Earnings Preview (CIBC)EQUITY RESEARCH
January 26, 2023 Earnings Update
INTACT FINANCIAL CORP.
Q4 Preview: Looking For A Solid Result Despite Weather-driven
Losses
Our Conclusion
We continue to like Intact for 2023E Operating EPS growth of >10% (vs. low
single digits with the banks), low sensitivity to economic risks and solid
capital position (vs. an expected build in capital for most banks). We expect
management will continue to successfully navigate personal auto claims
inflation. Valuation multiples are above historical averages but reasonable
considering the macro backdrop. We maintain our $225 price target and
Outperformer rating.
Key Points
Updating EPS Estimates: Our Q4/22E EPS is revised slightly lower, from
$2.92 to $2.87 as a result of the updated cat loss estimate ($143MM vs. our
prior est. of $128MM), partially offset by higher bond yields and FX impacts
for the quarter. We have also made a number of model adjustments (positive
and negative) for 2023E and 2024E with the net result being a decline in
EPS of roughly 1% for each year. Our revised EPS estimates still correspond
to an Operating ROE >15% each year and remain above consensus.
Personal Auto Remains The Focal Point: The questions we hear from
investors continue to centre on potential downside risk from personal auto
cost inflation. We remain aligned with management guidance, which embeds
conservatism in reserves for prior claims, an acceleration in premium rate
increases, and claims management actions to mitigate cost pressures. We
forecast a Q4 combined ratio (CR) of 96.7%, above the sub-95% guidance
based on seasonality. We forecast a combined ratio of 93.4% for 2023.
A Weaker Quarter For UK&I: Driving the CR for the UK&I segment towards
the low 90s is an important part of the narrative (keep or sell) and a source of
EPS growth (approx. 1% improvement in segmented CR = 1% EPS).
However, we are expecting an elevated CR this quarter due to disclosed
weather-related losses and weak results from some local comps. Our CR
assumption for Q4 is 99%, up 6% Y/Y. For 2023 we forecast a CR of 93%,
which assumes execution on profit improvement objectives.
Can Organic Premium Growth Re-accelerate?: Organic premium growth
fell to 2% last quarter, versus our expectation of 4%. We expect to see better
rate momentum in personal auto and personal property in the coming 12
months given claims trends. However, growth in commercial, including
specialty, appears to be decelerating. We assume organic premium growth
of 4% next year and will look for confirmation of that assumption.
Valuation: 2.5x P/BV versus a ten-year trailing average of 2.3x. The current
forward P/E ratio of 15.3x is also above the ten-year trailing average of 14.5x.
Intact is scheduled to report on February 7 after market close with a
conference call the following day at 11 a.m. ET (1-888-664-6392).