Gokul Ponnuraj of Bavaria Industries Group presented his in-depth thesis on Grupo Catalana Occidente (Spain: GCO) at European Investing Summit 2019.

Thesis summary:

Grupo Catalana Occidente: a well-run family owned (65% insider ownership) insurance business with strong track record of organic & inorganic growth since its listing 25 years back. The business has consistently compounded value at 12%+ CAGR through a combination of book value growth and dividends over every five-year trailing period for the last two decades.

The company has a strong market position and durable moats in both the insurance segments it operates in. It gets 46% of profits from credit insurance segment which is a global oligopoly with a strong moat for the 3 primary incumbents. It’s conservative underwriting culture and strong distribution networks has helped it to deliver strong numbers across economic cycles.

The general short tail nature of the book along with strong market position and robust balance sheet (207% solvency with excess capital) would help GCO to continue long term compounding value even in a low interest world with an optionality of strong acquisition pipeline if there is a large market dislocation or economic crisis or sharp reversal of interest rates.

With a 25 year+ track record of growth, durability and healthy shareholder returns, GCO is a compounder that is trading at fairly attractive valuations of 1X book and 9.7X earnings. Even in a repeat of a 2008 kind of economic crisis, I believe that the diversification of GCO between credit insurance and traditional insurance will allow it to still make profits in that year as it did in 2008. Gokul believes that shareholders can expect long-term compounding of 10%+ euro returns in GCO at current market price even without meaningful valuation re-rating.

Disclaimer provided by Gokul: We are biased and invested in the stock. This is not an investment advice and please carry out your research on the business.

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About the instructor:

Gokul Ponnuraj is a value investor with a focus on small- and mid-cap spinoffs and compounders. He has been investing in the Indian markets for more than ten years and in global markets for the last two years. Gokul manages the public equities portfolio at Bavaria Industries Group. The firm uses its balance sheet assets (permanent capital) to invest in opportunities with an attractive risk-reward tradeoff. Gokul holds a Master in Finance degree from London Business School.