Multiple Raised Targets National Bank Financial analyst Jaeme Gloyn thinks the “messaging was strong” from Trisura Group Ltd. following the release of its results from the fourth quarter of 2023, which he thinks will “mark the trough” for its U.S. business.
“While an element of ‘see it to believe it’ will remain, we believe management provided enough context on the conference call to confirm a solid 2024 is in the making,” he said. “Combined with sustained strength in the Canadian business and no new risks emerging, we expect the shares will continue to tick higher in the near term.”
On Thursday after the bell, the Toronto-based insurance provider reported adjusted diluted earnings per share of 54 cents for the quarter, up 7 per cent year-over-year and 14 cents above Mr. Gloyn’s estimate.
“Trisura delivered a fronting operational ratio of 106 per cent in Q4-23, well above the run-rate target 80 per cent,” he said. “Management attributed the result to two nonrecurring items: i) increased conservatism in provisioning against reinsurance recoverable; and ii) finalizing programs that were non-renewed in 2021/2022 which generated losses in Q4-23. Management also highlighted a gross loss ratio (the loss ratio passed onto their reinsurance partners) of 65-70 per cent for the Q4 and full year 2022/2023. This gives management confidence that with the restructuring of the U.S. business in 2023 complete, the 2024 outlook will return to more normal profitability levels in line with target.
“Management highlighted the recent investments in their U.S. Surety and Corporate Insurance platforms. Following the integration of the Sovereign acquisition and investments in talent, infrastructure and broker relationships, management expects the U.S. businesses to grow to the size of their Canadian counterparts in the medium term. Canadian Fronting operations exceeded management’s expectations on growth and profitability. TSU noted there is significant demand for Canadian business from global reinsurance players. Positively, TSU has the infrastructure to meet this demand, and it sees a runway for high teens to low-20s growth in the near term.”
Citing its “strong” quarter in Canada, Mr. Gloyn raised his financial forecast for Trisura with his adjusted diluted earnings per share projection increasing to $2.75 in 2024 (from $2.63) and $3.29 in 2025 (from $3.20).
Maintaining an “outperform” recommendation, he bumped his target for the company’s shares to $65 from $64. The average target is $52.57.
“Our Street-high $65 price target (was $64) is based on an unchanged 20 times P/E multiple on our 2025 estimate, in line with specialty insurance peers that traded at 21 times,” said Mr. Gloyn. “Trading at 14 times P/E suggests significant upside.”
Others making changes include:
* RBC’s Scott Heleniak to $44 from $40 with an “outperform” rating.
“Trisura’s Q4 results were led by the Canadian unit, which continues to perform well both from a top and bottom-line standpoint,” said Mr. Heleniak. “The U.S. segment reported some deceleration in premium growth while profitability was impacted by a few notable items. Potential impacts from the large program put into runoff a year ago are largely over. We think the growth outlook for Trisura remains healthy across their businesses in 2024. Investment income remains a significant earnings driver. Capital and debt ratios remain well above required ranges.”
* CIBC’s Nik Priebe to $55 from $50 with an “outperformer” rating.
* Cormark Securities’ Jeff Fenwick to $52 from $51 with a “buy” rating.
* Raymond James’ Stephen Boland to $64 from $54 with an “outperform” rating.
* BMO’s Tom MacKinnon to $52 from $49 with an “outperform” rating.