CIBCEQUITY RESEARCH
May 11, 2023 Earnings Update
INTACT FINANCIAL CORP.
A Premium Worth Paying
Our Conclusion
Q1 results were solid and the company has maintained a positive outlook for
the remainder of 2023. Our revised EPS estimates imply growth of 9% in
2023 and 8% in 2024. Given a challenging macro backdrop, we think this will
be among the best out of the companies we cover. The stock is trading at a
premium valuation but considering the growth and defensive characteristics
of the business, we think it’s a premium worth paying. We maintain our
Outperformer rating and $225 price target.
Key Points
2023 EPS estimate increases. Our 2023E operating EPS increases from
$12.76 to $13.00 on higher investment income, based on revised guidance.
Expectations for investment income increases again. Investment income
increased 44% Y/Y, and management increased full-year guidance from
$1.1B to $1.2B. We have increased our forecast accordingly.
UK&I personal lines remain a sore spot. The combined ratio in UK&I
personal lines of 107.3% was worse than we would have expected following
the jettison of the U.K. motor business. There was noise to the quarter and
management is targeting high 90s for the full year, improving to mid-90s in
2024. Commercial lines in UK&I on the other hand are performing well with a
CR of 88% and premium growth of 3%. We have to give it more time, but we
increasingly think that U.K. home insurance will eventually be sold.
Personal auto on track with management guidance. The combined ratio
(CR) of 97.1% includes about three points of negative seasonality.
Management noted that written premium rates are increasing at ~9%, while
earned rates are growing at ~6%. Claims inflation was 9% in Q1 and is
expected to slow. That means earned rates should surpass claims inflation
around mid-2023. Management remains confident it can run the business at
a sub-95% CR, and we assume roughly 94.5% in each 2023 and 2024.
Commercial lines in all geographies are performing very well. Intact is
printing very strong margins across its commercial lines of business. In
Canada, the CR was 90.8% this quarter and in the U.S. the CR hit 89.1%.
The U.S. business is also contributing double-digit premium growth, and we
expect Intact will look at more ways to grow this business.
Positive growth outlook. Management expects firm-to-hard market
conditions to persist across most lines of business over the next 12 months.
This includes personal property and commercial lines. We are forecasting
premium growth of 5% in both 2023 and 2024.
Valuations are near the top end of the historical range. Intact is trading at
2.5x P/BV versus a 10-year average of 2.4x, and 15.3x P/E (NTM
consensus) versus a 10-year average of 14.7x.