TWR - Tower Insurance

[Shareguy]

From Craigs  conviction list

Key catalysts next 6-12 months
Much like FY24, TWR is benefiting from benign weather in FY25, following a volatile year in FY23 which was impacted by abnormally high levels of reinsurance inflation, a multitude of large events (1 in 200 & 1 in 400 year events) and increased motor crime. While TWR upgraded its FY25 NPAT guidance range by 18% (at the midpoint) in early Feb-25, to $60m - $70m, the Group only used c.$3m of its $12.5m budgeted large events allowance in the first 4-months of the financial year. As a reminder, any unused portion of TWR's large events allowance come year end (September), drops to the bottom line, and would likely result in higher dividends.
TWR is currently benefiting from reduced reinsurance pricing, which is a function of 1) global reinsurance market prices moderating (noting some risk going forward in relation to the recent wildfires in California) 2) TWR's increased scale, and 3) the impact of TWR's risk-based pricing (particularly evident in the favourable claims data from large events in 2023).
Given Bain Capital has recently sold down its entire c.20% shareholding in TWR, the Company now has an improved free float (better liquidity). Subsequently we expect TWR to be up-weighted in the NZX50, come the next index rebalance.

[Basil]

Thanks Shareguy. I've been quietly adding a few.

[Left Field]

Nice upgrade and update......holders will be happy.

https://www.nzx.com/announcements/450346

[BlackPeter]

Nice upgrade and update......holders will be happy.

https://www.nzx.com/announcements/450346

Given that they certainly didn't prepare this today ... just wondering whether they took already the damage from this weekends deluge (Ex-cyclon Tam) into account? I suspect claims will start coming in from today ...

[Shareguy]

Fantastic news on another down day on Wall Street.

[raW tent Buffer]

Good news but tinged a little sour by the last paragraph. I don't like the sound of "significant volume of reopened claims from undiscovered damage and inadequate repairs" re the CCH earthquakes

[Basil]

Good news but tinged a little sour by the last paragraph. I don't like the sound of "significant volume of reopened claims from undiscovered damage and inadequate repairs" re the CCH earthquakes

Its hard to know what to make of that.  Good update though and don't forget there's 10% less shares on issue. I put my hand up for a few more.

[Plata]

You have to love it when you get an underlying profit upgrade AND a reported profit downgrade on the same day 

[Basil]

I don't, that confuses the dog's brain lol.

[Shareguy]

Kieran Carling has published a comprehensive note on Tower overnight ahead of their interim result – another great Title from our Carling ("Mainly fine with some isolated claims") reflecting his pedigree as the 2021 & 2024 Title holder and protégé of the legendary Chris Byrne who achieved the historic Title "three-peat" (2018-2020) ... back to the note ... TWR delivered another solid update ahead of its 1H25 result (20th of May), lifting uNPAT guidance by 15% at the midpoint, from a range of $60m - $70m to $70m to $80m. The upgrade reflects ongoing benign weather, fewer total-loss house claims, and easing inflation, which has more than offset the impact of softening GWP growth. Carling has tapered his GWP forecasts to reflect more competitive pricing in the market, but notes the ongoing rationale for his Overweight recommendation on TWR including 1) TWR trading at a 48% discount to industry peers (25% historically), 2) FY26 gross yield is 12.4% 3) continuing to demonstrate operational improvements, and 4) TWR has only used c.$3m of its $50m large events allowance YTD, which could present further EPS/dividend upside as the year progresses. The upgrade to Guidance met with a more subdued reaction from the market due to the softening in Gross Written Premium (GWP). TWR has a medium term aspiration of growing GWP at 10-15% but has recently guided lower (from 7-12% to c5% now). While TWR has again called out volume growth in lower-risk policies as a driver, Carling expects the reduction is more heavily weighted to competitive pricing in the market (particularly for motor). Based on the midpoint of TWR's guidance range, we expect that TWR's BAU claims ratio is tracking at c.44% in FY25 which is well below the historical average (c50%). What remains unclear however, is extent to which TWR's focus on risk selection has contributed to this reduction (as opposed to benign weather). Any structural decline in the BAU claims ratio, would present upside to our forecasts. Carling has made numerous forecast tweaks (see note below) but his Target Price remains broadly unchanged at $1.65, we reiterate the Overweight.


Currently trading at FY25 forecast PE of 6.7.  Plus trading at 48 percent below industry peers. And that divi is so good.

And as Discovery funds say

It's important to remember that, whilst in the short-term
stock prices can be volatile, in the medium term, prices
follow company earnings......

[Basil]

Thanks mate, I have added a few more on recent weakness not forgetting there's 10% fewer shares on issue which boosts eps.  I presume that super low PE assumes full utlization of their $50m extreme event reserve?

I would think weather events this month might eat up some of that $50m.

[Shareguy]

Thanks mate, I have added a few more on recent weakness not forgetting there's 10% fewer shares on issue which boosts eps.  I presume that super low PE assumes full utlization of their $50m extreme event reserve?

I would think weather events this month might eat up some of that $50m.

Yes Basil assumes full utilisation less the $3m already allocated. Only 5 months of the year left.

[Basil]

Yes Basil assumes full utilisation less the $3m already allocated. Only 5 months of the year left.

Crickey, that's super low metrics + the real chance of a meaningful portion of that $50m reserve translating to more earnings.  On top of that, with Bain's recent 20% shareholding sell down, Tower gets rebalanced much higher in next month's NZX50 index rebalancing due to much higher free float of shares.  Seems compelling to me.  Might get some more.

[Left Field]

Forsyth Barr now a substantial holder......joining the TWR fan club.

https://api.nzx.com/public/announcement/451571/attachment/443276/451571-443276.pdf

Onwards & upwards.

[Basil]

From Craigs  conviction list

Key catalysts next 6-12 months
Much like FY24, TWR is benefiting from benign weather in FY25, following a volatile year in FY23 which was impacted by abnormally high levels of reinsurance inflation, a multitude of large events (1 in 200 & 1 in 400 year events) and increased motor crime. While TWR upgraded its FY25 NPAT guidance range by 18% (at the midpoint) in early Feb-25, to $60m - $70m, the Group only used c.$3m of its $12.5m budgeted large events allowance in the first 4-months of the financial year. As a reminder, any unused portion of TWR's large events allowance come year end (September), drops to the bottom line, and would likely result in higher dividends.
TWR is currently benefiting from reduced reinsurance pricing, which is a function of 1) global reinsurance market prices moderating (noting some risk going forward in relation to the recent wildfires in California) 2) TWR's increased scale, and 3) the impact of TWR's risk-based pricing (particularly evident in the favourable claims data from large events in 2023).
Given Bain Capital has recently sold down its entire c.20% shareholding in TWR, the Company now has an improved free float (better liquidity). Subsequently we expect TWR to be up-weighted in the NZX50, come the next index rebalance.

Interesting that both Craigs, and now Forsyth Barr through their actions, are both now very bullish.