Trisura Group Ltd.
(TSU-T) C$35.24
Q2/23: Strong Underlying Results and U.S. Surety Acquisition Event
Trisura reported operating EPS of $0.56 vs. our estimate and consensus of $0.50 (prior to releasing preliminary results of $0.53-$0.56). Note that operating EPS excludes gains/losses on the run-off U.S. program ($5.3mm after-tax gain this quarter). Reported EPS was $0.57/share. The EPS beat was spread across multiple line items, including much stronger-than-expected underwriting revenue, higher investment income, and a lower-than-expected loss ratio. Operating ROE (TTM) was strong at 19.2%.
Impact: POSITIVE
Alongside the earnings release, TSU announced a U.S. Surety acquisition of a Treasury-listed platform that is expected to expand distribution relationships and enhance TSU's offering for its recently launched U.S. Surety business. Recall, TSU executed a Surety acquisition in Canada last year and is a major player in the Canadian Surety market.
Despite the stock being up almost 20% in the past few months, Trisura's share price remains ~20% below where the stock was trading in early-February 2023. We believe this reflects a cohort of investors taking the wait-and-see approach with regard to the run-off program, providing an attractive entry point to a company with a strong growth profile and high profitability. As the company continues to execute against its long-term strategy, we expect the stock to gradually re-rate higher.
Gross premiums written (GPW) of $802mm were up 21% q/q and 25% y/y and were well above our forecast of $729mm, mostly driven by higher-than-expected premiums in the U.S. and strong growth in Canadian fronting and Surety. Additionally, investment income continues to provide an earnings tailwind on the back of higher rates and business growth.
TD Investment Conclusion
We believe Trisura demonstrates a strong growth profile and ROE. We continue to like the company based on our view of its 1) relative underlying earnings and price stability as a P&C insurer; 2) rapidly growing earnings profile, especially in the U.S. (early days of launching into admitted market, Surety, and Corporate Insurance in the U.S.); and 3) relative valuation compared with peers (KNSL, PLMR, and RLI are trading at higher multiples). The company has achieved impressive growth over the past 3-5 years, which we believe supports our outlook of the earnings trajectory in 2023 and beyond.