Breakout StockFrom Monday. GLTA
On today’s TSX Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 10 securities are on the negative breakouts list (stocks with negative price momentum).
As we close out the first month of the fourth quarter, the S&P/TSX composite index has staged a strong rally with a gain of 5.6 per cent. Importantly, 10 of the 11 sectors are in the green. The lone sector with a loss is utilities, which is down 2.3 per cent for the month.
Discussed today is a stock that has been staging an impressive rally in recent weeks – Trisura Group Ltd. (TSU-T). Month-to-date, the share price is up 17 per cent, making it the top performing stock in the S&P/TSX financials (sector) index. The stock may soon surface on the positive breakouts list with the company set to report its third-quarter earnings results later this week. For the past 10 out of 12 quarters, the share price has increased by 3 per cent or more the day after the company’s quarterly financial results were released.
The stock has a unanimous buy-equivalent recommendation from seven analysts covering it with a forecast average 12-month return of 42 per cent.
A brief outline on Trisura is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based Trisura is a specialty insurance provider with operations in Canada and the United States.
In terms of its geographic gross premiums written breakdown in the first half of 2022, 70 per cent stemmed from the U.S. and 30 per cent came from Canada.
Investment thesis
- Attractive growth profile. Gross premiums written came in at $448-million in 2019, $926-million in 2020 and $1.56-billion in 2021. The company reported earnings per share of 17 cents in 2019, 82 cents in 2020 and $1.49 in 2021. The Street is forecasting earnings per share of $1.71 in 2022 rising 23 per cent to $2.11 in 2023.
- Recent financing to fund continued growth. In July, the company completed a bought deal financing raising approximately $150 million. On the second quarter earnings call, president and chief executive officer David Clare said, “We do not take the prospect of raising equity lightly and look forward to deploying our new capital efficiently on your behalf.”
- Reasonable valuation.
- Senior management ownership stands at approximately 6 per cent of the shares outstanding.
Quarterly earnings and outlook
After the market closed on Aug. 4, the company reported better-than-expected second-quarter financial results.
Adjusted earnings per share came in at 46 cents, above the consensus estimate of 39 cents per share and up 31 per cent year-over-year. Gross premiums written (premiums earned through sales of insurance) came in at $642-million, up 77 per cent year-over-year. In Canada, the combined ratio (loss ratio plus the expense ratio hence a lower combined ratio is attractive) was 81 per cent, and in the U.S., the fronting operational ratio was 82 per cent (management’s longer-term target for its fronting operational ratio is around the mid-70 per cent level).
At quarter-end, book value per share stood at $8.62, up 7 per cent year-over-year but down slightly from $8.66 reported last quarter. Return on equity climbed to 19.2 per cent.
The following day, the share price rallied 4 per cent on high volume with over 292,000 shares traded, which is above the three-month historical daily average trading volume of approximately 129,000 shares.
The company will be releasing its third-quarter financial results after the market closes on Nov. 3. According to Bloomberg, the Street is anticipating earnings per share of 36.5 cents.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
All seven analysts that cover the stock have buy-equivalent recommendations.
The firms that provide research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, National Bank Financial, Raymond James, Scotiabank and TD Securities.
Revised recommendations
In October, three analysts revised their target prices.
- BMO’s Tom MacKinnon to $52 from $54
- Scotiabank’s Phil Hardie to $55 from $49.
- TD’s Marcel McLean to $53 from $55.
Financial forecasts
According to Bloomberg, the consensus earnings per share estimates are $1.71 in fiscal 2022 and $2.22 in 2023.
Earnings estimates have moderated in response to the recent equity raise. Five months ago, the Street was forecasting earnings per share of $1.78 in 2022 and $2.18 in 2023.
In July, the company completed a financing issuing 4,512,000 shares at a price per share of $33.25, increasing the number of shares outstanding.
Valuation
According to Bloomberg, the stock is trading at price-to-earnings (P/E) multiple of 18.6 times the 2023 consensus estimate. This valuation is above the stock’s historical average P/E multiple of 17 times but below its peak multiple of nearly 28 times.
The average 12-month target price is $55.71, implying the stock has 42 per cent upside potential over the next year. Individual target prices are: $52 (from BMO’s Tom MacKinnon), $53, three at $55, $58 and $62 (from National Bank’s Jaeme Gloyn).
Insider transaction activity
Over the past three months, there has not been any trading activity in the public market reported by insiders.
Chart watch
Year-to-date, the share price is down 18 per cent; however, the stock has staged a strong rally in recent weeks. Month-to-date, the share price is up 17 per cent, making it the top performing stock in the S&P/TSX financials (sector) index.
Looking at key technical resistance and support levels, the share price is approaching a ceiling of resistance between $40 and $41.50. After that, there is technical resistance around $50, near its record closing high of $48.85 set in Aug. 2021. Looking at the downside, there is strong technical support around $35, close to its 50-day moving average (at $34.94) and 200-day moving average (at $35.41).
ESG Risk Rating
According to risk provider Sustainalytics, Trisura has an ESG (environmental, social and governance) risk score of risk score of 29.5 as of Oct. 15, 2021. A risk score of between 20 and 30 reflects a ‘medium risk’ rating.