AIG: Out of Favor Despite Solid Business and Derisked Balance Sheet

Brian Pitkin of URI Capital Management presented his in-depth investment thesis on AIG (US: AIG) at Best Ideas 2019.

Thesis summary:

AIG is another in a long line of global financial institutions that have fallen far out of favor with investors. AIG is a well-known global property and casualty insurer, paired with a US-dominated life and retirement business.

The company has derisked the balance sheet after taking painful reserve charges and implementing an “adverse development cover” with Berkshire Hathaway. Improving returns on equity, driven by P&C underwriting profitability, should lead to a higher, more normalized valuation for AIG.

The company fits the pattern of good — sometimes great — businesses operating profitably — sometimes very profitably — with global scale, but, for differing reasons, have been far out of favor with investors, allowing Brian to invest at valuations well below book value.

AIG recently traded at 8.5x 2019E earnings of $5.11 per share, i.e., a market price of $43 per share, well below adjusted book value of $56 per share and stated book value of $66 per share.

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About the instructor:

Brian E. Pitkin founded URI Capital Management to follow his long time passion for deep business analysis and long term value investing. Brian began his career in Investment Banking at Merrill Lynch in Chicago, and then joined The Edgewater Funds, a Chicago private equity firm. Brian ultimately returned to family-owned Ulrich Chemical, a Midwest chemical distributor where he helped accelerate both top and bottom line growth, including a near tripling of the company’s bottom line. He then helped negotiate and execute the sale of Ulrich to Brenntag, a global chemical distributor, before leaving to start his own ventures, now dominated by managing the fund URI Capital Partners. His background in both investing and managing businesses has contributed to his understanding of what makes for a successful business and thus a successful long term investment, while faith and family provide a strong foundation for the entirety of his life. URI Capital Partners is a long only investment fund focused on a highly concentrated portfolio of publicly traded companies. While our concentrated, long only strategy may present more volatility in the short term, we are not willing to sacrifice higher potential longer term returns for a more comfortable journey. Investing in enduring businesses at good valuations, avoiding leverage requiring margins of safety serves to solidify our foundation and protect investor dollars.