Sunday, June 15, 2014

Why I Bought European Reliance

Price€ 1.390
Market Cap€ 38.22 M
($ 52 M USD)
P/E TTM3.9 x
Div yield0 %
ROE16.3 %
My next stop in my virtual world travels takes me to Greece. My macro impression is that Greece is on the road to recovery. I primarily invest in small and micro caps now, and I saw some interesting ideas for Greek small caps here and here. I applied my screener to stocks in Greece and found a few but one really stuck out: European Reliance General Insurance SA (ATH:EUPIC).

EUPIC offers insurance and pensions and mutual funds to individuals in Greece. The company insurance offerings include life, health, fire and car. Its underwriting operations are outstanding. And it trades significantly less than book. I am sure the main reason it trades so low is because it is in Greece. The world knows that Greece had a very difficult 2011 and 2012. In fact, the country has been in recession for 5 years, and it is far from over. The country still has 25% unemployment. But from what I gather, the country has turned the corner and is on the way to recovery. One can see this from how the bond markets are pricing Greek 10 year government bonds. See chart below from the WSJ.

I invested in EUPIC partly because the company had a stellar earnings record through the last four years. The company did suffer losses in its investment portfolio in 2011, but the company's outstanding underwriting results made up for it. Prior to four years ago, the company's underwriting was decent but not as good as it is now. The company also took a € 15M writedown in its equity in 2008, when the financial crisis hit. Before that the company was trading above book and it hasn't traded close to book since then. See the following table. All numbers except dividends are in millions.

Income Equity Investment income Dividend/shr Shares
Q1 2014
60.4 0.9
2013 9.5 57.5 0.8 0.000 27.5
2012 9.0 50.0 0.9 0.100 27.5
2011 2.7 39.5 (7.0) 0.050 27.5
2010 1.3 37.9 1.5 0.040 27.5
2009 3.1 37.7 3.4 0.040 27.5
2008 (0.0) 30.2 4.2 0.040 27.5
2007 2.5 44.5 1.6 0.073 19.2
2006 3.2 25.5 1.9 0.000 19.2
2005 1.8 20.0 0.8 0.000 19.4
2004 1.7 21.6 0.5 0.000 18.3

The company's balance sheet is like most life insurance companies. The company has investment assets, mostly bonds and some equities. The company's liabilities are just the company's underwriting obligations. The company states that 75% of the company's bonds are in the US and "core European countries". I take this to mean countries like UK, France, Germany, Netherlands and not Greece.

EUPIC was established in 1977. The current CEO has been CEO or Chairman since its founding. Some of its founders are still directors. This shows a commitment and stability in the organization. I have found company statements going back to 2001, beyond that I have nothing. In 2007, the Greek bank Piraeus bought a 30% stake in the company. In exchange the bank gave the company the fire insurance business from its mortgage sales.

My impression (or hope) is that the company's insurance profile after the Piraeus investment has made the company much more profitable. But the financial crisis followed by the Greek bond crisis has overshadowed the company's solid underwriting performance. So when the sentiment turns and drives equities upwards, this company should once again trade for book.

The company's auditor is PKF Euroauditing SA going back to 2001. I have never heard of the auditor but their website seems to indicate it is a stable and big European company.

The one thing that worries me about the company me is that it has inexplicably chosen not to pay a dividend for the 2013 fiscal year. I cannot really think of a good reason for this.

Note**: investing in Greek microcaps is a risky business. I have tediously gathered the data in this article from filings written in Greek. But I am sure I have made mistakes. If you are considering investing in this please read the disclaimer on the right.


  1. Hello Bovine

    I am a Greek investor and also a shareholder of EUPIC

    EUPIC said that the reason for not distributing a dividend was to improve its balance sheet for Solvency II (from 1/1/16)
    Two other greek stocks that I hold and consider a good buy are:
    1.METKA SA: A company constructing gas power plants, with a great balance sheet trading at less than 7 times its earnings.
    2. Karelia Tobacco Company Inc. S.A. is a company held 95% by insiders, sitting
    in a pile of cash and trading around 13 times its earnings

  2. Thanks Greek Investor!

    Glad to know there is a legitimate reason for the lack of dividend.

    About your 2 other stocks. I looked at Karelia early on but decide to pass on it because it is 13x. That is not much of a discount for PM which trades around 15-17x. I am not totally familiar with Greece and I expect a large discount before jumping in.

    But your METKA is very interesting. The numbers looked very good at first glance. This one escaped my attention probably because of its market cap. I'll study further and will write it up if and when I decide to buy.