Have a $60.00 target. GLTA
TRISURA GROUP LTD. 2024 Investor Day Highlights
Our Take
Trisura hosted its second annual Investor Day. Longer-term targets were
reiterated, but there was a heavy focus on growth initiatives and the
messaging was generally positive/optimistic. Overall we came away feeling a
little more confident about the growth prospects and fundamental
performance of the business. More recently, Trisura’s share price has
declined ~10% after reporting Q1 results (likely due to some profit-taking).
The stock now trades at 14x P/E (based on the rolling NTM consensus EPS
estimate), and we believe that recent trimming offers an attractive entry point
for a high-quality compounder on the smaller-cap end of the spectrum (a
view that was only further reinforced after today’s presentation).
Key Takeaways
Longer-term growth targets were reiterated: Trisura reiterated it’s longer-
term goals from the inaugural Investor Day last year. The company aims to
achieve mid- to high-teens revenue and BVPS growth, as well as ROE.
Trisura is also targeting $1 billion in book value by the end of 2027.
Focus on Surety: The U.S. Surety team produced $25 million in insurance
revenue in 2023, representing approximately 18% of total Surety revenue.
Trisura noted that the U.S. market is 13x the size of the Canadian market,
which underscores the opportunity. Loss ratios and the general economics of
U.S. Surety should be comparable to the Canadian business over time.
Management highlighted that U.S. Surety benefits from the secular theme of
heavy infrastructure spending, which helped underpin the decision to launch
a new platform. Terry Michalakos (the new head of the North American
Surety practice) joined the fireside chat and discussed the longer-term
strategy. He noted that Trisura only needs to “scratch the surface” and
capture a small proportion of the market for it to really move the needle.
U.S. fronting growth should reaccelerate: Trisura reiterated that it expects
U.S. top line growth to reaccelerate back towards the mid-teens range. The
pipeline is shaping up well, and reinsurance capacity is coming back to the
market. The U.S. entity is seeing more submissions, and of better quality. It
was also stressed that the fronting platform doesn’t really have any material
exposure to pre-pandemic accident year reserves (which are developing
unfavourably in certain casualty lines) because it simply wasn’t in the market
at that time. Management expects 2024 to be one of the worst catastrophe
years in a long time, but is very comfortable with its ability to navigate the
Atlantic hurricane season given its limited exposure.
Investor presentation was recently updated: Last week, Trisura updated
its investor presentation. One item that stood out was that only 12% of
reinsurance recoverables were with unrated reinsurers (down from the high
teens in recent years). Total U.S. captive exposure has also been driven
down to $6 million, which is virtually nil. In our view, lower exposure to
unrated reinsurers implies less counterparty risk in the U.S. fronting model.