After its fourth-quarter results blew past expectations, National Bank Financial analyst Jaeme Gloyn says Intact Financial Corp.’s execution is “on point” and sees a re-rating as “imminent.”
The Toronto-based firm reported operating earnings per share of $3.78, topping the consensus forecast on the Street of $2.58 by 47 per cent as well as Mr. Gloyn’s $2.37 estimate.
“IFC’s strong execution continued with another massive operating EPS beat following outperformance of 64 per cent, 37 per cent and 11 per cent in Q3, Q2 and Q1 2021, respectively,” he said. “Strong underwriting profit of $600-million that beat the street at $398-million (NBF $339-million) and investment income of $220-million (street at $192-million) drove the EPS strength. [Last 12 month] operating ROE [return on equity] of 17.8 per cent exceeded our 15.4-per-cent forecast (street 15.5 per cent) and clearly well above our mid-teens OROE expectations. BVPS of $82.34 increased 2 per cent quarter-over-quarter (NBF $80.68 and street $80.90). IFC increased the quarterly dividend $0.09 per share (or 10 per cent) to $1.00 per share (34-per-cent payout ratio on our revised 2022 EPS).”
Mr. Gloyn said the integration of RSA Insurance Group PLC is “unfolding nicely,” pointing to earnings per share accretion and “solid” performance in the U&K and Ireland.
With every segment exceeding his expectations, he raised his target for Intact shares to $225 from $219, keeping an “outperform” recommendation. The average target is $205.92.
“We believe the P&C insurance industry is well-positioned for 2022,” he said. “As it relates to IFC, we believe the next leg of share price appreciation is contingent on proof of execution. Q4-21 results continue to demonstrate management’s strong execution overall (with outperformance in all lines), and in particular, i) the integration of the RSA acquisition (16-per-cent operating EPS accretion in Q4-21), and ii) strong Personal Auto results (helped by frequency still below pre-pandemic levels and stable claims severity).
“We reiterate our view IFC merits a premium valuation as we expect the company will i) successfully integrate and operate RSA’s Canada and UK&I operations (delivering on synergy upside; see details in our December 3, 2020 note); and ii) produce roughly mid-teens OROE through 2023 and beyond. While risk to Personal Auto profitability has risen given inflationary forces seen in the United States, we believe rate increases will continue to outpace loss cost trends over time.”
Others making target adjustments include:
* Desjardins Securities’ Doug Young to $205 from $195 with a “buy” rating.
“We like IFC’s high-quality management, the RSA acquisition and near-term market outlook. That said, as conditions normalize it faces a tough comp in 2022 and 2023,” he said.
* BMO Nesbitt Burns’ Tom MacKinnon to $215 from $205 with an “outperform” rating.