Spinoffs & Takeovers Earnings just rocketed 38.5% at Trisura Group
On June 22, 2017, Brookfield Asset Management Inc. (now Brookfield Corp.) spun off its specialty insurance business as Trisura Group.
Today this specialty insurer is a sterling example of why we love spinoffs and the power they have to outperform their competitors. We first recommended this firm on December 2017 at $27.00—just $6.75 when you adjust for a subsequent 4-1 share split.
This power growth stock is now up a whopping 392% for our subscribers.
TRISURA GROUP LTD. (Toronto symbol TSU; www.trisura.com) took its current form on June 22, 2017, when Brookfield Asset Management Inc. (now Brookfield Corp.) spun off its specialty insurance business as Trisura. Investors received one Trisura share for every 170 Brookfield shares they held.
The company provides specialty insurance and services not available through traditional insurers.
Claims under these policies are less frequent, but can be much higher.
Trisura cuts that risk with reinsurance contracts. The company uses that coverage, purchased from another insurance provider, to insulate itself (at least in part) from the risk of a major claims event.
Trisura has three main subsidiaries: Trisura Canada sells property and casualty insurance products in Canada; Trisura U.S. focuses on the U.S. market; and Trisura International, based in the Barbados, sells reinsurance products.
The company’s revenue rose strongly between 2018 and 2022 on a mix of increased business for its existing operations as well as its acquisition of smaller specialty insurers and brokerages. Revenue jumped 104.6%, from $219.0 million in 2018 to $448.3 million in 2019. Revenue then increased 106.7% in 2020, to $926.4 million, before climbing a further 68.7% in 2021, to $1.6 billion. In 2022, revenue then shot up 55.7%, to $2.4 billion.
Trisura’s earnings before one-time items also jumped over the five years—from $8.6 million, or $0.32 a share (adjusted for Trisura’s 4-for-1 share split in July 2021), in 2018 to $83.0 million, or $1.87 a share, in 2022.
In the quarter ended March 31, 2023, the company’s revenue jumped 58.3%, to $639.1 million from $403.7 million a year earlier. That gain was due to higher premiums written in both Canada and the U.S.
Earnings (excluding one-time items) rose by 38.5%, to $28.6 million, up from $20.7 million. Due to more shares outstanding, earnings per share improved 24.5%, to $0.61 from $0.49.
The combined ratio for Trisura’s Canadian business rose to 80.7% in the latest quarter from 77.2% a year earlier. (The ratio represents claims that the company paid out divided by the premiums it took in. The lower, the better).
The higher combined ratio was due mostly to higher expenses as the company’s business mix changes.
Growth Stocks: Modest Valuation And Visibility Suggest Even Higher Share Prices For Trisura Group
Trisura is also using acquisitions to fuel its growth. For example, it recently paid an undisclosed sum for the Canadian surety operations of Sovereign Insurance. In 2021, this business generated premiums of over $16 million.
Moreover, the company has no controlling shareholder, so its improving market share and relatively small market cap could make it a highly attractive takeover target for a larger financial-services firm. That’s not reason enough to buy, but it adds to the stock’s appeal.
While the stock has declined 31% since its recent peak of $47.90 in December 2022, it’s still up an impressive 511% since the 2017 spinoff. Our subscribers who bought the stock when we first recommended it in December 2017 at $27.00 (or $6.75 when you adjust for a subsequent 4-1 share split) have enjoyed a 392% gain! We think they can expect much more growth in the coming years.
Trisura’s outlook remains bright. That’s partly because of its acquisition of Sovereign Insurance’s Canadian surety operations (which guarantee specific tasks are completed). They should help lift Trisura’s earnings by about 12.8%, from $1.87 a share in 2022 to a forecast $2.11 for 2023. The stock trades at a reasonable 15.7 times the 2023 forecast.
And yet the stock gets little coverage. That illustrates the importance of the third part of our multi-prong approach to investing—to downplay stocks in the media/broker limelight. (The other two parts are to (1) invest in well-established companies; and (2) spread your money across most if not all of the five main economic sectors.)
We feel Trisura’s strong prospects could push the stock even higher and also encourage the company to start paying dividends. Its relatively small size could also turn it into an attractive takeover target for a larger industry player.
Recommendation in Spinoffs & Takeovers: Trisura Group Ltd. is a buy.