Scottish Life SCOT
April 15, 2000 - 10:05am EST by
2000 2001
Price: 7.75 EPS 0.5
Shares Out. (in M): 16 P/E
Market Cap (in $M): 0 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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Scotish Life is an insurance holding company, investment pool that went public NOV 1998 at $15 per share. The company was formed to acquire pools of insurance at relatively high ROE's. Management was led by Michael French who came from Maverick Capital and Maverick was initially a large investor. The stock has declined by nearly 50% due to a lack of progress on investing the cash raised. Therefore they are earning cash like returns instead of 15% targeted on acquisitions.

The company has completed a few small acquisitions since the IPO and has bought back 13.5 percent of its stock, at an average of $10, which is below book value. They recently hired the Investment Banker from Prudential to become CEO. His mission is to either make acquisitions or realize the value in the assets by a liquidation or sale.

The company has invested 25% of its capital at targeted returns of 15%. The rest is invested in short duration fixed income vehicles at an average of 5-6%. This would produce earning power of $1.00. The company earned 50 cents in 1999. With further acquisitions in 2000 earnings could be $1.25. With a full portfolio invested at 15% the company would earn $2.00.

Valuation - With a very liquid near cash portfolio a sale at current book value would result in price appreciation to $14 a gain of 75%. If the company can get the rest of its capital invested by the end of '00, they could earn $1.25 in '00 and would have earning power of $2.00 in '01. At a multiple of 10X would result in a target of $20.00.

Selling at 57% of book, 8 times estimated 2000 earnings and a proven record of aggressive stock buybacks, SCOT would appear to offer minimal downside. A liquidation would offer a near 100% return. An ability to execute the game plan could offer 200% upside, a very attractive risk reward.


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