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Trades at significant discount (1.7x book value) to IFC (2.7x book value), as it's growing faster and increasing ROE faster. Sees it trading at 2x book within a year, giving it a $60 share price. Pullback is a great entry point. Yield is 1.49%.
Definity Financial (DFY TSX)
DFY is Canada’s seventh-largest property and casualty insurance company. Roughly 70 per cent of its policies are personal insurance (auto and property) and 30 per cent commercial. Roughly 60 per cent of its personal insurance is auto and it is looking to add more home and other types of insurance. DFY demutualized two years ago by listing on the S&P/TSX Composite Index and is still not well known compared to Intact Financial which is the number one player in Canada. DFY’s stock has pulled back recently after a strong run because overall results were a bit lower than expected. However, the key metrics like gross premium income were well ahead of last year, and the combined ratio was excellent as premium increases are more than covering rising costs from car theft and catastrophe losses. DFY recently received approval to continue under the CBCA, so it’s now allowed to leverage its balance sheet to make acquisitions and it can also itself be acquired starting next year. DFY is growing faster than Intact and can expand its return on equity to the mid-teens, yet trades at a significant discount to Intact at 1.7 times book value versus 2.7 times for Intact. Meanwhile, Swiss Reinsurance recently announced that it had acquired 10 per cent of DFY, so there may be a creeping takeover in the works. We see DFY’s multiple expanding to over two times BV and have a target price of $60+ one year out.
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