Aquatic Foods Group

The fourth company from my screener, Aquatic Foods Group is a Jersey holding whose main operating subsidiary, Yantay Kanwa, is a Chinese company processing, producing and supplying seafood and marine foods inside and outside China, with a market capitalisation of £14.23 million, a dividend rate of 7.20%, a debt to total capital ratio of less than 6%, and a PCF ratio of 1.2, according to the FT screener.

The company’s main products are processed frozen seafood, seaweed based foods, and marine snack foods. It’s product categories are fish, sea cucumbers, cephalopods, shrimp & shellfish, and others.

When I opened the FT profile on the company, the first thing I noticed was that the shares have not traded since June. Going further down the page I see several announcements regarding an update on accounts publication (it still has not published the 2016 annual report and says it will do so this month), the resignation of the finance director on June 30, and temporary suspension of trading on AIM (a sub-market of the London Stock Exchange for smaller companies) on June 29. The ‘Financials’ tab only shows data up to 2015, so the ratios in the first paragraph are out of date. Needless to say these are all major red flags.

Coupled with the fact that it’s a Chinese company (not very reassuring due to several instances of fraud by Chinese companies in the past), that two Finance Directors have resigned in the past two years, and that I’m unable to read and analyse their 2016 annual report, this company goes straight to the ‘No’ tray (which is a shame since according to their last trading update for the quarter ended March 31, 2017, the company is profitable and has £54 million in cash – 3.8 times its market capitalisation – if one could trust their statements).

Empire Life Insurance Co

The third company from my screener, Empire Life Insurance Co is a Canadian insurance company founded in 1923 and based in Kingston, Ontario with a market capitalisation of CAD $160.6 million, a dividend ratio of 5.35%, a total debt to capital of 24.86%, and a price to cashflow ratio of 0.9519, according to the FT company profile (I’m guessing this last one will also be incorrect, as with CGIC, since the shares it refers to are also preferred shares traded in the Toronto Stock Exchange under the quote EML.PR.A).

The company provides life and health insurance, and segregated funds, mutual funds and annuity products for individuals and groups. Its main product lines are: wealth management, employee benefits, and individual insurance. It is a subsidiary of E-L Financial Corporation Limited.familytree-enSource:

2016 Annual Report


  1. Net income of $152.7 million, up 40.6% from $108.6 million in 2015 (page 4);
  2. Net premium and fee income of $1,110 million, up 5.5% from $1,052 million in 2015 (page 4);
  3. Assets under management (AUM) of $16,051 million, up 10.4% from $14,535 million in 2015 (page 4);
  4. MCCSR (Minimum Continuing Capital and Surplus Requirements) of 248%, which means the company has 1.5x more capital than it needs to meet all obligations to its policyholders. Canadian regulators require a minimum MCCSR of 120% (page 4);
  5. Sixth largest life insurance company in Canada based on assets (page 6);
  6. Issued $149.5 million of preferred shares in January 2016 (these are the preferred shares being traded in the Toronto Stock Exchange under the symbol EML.PR.A with a current market value of CAD $160.6 million, therefore the market cap and PCF ratio given by the FT are incorrect) and completed a $200 million subordinated debt issue in December 2016 (page 7);
  7. The main contributor to the increased net income was the Individual Insurance product line, with net income of $90.2 million compared to $6.8 million in 2015, due to changes in assumptions and improved asset/liability matching, by increasing its investments in real estate limited partnership units and making changes to its bond investments (page 9);
  8. Return on equity of 13.1%, up from 10.2% in 2015 (page 10);
  9. Net income increased every year from 2014 to 2016 (page 12);
  10. Total equity increased to $1,450 million, up 25.9% from $1,152 million in 2015, and this in turn was up 8.5% from $1,062 million in 2014 (page 12);
  11. Preferred dividend of $1.3183 per share paid in 2016 (page 13);
  12. Cashflow from operations was $292 million, up 96% from $149 million in 2015. Cashflow used for investing activities was $454 million, up from $179 million in 2015, due to the investment of the proceeds from the issuance of preferred shares and subordinated debt. Cash increased $169 million (page 21);
  13. EML.PR.A holders are entitled to receive fixed non-cumulative (not good for investors, since the company has no obligation to pay a missed dividend after the fact) quarterly dividends of 5.75% annually over the face value of $25 until April 17, 2021. After that the dividend will be reset every 5 years at 4.99% plus the 5-year Government of Canada bond yield (which now stands at 1.6%). This is a better deal than CGIC, since it has no redemption clause and the dividend rate can be reset (but would be even better if they were also cumulative and if they could be converted into common shares) (page 23);
  14. Cash and cash equivalents of $369 million, up 84.7% (page 42);
  15. EML.PR.A is the only preferred share class in the equity structure and is 10.3% of the company’s capital ($149.5 million / $1,450 million). Everything else is common shares, contributed surplus, retained earnings and other comprehensive income. 10.3% of operating cashflow is $30.1 million, for a PCF ratio of $160.6 million / $30.1 million = 5.34 (page 42);
  16. EPS $155.03, up from $110.22 (985,076 common shares outstanding) (page 43);
  17. 5,980,000 EML.PR.A preferred shares issued at a $25 face value. Holders will have the right to convert their shares into non-cumulative floating rate preferred shares on April 17, 2021 and on April 17 every five years thereafter, and they will receive quarterly floating dividends at a rate equal to the 3-month Government of Canada Treasury Bill (which now stands at 0.73%) plus 4.99% (page 81);
  18. Quarterly dividends of $0.359375 per preferred share, for a total of $1.4375 per year. No common shareholder dividends were paid in 2016 or 2015 (page 82);
  19. 6 shareholders’ directors and 4 policyholders’ directors, plus an honorary chairman and an honorary director, for a total of 12 (much better than CGIC’s 22 directors).


  1. 111 pages. Why can’t there be small annual reports?
  2. Total revenue has been volatile ($1,409 million in 2016, $1,287 million in 2015, $1,926 million in 2014) due to the impact of market interest rate movements on the fair value of FVTPL (Fair Value Through Profit and Loss) investments (page 12);
  3. The company employs put options and short positions on key equity indices to hedge against equity market risk. It had a loss of $28 million in 2016 on these hedges due to the increase in the Canadian stock market, compared to a gain of $2 million in 2015. This program incurs losses if the stock market goes up, but provides relief if it goes down (page 27);
  4. Empire Life’s MCCSR ratio’s sensitivity to stock market risk is not linear and the ratio decreases much faster when the market goes down (the hedging program helps a bit here) than when it goes up (page 29);
  5. Investment income of $255 million, down from $259 million in 2015. This is a very low return of 1.59% over AUM (page 43);
  6. The defined benefit portion of the company pension plan is underfunded by $10.8 million, although it was discontinued on October 1, 2011, being replaced with a defined contribution pension plan (page 72);
  7. E-L Financial Corporation owns, directly and indirectly through ELFS, 99.2% of the common shares of Empire Life. The company’s ultimate controlling party is Henry N. R. Jackman together with a trust created in 1969 by his father, Henry R. Jackman (page 85).


This is the first company from my screener that I liked. The annual report speaks to the point and gives me a feeling that the company does care about its shareholders. The fact that Empire Life created a rate resetting preferred share class with no redemption clauses shows that they care more about investors than CGIC, even if the dividends are non cumulative and the preferred shares are not convertible to common shares.

The financial performance is good, with net income, AUM, ROE and total equity increasing year on year. ROE is respectable at 13.1% and total debt to capital is lower than 25%. Cash and short-term investments cover almost all this debt, so its financial position is more than solid.

The only two points I’m not comfortable with is the low investment income, for a return of just 1.59% over AUM (hopefully this will increase once interest rates start going up, or they decide to invest a greater portion of their investment portfolio in equities), and the fact that the company is controlled by one single man, Henry N. R. Jackman (but from all I’ve read, I have no reason to think this is being detrimental to other shareholders).

With 19 pros and only 7 cons, Empire Life Insurance Co is a solid ‘Yes’ company.

Since there are no publicly traded common shares, instead of valuing the entire company, I will just evaluate the EML.PR.A preferred shares and see if they are trading at a discount to intrinsic value. Stay tuned for my next post…

August 8, 2017 update: I changed this company from the ‘Yes’ tray to the ‘No’ tray. Read EML.PR.A Valuation to find out why.

Manning & Napier Inc

The second company from my first screener, Manning & Napier is an investment management company founded in 1970 and based in Fairport, New York, USA with a market capitalisation of USD $61.7 million, an 8% dividend yield, a PCF ratio of 0.76 (selling for less than 1x cashflow) and no debt, according to the FT company profile.

It offers separately managed accounts, mutual funds and investment trust funds to high net worth individuals and institutions such as 401k plans, pension plans, Taft-Hartley plans, endowments and foundations. Their services are offered through direct sales and third party intermediaries, platforms and institutional investment consultants.

2016 Annual Report


  1. Strong absolute and relative returns in the first ten months of 2016, poor performance in the fourth quarter, and recovered ground in the first quarter of 2017 (page 3);
  2. 14,982,880 Class A common shares and 1,000 Class B common shares outstanding. I don’t quite know if this is good yet, but at least I am able to buy common shares in the open market, unlike CGIC (page 6);
  3. 8 mutual funds rated with four or five stars by Morningstar (this speaks to their quality, but several studies show that funds highly rated by Morningstar tend to underperform after receiving those ratings) (page 9);
  4. Entered into a tax receivable agreement with the other stockholders of Manning & Napier Group where they receive 85% of the tax savings Manning & Napier Inc (MN) may realise in case of future purchases or exchanges of Manning & Napier Group shares for MN Class A shares (page 26);
  5. Dividends of $0.16 per share per quarter in 2016 and 2015, for a total of $0.64 per year. This is a dividend rate of 15.8% over the current Class A share price of $4.05. Why then does the FT say that the dividend rate is 8%? Because, from the second quarter of 2017, the dividend was cut in half to $0.08 per quarter (Con 13) (page 30);
  6. $138.3 million in consolidated cash and investment securities at yearend 2016. MN’s share is 17.4% * $138.3 million = $24.1 million, 39% of its market capitalisation (page 33);
  7. Average separately managed account fee was 0.63%, and for mutual funds and investment trusts it was 0.77%, lower than the customary 1% to 1.5% other investment management companies and mutual funds charge (page 47 and 48);
  8. Acquired 75% of Rainier Investment Management, LLC on April 30, 2016 for an upfront cash payment of $13 million on the closing date, and additional cash payments of up to $32.5 million over a four year period, contingent upon Rainier’s achievement of certain annual financial targets. However, the recognised liability for this contingent consideration was only $3.5 million (page 76);
  9. The Class B shares will be cancelled and revert to authorised but unissued Class B shares when the first of these occurs: William Manning dies; his ownership of Manning & Napier Group becomes less than 25%; November 17, 2017 (page 87);
  10. In 2015 MN received a benefit of $3.2 million from the release of uncertain tax positions, making for a lower income tax provision (page 90) (see Con 21).


  1. 96 pages in the annual report for a company with a market cap of $61.7 million;
  2. Mention of strong absolute and relative returns in the first ten months of 2016 and deterioration of returns in the fourth quarter, but no specific numbers given in the letter to shareholders (page 3);
  3.  Mention of competitive track records for their income-oriented, defensive strategies but, again, no mention of specific numbers (page 3);
  4. The letter to shareholders reads more like a marketing script than an honest and open discussion with the shareholders about the company’s performance and long term objectives (for people who are used to reading the Berkshire Hathaway Shareholder Letters, this one is extremely poor) (opinion);
  5. Decreasing assets under management (AUM). Since a high of $50.8 billion AUM in 2013, it has steadily decreased to $31.7 billion at the end of 2016, a 38% drop (page 10);
  6. For the last one, three, five and ten year periods, almost all of their key strategies have lower returns than their respective benchmarks. Their clients would have done better if they had invested in index funds. I don’t think this company is worth the fees they charge (page 11);MN
  7. William Manning, the cofounder, chairman and CEO, owns 100% of Class B common stock, which has 50.2% of voting rights and no economic rights over Manning & Napier Inc. Public investors own 100% of Class A common stock, which has 49.8% of voting rights and 100% of economic rights over MN. MN, in turn, is the sole managing member of Manning & Napier Group, the holding company for the investment management businesses, but only owns 17.4% of it, while 82.6% is owned by current and former employee-owners through other holding companies. Because MN is the sole managing member, the company consolidates all financial statements, even though it only owns 17.4% of Manning & Napier Group. This means that the company is completely controlled by William Manning, and this makes me very uncomfortable. If it was Warren Buffett, I would be more than ok with this, but I don’t know his character, honesty or competence, and nothing I’ve read so far in the annual report impressed me positively. The employee-owners also receive most of the profit, while the public investors can only receive a small share of 17.4% (page 14 and 15);
  8. Cancellation notice from a retirement plan client that accounted for 7% of MN’s AUM as of 31 December 2016 (page 18);
  9. Manning & Napier Group is the sole source of revenue and William Manning indirectly owns 75% of it, and his interests may not be the same as other stockholders (page 24);
  10. Because MN is considered a ‘controlled company’ by the New York Stock Exchange (NYSE), they are allowed to opt out of certain corporate governance requirements concerning the composition of its boards with a majority of independent directors. Public stockholders may not have the same protections afforded to stockholders of other companies that must meet all the corporate governance requirements of the NYSE. William Manning controls the board and may elect or remove directors at will (page 25);
  11. Owners of Manning & Napier Group have the right to exchange their shares for cash or an aggregate of 65,784,571 MN Class A common shares, per terms of an exchange agreement entered into at the time of MN’s IPO. Right now there are only 14,982,880 Class A shares outstanding. If this were to happen, more MN Class A shares would be issued and MN might come under heavy selling pressure, causing the share price to plummet (page 28);
  12. There are several anti-takeover provisions (including the possibility of issuing preferred shares at will and without shareholder approval that may include rights superior to those of the Class A shareholders) in MN’s certificate of incorporation and bylaws. This may benefit the controlling shareholder, but nobody else (page 29);
  13. Dividend cut in half to $0.08 per quarter starting Q2 2017 (Pro 5);
  14. From December 31, 2011 to December 31, 2016, MN Class A shares cumulative total return was about -40%, compared to +78% for the S&P 500 (page 31);
  15. We finally get to some concrete financial data, in the form of the income statement, after 31 pages! Net income of $82.4 million, down from $117 million in 2015 and $123.7 million in 2014. The bulk of this was attributable to Manning & Napier Group’s noncontrolling interests (page 32);
  16. Net income attributable to MN was $9.3 million, $13.2 million and $9.3 million for the last three years; respectively 11.3%, 11.3% and 7.52% of total consolidated net income, and not 17.4% due to provisions for income taxes. Currently, MN is selling for a PE ratio of 6.6 ($61.7m/$9.3m) (page 32);
  17. 2016 net income per share was $0.63, less than the $0.64 MN paid in dividends. In fact, the company paid more in dividends than what it earned in four of the last five years. This is very poor money management (page 32);
  18. The company anticipates a continued decline in AUM in 2017, meaning lower  revenues and net income as well (page 34);
  19. Net cash provided by operating activities was $89.7 million, down from $127.7 million in 2015 and $174 million in 2014. This shows that the PCF ratio of 0.76 shown in the FT website is also incorrect, since it is attributing this amount fully to MN, and not Manning & Napier Group. The operating cashflow attributable to MN is 17.4% * $89.7 million = $15.6 million, which translates to a PCF ratio of almost 4. Then again, MN public shareholders are not getting 17.4% of the net profits, only 11.3%. 11.3% * $89.7 million = $10.1 million for a PCF ratio of 6.1 (page 54);
  20. All information about directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, director independence, etc, was referred to the proxy statement for the 2017 annual stockholders meeting. Shouldn’t an annual report have this? (page 58);
  21. MN’s provision for income taxes were 44.9%, 23.4% and 56.2% of income before income taxes in 2016, 2015 and 2014, respectively (page 78);
  22. As holder of the Class B shares, William Manning does not have any right to receive dividends or distributions if the company is dissolved, liquidated or sold (so he has no interest in doing any of these things). If he transfers any of these shares to anyone else, those will be automatically converted to Class A shares (page 87).


Yet another disappointment.

The main redeeming qualities this company has is that it’s still profitable, pays some dividends to its public shareholders, and has no debt.

Other than this, what I’ve read gives me a feeling of a company that: does not offer added value to its clients and is going downhill fast in terms of AUM, revenues and net income because of that; is controlled by one man intent on preserving that control and not in benefitting other shareholders; is not very open and forthcoming about its financial performance, directors or executive compensation; regularly paid more in dividends than what it earned in profits, managing its money very poorly, and just cut its dividend in half to compensate for this; has destroyed its value and shareholder wealth in recent years, and will probably continue to do so in the future.

With 22 cons and only 10 pros, this company goes straight to the ‘No’ tray (or the trash can, which would be more appropriate).

The Co-operators General Insurance Co

The first company from my first share screener that I will be looking at is ‘The Co-Operators General Insurance Co’, a Canadian insurance company with a market cap of CAD $94 million, a debt to capital ratio of less than 2%, a dividend yield of 5.32%, and a price to cashflow ratio (PCF) of less than 0.66 (selling for less than 1x cashflow!), according to the Financial Times share screener.

It provides Home, Auto, Farm and Commercial insurance through an agent network, and also distributes Life insurance and Wealth Management products for Co-Operators Life Insurance Company. Both are subsidiaries of ‘The Co-Operators Group Limited (organisational chart below), the holding company for The Co-Operators group of companies.2015_org_chartSource:

Annual reports for both the group holding company and ‘The Co-operators General Insurance Co’ (CGIC) are available on the above website, but since the quote CCS.PR.C refers only to preference shares of CGIC (which are traded in the Toronto Stock Exchange and have been selling between CAD $21.50 and CAD $24 for the last three years), I will only read the annual report for the latter. CGIC itself has three subsidiaries: Sovereign, Equitable, and COSECO.

2016 Annual Report


  1. Assets over CAD $5.8 billion (page 4);
  2. CGIC protects 766,000 homes, 1.2 million vehicles, 38,000 farms and 218,000 businesses (page 4);
  3. National market share of 4.9%, being one of the largest providers of property and casualty insurance in Canada (page 6);
  4. Shareholders’ equity of $1,578.9 million, a year-on-year (yoy) rise of 8.25% (page 8);
  5. Premium growth of 5.6% yoy (page 8);
  6. Net investment income and gains of $200.7 million, up from $144.8 million in 2015, due to stronger equity markets and a stronger Canadian dollar. This is a 5% return on total invested assets of $3,963.8 million (page 10);
  7. Operating cash flow of $238.36 million, up from $160.36 million in 2015 (page 41);
  8. The company offers a defined contribution pension plan, which is much better for the company than a defined benefit plan, since the company is not obligated to pay any further amounts (page 76).


  1. Annual report with 94 pages for a company with a market capitalisation of CAD $94 million (Berkshire has 124 pages and a market cap of USD $423.28 billion);
  2. Co-operative legal structure, which implies control of the company by its members, and a greater concern for them, instead of being shareholder oriented (page 7);
  3. Net income of $145.3 million in 2016, compared to $162.3 million in 2015 (page 8);
  4. All the common shares of CGIC are owned by ‘Co-operators Financial Services Limited’ (CFSL) and are not publicly traded (page 8);
  5. Earnings per share (EPS) of $6.33, compared to $7.17 in 2015, 12% decrease (page 8);
  6. Return on equity of 10.5%, down from 12.3% in 2015, and below the average North American company (page 8);
  7. Combined ratio of 101%, meaning an underwriting loss of $22.9 million (due to a devastating wildfire in Fort McMurray), compared to an underwriting gain of $60.9 million in 2015 (page 8);
  8. 58.1% of invested assets in bonds, 26.7% in stocks and 12% in mortgages (page 13);
  9. Equity structure has preference shares: $100 million in a public issue, and $74.6 million in private issues. Common shares have a face value of $48.1 million, contributed capital $10.1 million, retained earnings $1,218.5 million, and accumulated other comprehensive income $127.6 million. So the PCF ratio in the first paragraph is incorrect, since the FT screener is only taking into account these publicly available preference shares to make its calculations, when it is a very small part of the equity structure. It says that the market capitalization of the entire company is $94 million, when this only refers to the market value of the preference shares, which are selling at a 6% discount to face value (page 14);
  10. Preference dividends declared were $9.8 million in 2016, and $9.5 million in 2015. The increase is due to the issuance of additional privately placed preference shares. No common stock dividends were paid in 2016, but in 2015 the company paid out $169.5 million to CFSL. Preference shareholders only received their specified preference dividend rate (page 14);
  11. The publicly listed preference shares are Class E, Series C shares and there are 4 million shares issued trading under the symbol CCS.PR.C. Common share quantity is 21,458,185. There are several other privately placed preference share classes (page 15);
  12. Class E preference dividends have been $1.25 per share per year (5% on nominal value of $25) and did not grow in the last three years (page 15);
  13. The earnings per share are calculated correctly by dividing net income after preference dividends over the number of common shares. The PE ratio I get in the FT’s company profile is also incorrect since it’s being calculated with only the price of the public preference shares over EPS ($23.51/$6.33=3.71) (page 15);
  14. Decrease in cash to $26.6 million, down from $86.9 million in 2015, mainly due to an increase in cash used in investing activities (page 41);
  15. Class A, B and E preference shares rank equally, and in priority to all other classes of preference and common shares (meaning that any dividends must be paid first to these classes before any others). Class E, Series C (the publicly traded ones) have a non-cumulative dividend payable quarterly, if declared, for the amount of $0.3125 per share, to yield 5% per year. Right now the company can redeem these shares at any time for $25 per share. Unlike normal preferred stock, where the dividend is usually cumulative if not paid, and the shareholder can choose whether to redeem the shares or not, these preference shares do not possess these advantages. Might as well be common shares (page 79).


I was intrigued about the possibility of buying a company making CAD $145 million in profit and with $1,578.9 million in equity for only $94 million, since this was the market capitalisation showing in the FT’s website, but now know that this is just the market value of their Class E, Series C preference shares, the only publicly traded shares that CGIC has, which is a very small part of its equity structure ($100m / $1,578.9m = 6.33%). 6.33% of $145 million is $9.18 million. I would be paying $94 million to own $9.18 million in profit, a PE ratio of 10.24. Not so much of a bargain after all.

Besides the above, it’s safe to say the company is not shareholder oriented at all, since it has a co-operative legal structure, being owned by its members who nominate the board of directors. Its equity structure also shows this, with preference shares that are not much better than common shares, with limited non-cumulative dividends and no capital gains possible above the redemption value (not very nice to outside shareholders). With 22 directors for a $1.6 billion company, it also has some dead wood. The earnings are volatile (as with most insurance companies) and the return on equity is below average. I do not want to buy this company.

With 15 cons and only 8 pros, the ‘Co-operators General Insurance Co’ goes solidly into the ‘No’ tray.