The share price has risen 200 per cent over the past 12 months, no doubt leaving investors wondering how a little-known insurance company can outperform the S&P/TSX financials sector by more than 150 percentage points.
The bigger question: Where does the stock go from here?
Trisura is a Toronto-based specialty insurance provider operating in the United States and Canada. It has been a publicly traded stock since 2017, when Brookfield Asset Management spun off the company to Brookfield shareholders. The former parent company retained no interest.
Perhaps it should have.
Trisura has expanded into surety, risk solutions, corporate insurance and reinsurance – niche commercial areas of property and casualty insurance that require specialized underwriting expertise. Though results can be more volatile than standard P&C lines, profitability also tends to be higher.
It completed a takeover of 21st Century Preferred Insurance Co. in 2019, enlarging its U.S. footprint. The company has also added financial heft by issuing more shares, including a $67.5-million offering in 2020.
But by far the biggest source of growth has come from taking market share, expanding business lines and building distribution relationships with brokers – helped along by favourable pricing and the development of a “fronting” platform, where underwriters transfer risks to reinsurers.
Trisura’s first-quarter financial results underscore the company’s success. Gross premiums written rose nearly 83 per cent over last year’s first quarter. Revenue rose 45.6 per cent.
Net income rose 130.8 per cent to $19.3-million, or $1.62 a share after adjustments. That was well ahead of the $1.03 a share profit that analysts had been expecting.
Strong growth has fed big expectations: The stock trades at a steep 35 times trailing earnings, implying strong continuing growth and setting the stock apart from the much lower valuations of life insurers.
But there’s a case here that Trisura is still worth pursuing. On a conference call with analysts, chief executive officer David Clare called the company’s recent BBB investment-grade credit rating from DBRS a “milestone” that will underpin the company’s growth ambitions with additional financing.
“Achieving an investment-grade rating and acknowledging that we are under-levered at the group level gives us some confidence that in time we can fund growth with more efficient capital,” Mr. Clare said on the call.
What’s more, despite its $1.5-billion market capitalization, the company still strikes a relatively low profile: It is not yet a member of the S&P/TSX Composite Index, owing to the relatively low number of stock trades per day (just over 60,000 on average).
Gaining entry into the index – a share split might help – could bring Trisura to the attention of more investors, and exchange-traded funds that track the index.
And lastly, analysts expect that the fast pace of Trisura’s earnings growth will continue.
Jaeme Gloyn, an analyst at National Bank of Canada, last week hiked his expectations for profit growth after the company flew past first-quarter estimates. He now expects that profits will rise by 45 per cent this year, up from his previous estimate of 28 per cent growth in 2021.
“The increase primarily reflects robust performance in the Canadian business, partly driven by flow-through of strong premiums growth in recent quarters,” Mr. Gloyn said in a research note.
He believes the shares can rally to $218 within the next 12 months, implying gains of 46 per cent. Separately, CIBC World Markets analyst Nik Priebe said in a note the shares could rise to $180 within 12 to 18 months.
These are lofty targets. But Trisura is building a reputation for rewarding optimists.
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