Protector Q3 2023 preview
25,8% growth and combined ratio 87,1 – target price 264 (down from 271 pre Q1)
Growth since our communication pre Q2 a few things cause us to estimate 2023 growth at “only” 😄 35% (down from 40%). 1) GPW growth in Q2 was about 150 MNOK lower than we estimated, mostly due to UK commercial sector coming in lower than what we expected. 2) Strengthened NOK, resulting in reduced FX growth with an effect of 150 MNOK. 3) Slowing growth expected in Sweden due to a clean up of some motor affinity agreements with subpar performance. 4) UK growth estimates in H2 taken down to reflect what happened in Q2. Sum of the last two is 110 MNOK. In total we land at almost 9,6 BNOK (down from 10 BNOK) for 2023 and “only” 35% growth💪
Combined ratio is still expected to be strong going forward, and our Q3 estimate is 87,1%. We expect UK to continue its very strong performance and estimate a CR in UK of 79%🔥. We expect Norway to have a high CR due to weather claims and Sweden to have a weaker quarter due to the challenges in some of their motor portfolios.
Investment return in a quarter is (still) not important but we have -6% equity return and 1.4% bond return. The stock portfolio has taken a bit of a beating, but we expect the estimated intrinsic value discount (technical stuff) to have improved😊. Running yield in the bond portfolio will continue to be very strong going forward and generate a lot of return💪
Our Eps is NOK 1,5 negatively influenced by discounting of reserves due to Swap rates in UK having fallen a lot, while the Nordics is flatter. Other analysts EPS is somewhat lower, with CR being the main differentiator (as usual😁). They are probably wrong but if they are right it’s because they have a bit of luck on the large loss ratio which is not important in the longer run 😊
Cost ratio; we expect, and have asked, that Protector starts reporting on cost including and exclusive of brokerage commissions. This will show that even though the cost % is not falling as quickly as we have communicated earlier this is due to Sweden and UK growing at a very strong pace (and they have high brokerage commissions). More easily said: The true cost percentage (cost the real way) is continuing to fall to even more impressive levels🙌 and Protectors competitive position relative to market is improving a lot.
How should we price Protector? Hard to say but we received an interesting mail from a Protector investor with a lot of shares. He reminded us about the following perspective, picked from Oddbjørn Dybvads book, "Investing in value creators"
As many of you know the history of Protector is 20% growth and >20% ROE. We don’t think this will continue forever but with present (next 3 years) bond return we certainly believe in > 20% ROE and we don’t think volume and earnings growth will be 0. Do you?
Conclusion: Buy a lot if you don’t have a better alternative.
An alternative: To be open as always – we prefer Crayon and have sold Protector down lately to buy Crayon since we have an even stronger short-term view on that company (although with a higher risk than Protector).
Let’s meet Friday morning to discuss and remember to sign up as Grunnfjell sponsor with Fjellhammer IL 😊
Sverre Bjerkeli,
Analyst trainee, Hvaler Invest AS
David Bjerkeli,
Investor and analyst, Hvaler Invest AS
Lillestrøm, October 18th