National BankLooking for close to a double. GLTA
Trisura Group Ltd.’s “solid” third-quarter results demonstrated “underlying strength and momentum in the business,” according to National Bank Financial analyst Jaeme Gloyn.
On Nov. 2, the Toronto-based specialty insurance provider reported operating diluted earnings per share of 67 cents, up almost 48 per cent year-over-year and at the upper end of the management’s pre-released range (64-68 cents). It also topped the Street’s expectation of 54 cents and Mr. Gloyn’s 64-cent estimate, which he attributed to “strong growth and profitability metrics in Canada, and continue solid growth and operating profitability in the U.S. fronting business.”
“Management highlighted the strength in U.S Fronting business where insurance revenue grew 34 per cent year-over-year,” he added. “Growth in U.S. fronting was supported favourable pricing trends and growth in admitted lines. Hard market conditions remain a tailwind; however, management expects markets to balance slightly in 2024. While fronting fees as a percentage of ceded premium declined in recent quarters due to the purchase of reinsurance, management expects the fee rate to trend back toward the 5-per-cent range in 2024.
“TSU’s Canadian business saw 30-per-cent increase in insurance revenue with a below 80 per cent combined ratio on solid performance in Surety and Corporate Insurance loss ratios. Management highlighted the success of the Sovereign surety book acquisition and the initial launch into U.S. Surety (that doesn’t yet have a Treasury Listing to attack the large government contract surety market) in driving strong growth.”
Mr. GloYn said the increase in investment income, up almost 200 per cent year-over-year, was “a key factor in the strong quarter” with management noting its portfolio is “more conservatively positioned than ever before allowing for enhanced risk-adjusted yields.”
“This allows TSU to allocate to longer duration bonds,” the analyst said. “We would view this decision as a positive, locking in rates for years to come.”
After raising his 2023 and 2024 EPS projections to $2.27 and $2.60, respectively, from $2.19 and $2.53, Mr. Gloyn increased his Street-high target for Trisura shares to $62 from $60, reiterating an “outperform” recommendation. The average is currently $52.67.
“Trading at approximately 14 times P/E suggests significant upside to peers,” he said.