TWR - Tower Insurance

[Otago K]

For me I want someone with the technical analysis bent to appear and present a compelling picture before I decide to buy more TWR (modest % held) at today's price, or try to wait and snap it up later, for me the same questions as arise on buying FSF and particularly ATM today, all 3 could conceivably rise higher but perhaps I'm best to sit on what I have at the moment.

[Basil]

Strong volume today of more than 2.1m shares.

[Cod]

Weekly Tower chart:

Price above ATL (0.54), AVWAP ATL (0.925), AVWAP ATH (1.465) -- means price is no longer being driven by perceived value, but rather results, still a long way to drive up to ATH (4.51), would have to break rising channel in a big way.
Velocity and double trix are insipid, seemingly waiting for update or results.

You cannot view this attachment.

[ken]

https://api.nzx.com/public/announcement/458623/attachment/451936/458623-451936.pdf

[Basil]

I like the strategic direction of travel Tower are headed in.
Based on my checks, there's large high risk parts of the country that Tower will no longer cover with house insurance.
Passing on lower premiums to customers for lower risk properties is much appreciated by customers, (I am also a customer), especially in this day and age when almost every aspect of cost of living is going up.  This will lead to market share gains in my view going forward and we are seeing evidence of that.
They're making very good progress towards building a more resilient business model is how I see it.

Just putting some numbers around this years forecast result, at the mid point of forecast, $105m) on 342.5m shares that's EPS of 30.7 cps and puts Tower on a current year PE of 5.75.

It should be noted that analysts are not forecasting the underlying profit to be this high in FY26, (recall the benign summer weather last year) and are also not forecasting another large events provision recovery.  Average analyst forecast for FY26 and FY27 is 18 and 20 cents respectively.  Average target price is $1.865 and rating is buy.  https://www.marketscreener.com/quote/stock/TOWER-LIMITED-12924419/finances/

My comment.  Its always important to look forward.  I think with the increasing refinement and granular risk based approach the business is very well placed to weather future large events and on the balance of probabilities there will be some recovery from extreme event provisions in future years.  On an stand-alone basis assuming half of next year's extreme event provision sheets home to earnings and assuming its $50m before tax, I expect  ~ $80-$90m after tax next year and at the mid point that's 25 cps and that puts Tower on an estimated FY26 PE of 6.9 at yesterday's closing price of $1.725.  The share price looks like very good value to me.
(Noting also that Tower's two main competitors here IAG, FY26 consensus PE 19.3 and Suncorp 18 are on well over double the forward metrics of Tower)
Also noting Tower shares trade cum a large expected dividend so the metrics for FY26 look even more compelling if you net off the final dividend for FY25 from your calculations.

[Left Field]

Good summary Basil.

SP has been firming up around $1.70 over the last 5 days. Today's news should see the SP climb towards the $1.80's

Understated PE offers further upside potential, and then, of course is the nice dividend as icing on the cake .

[Basil]

Thanks LF.  If they pay out the full extreme event provision recovery of $31m after tax on 342.5m shares that's a special divvy of 9 cps fully imputed plus the normal final divvy I have estimated at 5 cps based on just over 60% payout of profit from second half = 14 cps fully imputed in January.

Bit lower than my guess a while ago but nonetheless if it comes to pass, that's a very juicy dividend.
Looking ahead to FY26 if they make 25 cps and payout6 65% of that, that's 16.25 cps fully imputed / 0.72 22.57 cps gross and a gross yield of 12.9% on $1.75 share price. 22.57 / 1.61 = 14% gross yield if you back out the final divvy for FY25 from your investment calculations.

[jamesgreen]

For me I want someone with the technical analysis bent to appear and present a compelling picture before I decide to buy more TWR (modest % held) at today's price, or try to wait and snap it up later, for me the same questions as arise on buying FSF and particularly ATM today, all 3 could conceivably rise higher but perhaps I'm best to sit on what I have at the moment.

I hear you, timing entries on stocks like TWR, FSF, and ATM is tricky, and unless you've got the charts and macro view lined up, it can feel like a gamble. From a TA standpoint, you'd want to see confirmation of momentum before scaling in, otherwise sitting tight on your current position isn't the worst move.

One thing I've been doing lately is using covesting instead of stressing over whether to buy now or later. It lets you track and copy traders who are already strong in technical analysis, so you don't have to guess as much on entry points. Someone I've found really insightful around long-term investing and strategy is Mary Elizabeth McOwen. She explains can follow her strategies via covesting, and if you Google her, you'll find her background right away.

Not saying you have to change your whole approach, but covesting could be a good complement, especially if you'd rather not get stuck in positions like this.

[Left Field]

Mary Elizabeth McOwen. She explains can follow her strategies via covesting.......Not saying you have to change your whole approach, but covesting could be a good complement

'scuse my ignorance....could you please explain what you mean by 'covesting'?? Thanks.

[Otago K]

'scuse my ignorance....could you please explain what you mean by 'covesting'?? Thanks.

Via chat GP I would say it is having a view of thoughts and analysis behind what companies in their portfolio they are investing into and doing a degree of mirroring based on seeing validity to the rationale behind their perspective.

[entrep]

Excuse my ignorance, but the share is more or less at a 10-year high.

Outside of the strict numbers, what has actually changed in terms of the business dynamics that have pushed it to a 10-year high? From what I can gather, the insurance industry has got even harder to navigate with the number of events we have these days.

[Poet]

A number of things...

Foremost is probably that premiums have risen much faster than general inflation. This is coupled with some degree of cost reduction meaning that MER is at good levels (29% from memory). Importantly, the whole industry has participated in the raising of premiums so all are maintaining market share while increasing revenue.

Second is that TWR has adopted risk based premiums, IOW shedding high risk policies in NZ and the pacific islands

Third- a relatively benign weather/eq environment in the last ten years (notwithstanding the Kaikoura Earthquake and 2023 Weather events)

So underlying or BAU performance has improved markedly.
Large events have been relatively benign

Result - improving shareprice, which is still about half (PE) of industry peers, so maybe some distance to run yet...

[entrep]

A number of things...

Foremost is probably that premiums have risen much faster than general inflation. This is coupled with some degree of cost reduction meaning that MER is at good levels (29% from memory). Importantly, the whole industry has participated in the raising of premiums so all are maintaining market share while increasing revenue.

Second is that TWR has adopted risk based premiums, IOW shedding high risk policies in NZ and the pacific islands

Third- a relatively benign weather/eq environment in the last ten years (notwithstanding the Kaikoura Earthquake and 2023 Weather events)

So underlying or BAU performance has improved markedly.
Large events have been relatively benign

Result - improving shareprice, which is still about half (PE) of industry peers, so maybe some distance to run yet...

Thanks, it's been more of an industry-wide thing than anything specific that Tower has done, except the risk-based premiums?

And yes, I've definitely noticed all my different insurance premiums going through the roof!!

[Otago K]

Just noting the reduced significant shareholder disclosure for Salt Funds Management from 10 July over 5% to under now. ave BUYs around $1.65, and SELLs around $1.72.
https://www.nzx.com/announcements/459271

Might offer some hope to add to my holdings if SP pulls back somewhat to my next BUY order levels.

[ken]

https://api.nzx.com/public/announcement/459334/attachment/452785/459334-452785.pdf