Post Q2 Protector Forsikring ASA – Base case Target price unchanged (200) - Buy

Since I wrote my Protector Q2 preview June 26th Q2 has been delivered and share price has increased from NOK 101. My preview in short turned out to be rather good and at least better than other analyses (but maybe for the wrong reasons – that’s up to you to find out 😊

In short, I said June 26th;

-          Combined Ratio will be a very strong 85%, it was 82.5% supported by lower level of large claims

-          Volume will grow at 15%, it was 25% with Scandinavia as the big upside surprise

-          Investment will be poor of course; It was and it’s not an issue. The important information was the running yield in the bond portfolio sized 3.9% up from 2.4% March 31st – wow!

-          Share price will go up 10% (said after figures released but before opening); it was up 9.94% to 117.20😊

How did I calculate Base case Target price 200 per share?

In my Q2 preview I was not specific about my assumptions, here they are. I based my calculation on 11% - 12% growth per year, a bond portfolio sized 12,5’’’ and 13,0’’’ (2023 and 2024) and an equity portfolio sized 2,5’’’ and 3,0’’’ (2023 and 2024). Together, a CR of 90%, bond return 4% and equity return 8% will lead to EPS 12,4 and 13,5 per year leading to a share price 186 in 2023 and 203 in 2024 (both with PE 15 which is a lot lower than present peer pricing). Since market buys on expectation you will pass 200 earlier than «end 2023». My guess is during May 2023 because Q1 will be delivered, and market will start looking towards 2024. I could take a bit longer. The important figures above are 11%-12% growth and CR 90%. Do you find these figures unreasonable, when Protector already delivers 16% growth in local currencies H1-2022 and CR 89.5% in H1-2022, with the best CR quarter ahead of us (Q3)? I do not. I’ll be back with an updated analysis based on normalized figures in my next quarterly update which will arrive at Hvaler Invest AS’ website in October.

Question; Why does market (and you) value a double-digit growth player a lot lower than peers (now at PE 20x)? In this question you find a potential bull case, alternatively you do have your “margin of safety” on an investment in Protector. PE 15x on Protector is not an aggressive assumption – do you agree? I personally find PE 20x among Nordic peers slightly on the aggressive side because their growth is not “that high”. I do expect an (unsignificant) multiple contraction among peers (or at least some of them) but it’s not important for Protector because “margin of safety” is still rather high.

Post Q2 - Base case Target price still at 200 but we will get there faster

My view now is 160 end October (after Q3 figures), 170 in February and 200 during May 2023 (including dividend). My Bull scenario is closer since bond yield is moving faster north, volume growth could be higher, and CR could move <90%.  For now -let’s wait before we change to the bull scenario. Of course, we all agree that only a stupid analyst trainee will try to predict exactly when share price moves, but let’s have fun and place a bet; 200 before or after November 1st, 2023. Given today’s share price at 117 Odds 1-5 is reasonable meaning 1 bottle of champagne delivered if price < 200 against 5 bottles delivered if price > 200 (both including dividends). I’m open for bets 😊 from a maximum of 20 Protector share holders (I don’t have storage capacity for more than 100 bottles I’m afraid).

Disclaimer: I’m a significant shareholder you know so you cannot trust me (or perhaps you can?).

Sverre Bjerkeli,

Analyst trainee, Hvaler Invest AS
19.08.2022