Leon Cooperman

Leon Cooperman from Omega Advisors expressed concern about Fidelis Insurance Group's market undervaluation, highlighting its strong returns on book value (15-18%), significant book value growth, and low P/E ratio compared to the S&P and industry peers, questioning if the company's story is not being effectively communicated.

Answer

Group CEO Dan Burrows agreed with the assessment of undervaluation, emphasizing Fidelis' 57% book value growth since inception (15% in the last year including dividends) and exceptional combined ratio. He noted actions taken to address market concerns, including resolving Russia-Ukraine exposures, managing liquidity overhang, and expanding partnerships, asserting that consistent strong performance and clear communication should lead to a higher valuation.

Leon Cooperman expressed his view that Fidelis Insurance Group's stock is significantly undervalued given its strong return on book value (15%-18%), high earnings multiple compared to the S&P 500, and potential for substantial book value and earnings per share growth, questioning if the company is effectively communicating its story to the market.

Answer

Group CEO Dan Burrows agreed with the assessment of undervaluation, highlighting the 57% book value growth since inception (higher with dividends), strong ROAE, and exceptional combined ratio. He noted that the company has addressed market concerns regarding structure, Russia-Ukraine exposure, and liquidity overhang (e.g., ADIA exit, share repurchases), and is actively diversifying partnerships. He affirmed the company's commitment to consistent performance and proactive communication to ensure the valuation reflects its status as a capital allocator.

Leon Cooperman congratulated Fidelis on its results but expressed confusion regarding the company's significant valuation discount compared to primary insurance carriers and reinsurance peers, despite superior profitability. He also questioned the sustainability of the current high return on equity (ROE) relative to previous targets and compared the attractiveness of stock repurchases versus new business growth.

Answer

CEO Dan Burrows agreed that Fidelis is undervalued, attributing it to the need for consistent strong underwriting results quarter-on-quarter and effective capital management. He stated that while the 21.4% ROAE demonstrates the strength of the underlying portfolio, the company's financial metrics are stated as 'through the cycle.' Burrows affirmed that if Fidelis continues to deliver strong quarterly results, the current earnings run rate is where they are heading. He emphasized that the company's makeup is efficient, allowing it to select the best underwriting opportunities. CFO Allan Decleir highlighted the value added by the share buyback program since 2024, contributing to book value per share, and confirmed continued commitment to both growth and buybacks.

Leon Cooperman reiterated his confusion about Fidelis Insurance Group's valuation, questioning if the company's makeup discourages M&A interest despite its low multiple in a consolidating industry. He also asked about the relative attractiveness of stock repurchases versus investing in new business growth.

Answer

CEO Dan Burrows stated that Fidelis's makeup is not inherently different and is, in fact, more efficient, allowing it to select the best underwriting opportunities. He emphasized that the company's focus remains on executing its current strategy, delivering consistent strong quarters, and building long-term shareholder value, while monitoring M&A developments. Dan also affirmed that management believes the company is undervalued, and consistent strong results, good capital management, and increasing book value will eventually lead to a higher valuation. CFO Allan Decleir highlighted the value added by the buyback program, noting 83 cents added to book value per share since inception in 2024, and confirmed remaining capacity for repurchases, balancing growth with capital returns.

Leon Cooperman of Omega Advisors asked for management's perspective on why Fidelis's stock trades at a discount to its peers despite strong performance, questioning if the corporate structure was a factor, and whether a 15% ROE is a reasonable expectation.

Answer

CEO Dan Burrows agreed the stock is undervalued and sees the current price as an opportunity for accretive share buybacks. He affirmed the company's structure is working as intended, with strong underlying results ex-Russia/Ukraine. Burrows expressed confidence in delivering on their through-the-cycle targets, including a potential 15% ROE, contingent on second-half catastrophe activity.

Leon Cooperman asked why Fidelis's stock trades at a discount to book value despite its 13-16% ROE target, a return level for which peers trade at a premium. He also questioned if the company would fully utilize its remaining share repurchase authorization given the current stock price.

Answer

CEO Dan Burrows agreed the stock is undervalued, attributing the discount to the relative newness of the company's public structure and the need to build a longer track record with investors. An unnamed executive confirmed that share repurchases are considered a highly accretive use of capital at current prices and that the company will continue to balance deploying capital for profitable underwriting with opportunistic buybacks.

Leon Cooperman asserted that the stock appears significantly mispriced based on its price-to-book and normalized earnings potential relative to its ROE targets. He asked about the company's excess capital and its willingness to fully utilize its share repurchase authorization.

Answer

CEO Dan Burrows agreed that the company is undervalued and expressed confidence in its through-the-cycle ROE target of 13-15%. While declining to quantify excess capital, he affirmed that Fidelis has a strong capital position to both fund growth and execute on capital management initiatives, including the accretive share repurchase program.

Leon Cooperman asked about the relative attractiveness of stock repurchases versus writing more business, the anticipated top-line growth for 2025, the current amount of excess capital, and the end-of-quarter fully diluted share count. He also commented on the stock's valuation.

Answer

CEO Dan Burrows stated the first priority is profitable underwriting growth, but excess capital is used for accretive share buybacks, agreeing the stock is undervalued. He declined to give a 2025 growth forecast but reiterated targets for the combined ratio and ROE. He did not disclose the amount of excess capital. CFO Allan Decleir provided the specific end-of-quarter share count of 111,726,363.

Leon Cooperman questioned the rationale for expecting lower interest rates, asked for the quarter-end book value, and inquired about the company's current stance on executing its share buyback authorization.

Answer

President and CEO Ivan Kaufman clarified his comments were about how different rate environments impact the business, not a prediction, noting a recent rate dip significantly boosted their pipeline. Executive Paul Elenio stated the book value was $11.98 per share. Kaufman confirmed that while liquidity is a priority, they would evaluate buybacks if it represents a good return on investment.

Leon Cooperman asked about management's confidence in the stated book value, their willingness to repurchase stock if it falls below book value, and the expected recurring return on equity in a normal environment.

Answer

President and CEO Ivan Kaufman expressed strong confidence in the book value, citing a successful track record of managing distressed loans with appropriate reserves. He indicated that the focus for capital is on funding growth in the SFR, construction, and bridge lending businesses, which offer mid-teens returns. However, he suggested he and management would likely be active buyers if the stock price dropped significantly. Executive Paul Elenio estimated a realistic ROE of 10-12% based on current guidance, down from 14% in 2024.

Asked for clarification on the 2025 EBITDA forecast, future earnings potential, CapEx, and free cash flow. Also inquired about the behavior of a major shareholder, Alberto Arias, and the projected year-end debt.

Answer

The company confirmed the EBITDA forecast is around $130 million for 2025 and will be steady into 2026 as production stabilizes. CapEx will be high (~$75M) for the next two years for development. They declined to speculate on the shareholder's motives but confirmed he has been selling shares. Year-end debt is projected to be around $85 million.

Leon Cooperman asked for clarification on the 2025 EBITDA forecast, questioning if it was $100 million or the previously mentioned $130 million. He also inquired about the company's earnings potential in subsequent years, the projected capital expenditures, and the projected year-end debt. Additionally, he questioned the motives behind shareholder Alberto Arias's consistent selling of shares.

Answer

CEO Ernesto Balarezo Valdéz confirmed the 2025 EBITDA projection is approximately $130 million. He stated that production and EBITDA would likely remain steady for the next two years, assuming stable metal prices. Mr. Balarezo noted that CapEx will be high at around $75 million for the next two years for mine development before decreasing. He declined to speculate on Alberto Arias's motives. CFO Jean Pierre Del Rio later added that projected year-end debt is expected to be around $85 million.