CIBC World Markets analyst Paul Holden has initiated coverage of the Westaim Corp. WED-T, saying it’s a sector outperformer.
With excess capital and no debt, Mr. Holden says that Westaim should be able to pull off accretive acquisitions. And, thanks to the financial backing that it receives from Alberta Investment Management Corp., he says that a transformational deal is “very possible.”
Canada’s property and casualty insurance industry is highly fragmented, with more than 200 competitors, and many industry players - including Intact Financial Corp. CEO Charles Brindamour and Royal & Sun Alliance Insurance Co. CEO Rowan Saunders - expect that consolidation will soon transform the sector. Westaim could play a role in that.
Westaim is a publicly traded holding company that owns Jevco Insurance Co., which specializes in insuring recreational vehicles such as motorcycles and snowmobiles. AIMCo owns nearly half of Westaim, which is managed by Goodwood Inc.
What Westaim is not likely to pull off is it’s desired takeover of Waterloo, Ont.-based Economical Insurance Group (which has recently begun heading down the path to demutualization), Mr. Holden says. Westaim has been pursuing Economical, whose book value is about $1.3-billion, for roughly a year.
But Mr. Holden says the “odds of acquiring Economical are slim.” For one thing, Westaim’s book value is about $375-million, he says.
“Westaim would have to raise a significant amount of capital, the majority of which would have to be equity, to acquire Economical,” Mr. Holden wrote in his inaugural note on the company. “Given that Westaim is trading at less than book value, it would be at a cost-of-capital disadvantage relative to other potential buyers.”
Mr. Holden has put a $0.70 price target on Westaim.
