Triple-S Management: Selling Below Book Value

Triple-S Management Corporation (GTS), is a leading insurance holding company in Puerto Rico. The company offers a wide range of insurance products and services throughout Puerto Rico. It was founded in 1959, as has grown to become the largest medical insurance provider in Puerto Rico. The company was a major player in the Puerto Rico Health Reform program, to provide free to low cost medical coverage to the impoverished citizens in Puerto Rico.

Company History & Operations

The company was founded in 1959 by a group of physicians and dentist who organized a free-choice health plan for people in Puerto Rico. Triple-S management grew steadily of the over about two decades unit 1979 when its was given a income tax exemption which lead to rapid growth over the course of 20 years until its income tax exemption was terminated in 2002. Major Historic Events:

• In 1961 the company service 100,000 members in Puerto Rico
• In 1965 the company became the exclusive license affiliate of Blue Cross and Blue Shield in Puerto Rico
• In 1984 the Company entered the life insurance business
• In 1985 the company expanded its business into the property and casualty insurance market
• In 1995 the company was a major player in the Health Reform Program and formed Triple-C to be a third party administrator for the company
• In 1999 the company went through a restructuring creating a holding company above its subsidiaries
• In 2005 the company came the leader in the life insurance market in Puerto Rico
• In 2009 the company celebrated it 50 years in business.

List of the company subsidiaries:

• Triple-S - Is the company's main subsidiary and is dedicated to providing medical insurance to companies, organizations, governments, and individuals
• Seguros Triple-S - Is a property and casualty insurance provider in Puerto Rico
• Seguros de Vida Triple-S - Is a life and disability insurance and annuity product provider
• GA Life Puerto Rico - Is a life insurance company currently being merger with Seguros de Vida
• Triple-C - Is a third party administrator for Triple-S
• Interactive System - Provides processing services to the company and other subsidaries

Finances

Balance Sheet

2013 31/12	2012 31/12	2011 31/12	2010 31/12
Total Current Assets	-	-	-	-
Total Assets	2044.6	2059.34	1880.58	1759.37
Cash - - - - Cash & Equivalents 74.36 89.56 71.83 45.02 Total Receivables, Net - - - - Prepaid Expenses - - - - Property/Plant/Equipment, Total - Net 89.09 92.42 81.87 76.75 Property/Plant/Equipment, Total - Gross - 194.84 174.15 156.97 Accumulated Depreciation, Total - -102.41 -92.28 -80.23 Goodwill, Net - 27.77 25.4 0.43 Intangibles, Net - - - - Long Term Investments 1308.65 1274.48 1146.99 1094.81 Insurance Receivables 270.75 292.2 287.18 325.78 Note Receivable - Long Term - - - - Other Long Term Assets, Total - 33.55 28.71 29.45 Deferred Policy Acquisition Costs 177.29 168.66 155.79 146.09 Other Assets, Total 124.47 80.71 82.81 41.06
Total Current Liabilities	-	-	-	-
Total Liabilities	1260.86	1297.44	1203.62	1142.1
Accounts Payable - - - - Payable/Accrued - - - - Accrued Expenses - - - - Policy Liabilities 935.53 901.04 816.98 745.01 Notes Payable/Short Term Debt - 30 - 15.57 Current Port. of LT Debt/Capital Leases - - - - Other Current liabilities, Total 236.2 128.58 151.05 136.57 Total Long Term Debt 89.3 101.27 114.39 166.03 Long Term Debt 89.3 101.27 114.39 166.03 Capital Lease Obligations - - - - Total Debt 89.3 131.27 114.39 181.6 Deferred Income Tax - 32.93 24.6 12.65 Minority Interest -0.18 0.24 - - Other Liabilities, Total - 103.37 96.6 66.26
Total Equity	783.74	761.91	676.96	617.27
Redeemable Preferred Stock, Total - - - - Preferred Stock - Non Redeemable, Net - - - - Common Stock, Total 27.47 28.36 28.36 28.82 Additional Paid-In Capital - 144.68 144.3 155.3 Retained Earnings (Accumulated Deficit) - 539.76 485.73 427.69 Treasury Stock - Common - - - - ESOP Debt Guarantee - - - - Unrealized Gain (Loss) - 102.52 68.14 - Other Equity, Total 756.27 -53.41 -49.57 5.46
Total Liabilities & Shareholders' Equity	2044.6	2059.34	1880.58	1759.37
Total Common Shares Outstanding	27.47	28.36	28.36	28.82
Total Preferred Shares Outstanding	-	-	-	-

For fiscal year 2013, the revenues decreased 2% to $2.38 billion and net income increased less then 1% to $54.3 million. The company revenues reflect the increased in Medicare Expenses and operating expenses increased 12% to $477.4 million. Triple-S has a 5 years EPS growth of about 20.4% and a 5 year sales growth of 6.55%.

Valuation

The company is undervalued an trades at 8.5 times its earnings and also trades at 0.54 times its book value. Other leading insurance companies trade above book value, and rightfully so because there return on assets are above 1.00 and deserve to trade at a premium to. Triple-S has return on assets of 2.64% well above the average for insurance holding company, and it should at least trade at book value and above it. The company has an average ten years earnings of $2.00 and if it trade at 12 times its average ten year earnings it share price would be $24.00. If the company share traded at book value its would trade at $28.53 per share.

Ten Years Earnings

12/12	1.90
12/11	2.01
12/10	2.28
12/09	2.33
12/08	0.77
12/07	2.15
12/06	2.04
12/05	1.06
12/04	1.71
12/03	0.95

Compared Valuation of Leading Insurance Holding Companies

Triple-S Management Corporation (GTS)	P/E of 8.5	P/B of 0.54	Return on Assets of 2.64%
Berkshire Hathaway (BRK.A)	P/E of 15.54	P/B of 1.61	Return on Assets of 4.31%
Markel Corporation (MKL)	P/E of 30.34	P/B of 1.21	Return on Assets of 1.89%
FairFax Financial (FFH)	P/E of 22.38	P/B of 1.26	Return on Assets of 3.8%

Based on the compared valuation with leading insurance holding companies show that Triple-S is undervalued and should trade at a higher multiple. If the company traded at the same P/E as Berkshire Hathaway its share price would be $30.00 per share. I give a share price value range of $24.00 to $30.00 per share for the company.