015 (estimate) | $3.88 |
| 2014 | $4.82 |
| 2013 | $4.14 |
| 2012 | $3.39 |
| 2011 | -$1.88 |
| 2010 | $3.62 |
| 2009 | $5.64 |
| 2008 | $0.92 |
| 2007 | $5.25 |
| 2006 | $3.75 |
| 2005 | -$2.40 |
Earnings Per Share – ModernGraham
| 2015 (estimate) | $3.73 |
| 2014 | $3.38 |
| 2013 | $2.77 |
| 2012 | $2.17 |
| 2011 | $1.94 |
| 2010 | $3.84 |
Dividend History
Free Cash Flow
Conclusion:
Aspen Insurance Holdings Limited is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years.  The Enterprising Investor is concerned with the lack of earnings stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.94 in 2011 to an estimated $3.73 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.28% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Aspen Insurance Holdings Limited (AHL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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