Post by
retiredcf on Oct 13, 2021 7:26am
CIBC
Have a $197.00 target. GLTA
EQUITY RESEARCH
October 12, 2021 Earnings Update
INTACT FINANCIAL CORP.
Catastrophe Loss Update Could Be A Buying Opportunity
Our Conclusion
The updated catastrophe (cat) loss estimate for Q3 does not impact our forward assumptions or valuation. Negative stock reactions to large cat losses have typically been a good buying opportunity in the past. Intact is already trading below its five-year historical average P/BV based on our revised estimates (2.1x vs. 2.3x historical). No change to our Outperformer rating and we would recommend further adding to positions on any weakness as a result of this news.
Key Points
Intact pre-releases Q3 catastrophe claims losses. Intact announced Q3
estimated cat losses of $365MM pre-tax ($1.59 per share after-tax). This is well above the normal Q3 run-rate expectation set by the management of roughly $190MM (one-third of $570MM annual losses is expected to occur in Q3). The difference between the $365MM estimate and the $190MM run-rate is equal to $0.76 per share after-tax. Intact disclosed that nearly 60% of the losses are attributable to Canada and of that, roughly two-thirds impacted personal property. The bulk of the losses outside of Canada occurred in the recently acquired UK&I business (three-quarters) and a small portion is attributable to the U.S. (10%). The cat events related to rain and hail in Alberta, Ontario and Atlantic Canada, flooding in the U.K. and Hurricane Ida in the U.S.
Revising our Q3 estimates. We are revising our Q3 estimates to
incorporate $365MM of cat losses versus our prior assumption of $166MM. Our operating EPS estimate declines from $2.44 to $1.64. Our revised combined ratio estimate is 96.5% versus a prior estimate of 92.8% and compared to 86.7% last quarter. No impact on our 2022 estimates. Higher cat losses for the current quarter do not change our thinking or assumptions for cat losses in future periods.
Our assumption for 2022 remains consistent with management guidance for approximately $570MM annually. We, however, assume this grows by 9% in 2023 based on long-term historical industry growth rates. Valuation update. Based on our revised Q3 estimates, Intact is trading at 2.1x P/B, below the five-year trailing average of 2.3x.