Intact Financial Corp T.IFC.PR.E

RBC 2

[retiredcf]

Their upside scenario target is $222.00. GLTA

May 12, 2021

Intact Financial Corporation The Sound of Silence

Our View: We have a positive view on Q1/21 results, even excluding the bigger-than-normal benefit from prior year development. Absent a spike in catastrophe activity, we think 2021 results could remain strong (e.g., Personal Auto, given traffic remains below pre-pandemic levels. Cue Simon & Garfunkel) due to the slower pace of COVID-19 vaccinations and therefore the timing of the return to normal economic activity. Bigger picture, IFC is delivering positive fundamentals and has defensive attributes, yet trades at ~2.2x P/BV, which we believe is too low. Furthermore, we see potential further upside should IFC de-risk the RSA acquisition (e.g., divestitures, asset swap). We maintain our Outperform rating and 12-month price target of $190/share.

Key points:

Q1/21 operating EPS of $2.40 was well ahead of our forecast of $2.08 and consensus of $2.16 (consensus range of $1.84 to $2.61). The better-than- forecast EPS was largely driven by lower-than-forecast claims (combined ratio of 89.2% was much better than our 91.8% forecast) as a result of much better-than-forecast prior year development ($150MM vs. our $45MM forecast).

Q1/21 combined ratio was 89.2%, which was better than our 91.8% forecast and consensus of 91.4% (range of 89.8% to 93.5%). On a segmented basis, combined ratios were: (1) Personal Auto at 93.4% (vs. our forecast of 87.2% and consensus of 91.5%); (2) Personal Property at 77.4% (vs. our forecast of 85.8% and consensus of 85.9%); (3) Commercial Lines (Canada) at 90.1% (vs. our forecast of 97.6% and consensus of 94.4%); and (4) U.S. Commercial P&C at 96.3% (vs. our forecast of 101.7% and consensus of 94.2%).

Other key takeaways: (1) distribution income growth guidance for 2021 was increased to mid- to upper-teens; (2) On Side Restoration completed 2 acquisitions during the quarter (in Manitoba and Quebec); and (3) as previously announced, the RSA acquisition is expected to close on June 1, 2021, after the High Court of Justice in England and Wales in London formally approved the transaction.