TWR - Tower Insurance

[BlackPeter]

Apparently the PE tea-leaves are coming up with the number 7. Is that lucky?

If its a one-off - NO.

If they can maintain that PE over a number of years, this would be quite good, but is highly unlikely.

No doubt climate change and competition will make sure the PE goes up again.

[Basil]

So, normalizing this $83m after tax for the $32m after tax large event provision unused gives $51m which is a pretty decent upgrade on the previous somewhere north of $45m.
Trades cum a 5 cent dividend as we all know.

Looking at next year, we have estimated savings of ~ $13m before tax from the reinsurance program, likely ongoing insurance premium increases and the share buyback boosting eps.

Index inclusion, I expect to be announced next week.

[lorraina]

https://sendy.tarawera.co.nz/l/J6oLVth2f3f6IXNYvUBQEg/rT913PEpde7PJPywAlcMPg/Sn7joLvpRWiZdUi4V763kBpQ

[Ferg]

[Edit: - ignore my comments below.  There is a new provision each year.]

This unused "allowance" of $45m....based on the article lorraina linked, this sounds like a provision that was made in the previous fiscal year that has not been used.  If last year was a loss which included that provision and that provision is no longer needed, then it may be better to look at the 2 years combined rather than the single year which has this distortion when looking at PE ratios / EPS etc (I see Basil you have normalised for this).

Also, I see commentators stating $45m less tax for the provision reversal, but I'm assuming the provision in the prior year was non-deductible, such that its reversal would be non-assessable in the next fiscal year.  No tax adjustment is needed IMO.....although on reflection it would be deferred tax adjustment, rather than a current tax adjustment so yeah it's a book entry but it has no cash impact.  Much like the provision itself - it's all non cash.

So, normalizing this $83m after tax for the $32m after tax large event provision unused gives $51m which is a pretty decent upgrade on the previous somewhere north of $45m.
Trades cum a 5 cent dividend as we all know.

Looking at next year, we have estimated savings of ~ $13m before tax from the reinsurance program, likely ongoing insurance premium increases and the share buyback boosting eps.

Index inclusion, I expect to be announced next week.

[Basil]

Hi Ferg,

Forsyth Barr just released some updated research yesterday.  I'll flick you an email.  What they're saying in a nutshell for FY25 is forecasting $58.9m which they figure will be eps of 17 cps but Tower are carrying a $50m provision for extreme weather events v 10 year average utilization of same being $21m.

This suggests to me, (leaving aside any argument about the effects of climate change worsening more rapidly in recent years), in a so called normal weather FY25 they are overprovisioning by $29m or $20.9m after tax.
If the weather is average, earnings should therefore be $58.9m + $20.9m = $79.8m = ~ 23 cps.

At $1.36 that puts them on a forward PE of $1.36 / 0.23 = 5.9 and that's cum the 5 cent final divvy, index inclusion and the capital return.  Tower's main competitors Suncorp and IAG which dominate the market here under various brands, (which very conveniently for them give Kiwi's the illusion of a high levels of competition in the market), which together, from memory, gives them a market share of over 70%, trade on metrics of, Suncorp ~ 17, IAG ~ 18.

For the dividend hounds, Forsyth Barr are also projecting gross dividend yield of 13.7% for FY26.
Fundamentally the case to hold looks compelling, as does the TA.

Index inclusion.  I remain hopeful of hearing news this week.  If not this week, it should be next week.

[Ferg]

Thanks Basil

Am I interpreting this correctly, that the forecast of $59m is AFTER deducting another $50m provision?

Edit: apparently yes.  Also, if there is a $50m allowance EACH YEAR then I withdraw my earlier comments about inter-year provisioning.....

[Basil]

Yes. The provision for FY24 was $45m and they are prudently increasing that, which I presume they will factor into considerations with increased customer premiums this year. I can't see the major Australian insurers passing on any savings from a sunny year in FY24 so the competitive environment going forward is probably quiet benign.

[Shareguy]

Well Basil was right. Even Craig's or FB did not pick the correct date.

https://api.nzx.com/public/announcement/440043/attachment/429519/440043-429519.pdf

[Plata]

Let the fun begin 

Never thought I'd be in an insurance company with climate change going on but here we are!

[Basil]

Good stuff. Being added to the mid cap index too. Only four trading days to execute the change with final match price session on 21 October.

[LoungeLizard]

All going to plan then. Next 4 days will be interesting. A 10% uplift to $1.50 perhaps with a 5c divvy to come. 

[Basil]

When the index announcement didn't come through yesterday afternoon, I shared this video with a few friend's, hopeful it would be today.  I thought you guys might enjoy it.   Best wishes to holders whatever you decide to do.  https://www.youtube.com/watch?v=6PtdpI-D6mM

[LoungeLizard]

Looks like there's been quite a few sellers - or maybe a small number of big one's - who have decided to bank their gains. Can't blame them but a bit premature I feel. Starting to thin out and then we'll see the colour of the buyers money. $1.40 by the end of the day hopefully.

[Shareguy]

Tough day after the Dow and Asia pacific markets falls. Tom is another day.

[Shareguy]

Latest from FB

We expect passive demand for TWR will be in the order of ~9m shares (25 x average daily volume.

Next for inclusion Brisco...