TSX:DFY - Post Discussion
Post by
retiredcf on May 15, 2023 11:57am
More RBC
Their upside scenario target is $58.00. GLTA
Outperform
TSX: DFY; CAD 37.00
Price Target CAD 48.00 ↓ 49.00
Definity Financial Corporation
In-line Q1/23. Continued progress executing on growth strategy
Our view: DFY delivered another solid quarter, even if results weren’t as strong vs. consensus as in prior quarters. Gross written premiums (GWP) continue to be double-digit (+11.4% Y/Y in Q1/23) and the combined ratio remains to be in the mid-90s (or better) (95.3% in Q1/23). We think DFY is executing well on its growth strategy with brokerage distribution acquisitions augmenting growth. We think DFY’s shares are attractively valued given the uncertain macro environment and the significant discount to its closest publicly traded peer.
Key points:
Q1/23 operating EPS of $0.54 was a penny ahead of our $0.53 but below consensus of $0.58 (range of $0.52–0.65), with the variance from our forecast primarily due to better-than-forecast underwriting income. Q1/23 GWP of $847MM exceeded our $809MM and consensus of $822MM.
Our thoughts on Personal Auto. We think there was some investor concern about Personal Auto given commentary from certain U.S./U.K. auto writers in recent quarters. While this clearly was not a great quarter for Personal Auto (101% combined ratio), we don’t think it was a bad one, either, based on: seasonality (seasonality typically adds +300–400bps to Q1 combined ratios); DFY’s combined ratio vs. its closest publicly traded peer, recognizing DFY’s smaller size; and DFY’s management commentary clarifying its insights on Personal Auto. DFY indicated that it recently received approval in Ontario for +10% rate increases for broker-originated policies and +7% for Sonnet-originated policies, which are in addition to the +3.5% increase for broker-originated policies and +15% for Sonnet earlier this year. Combined, DFY indicated this should see written premiums reach +12% Y/Y by the end of 2023 and DFY continuing to expect an upper-90s combined ratio for 2023.
Segmented combined ratios: (1) Personal Auto – 100.9%, worse than our forecast of 97.3% and consensus of 97.6%; (2) Personal Property – 91.1%, much better than our forecast of 95.0% and consensus of 92.8%; and (3) Commercial – 90.9%, better than our forecast of 93.8% and in line with consensus of 90.9%.
Other takeaways: (1) DFY believes that it will receive approval to transition to the CBCA framework this summer; (2) DFY expects investment income of ~$160MM in 2023; and (3) DFY noted that although it’s a bit early to determine the impact of the Alberta wildfires and Quebec/Ontario storms and the company is only halfway through Q2, so far it is comfortable with how cat loss activity is occurring in Q2/23.
Reducing 12-month price target to $48/share (from $49) but maintaining Outperform rating. Our reduced price target reflects adjustments to our P/ BV multiple (1.9x, was 2.1x) due to the IFRS 17 conversion.
Be the first to comment on this post