TWR - Tower Insurance

[Arbroath]

Craigs insert latest note

While policy growth remained strong (+9% home / +3% motor), rating pressure, particularly in the home category appears to have worsened in recent months. Subsequently, the Group has reduced its GWP growth guidance range for FY26 from a range of 5% to 10%, to "low single-digit" (CIPe 5.2%).
Despite GWP growth headwinds, we see this as another steady result for TWR. The Group (i) has maintained its FY26 uNPAT guidance range of $55m to $65m (CIPe $57m), (ii) holds a strong B/S (solvency ratio of 143%), and (iii) is continuing to prove up the benefits of its risk-based pricing capabilities. That said, with a 5cps (fully imputed) interim dividend announced (below CIPe at 6cps), and the rate environment softening, we expect the stock to trade flat to down today

How do Craig's stick with GWP growth forecast of 5.2% when the company are saying low sing le digits and at the HY have delivered 1%...just doesn't seem credible. IMHO they'll be lucky to deliver flat GWp fo the FY

[Basil]

Forbar revised price target $2.30 and Craigs $2.08.

Average forecast dividend of the two brokers for FY26 is 13 cps fully imputed.
Any unused part of the $45m weather provision will be on top of that.  If its $15m unused, after tax that amounts to 3 cps extra.  16 cps fully imputed in a bad weather year = 16/0.72 22.22 cps gross = 11.9% gross yield at $1.87.  Important to note that's based on using $30m of their $45m and Tower are adamant the 10 year average use is $15m.

Kiwibank client service provision kicked in this month and Westpac commences in July.

I'm happy to hold for ongoing dividend income which both brokerages are predicting will increase nicely again by FY28. (average 14.75 cps) + any unused provisioning which averages 5.9 cps.

Looking at the prospective gross yield for FY28, (assuming an average weather year)
Ordinary dividend forecast (average of 2 brokers 14.75 CPS + average unused provisioning $30m less tax = 21.6m / 364.3m shares = 5.93 cps = total fully imputed dividend of 20.68 CPS/ 0.72 = gross dividend of 28.72 cps / 187 = prospective FY28 gross yield of 15.4% at $1.87 , (noting also $1.87 is trading cum the 5 cps divvy due next month.

Disc: Holding ~ 11% portfolio allocation for very high prospective future dividend income.

[Left Field]

The deal to service Westpac customers kicks into gear this half. That'll be accretive to GWP this year and strongly accretive in FY27.

There is also new relationship with KIWI bank that will benefit the second half figs.

"Two key growth initiatives will commence in the second half of FY26: a partnership with
Westpac to offer general insurance products to its retail customers, and a back-book referral
arrangement enabling Tower to offer insurance products to a group of Kiwibank customers."

So very likely that the second half will be better than the first.

That said, since the 1HFY26 results I've reduced my holding by 20% (was overweight) taken profits off the table and now better positioned with a revised DCA sitting at $0.70c

[lorraina]

I too have sold down some Tower.
Sold a few more today to add to my AFT after reading Forbar research on them this morning.
Forbar have eps ;
2026 13.4 cps 2027 19.2 cps 2028 25.2 cps,2029 33.4 cps.
EPS growth........43.28%................31.25%..........32,5%..........Average 35,67%
ASB have current PE at 27.4  .so 27.4 divided by Growth 35.67 gives a PEG of .768 which is well under 1.

[Dolcile]

I was very underwhelmed by the HY and sold my entire position yesterday. I don't like surprises like the $11m after tax customer remediation cost.

[entrep]

I was very underwhelmed by the HY and sold my entire position yesterday. I don't like surprises like the $11m after tax customer remediation cost.

Was it purely the $11m surprise or other things you spotted?

[Basil]

Nobody likes surprises but it's hopefully now done and dusted and amounts to 3 cents per share.

[Southern Lad]

Presumably the $10.9m after tax includes an accrual for a (non tax deductible) penalty from the FMA?  Last penalty was $7m, presumably a repeat offender can't expect much sympathy from the Regulator or the Courts.

While unwelcome, I see it very much as a legacy issue.  The removal of multi policy discounts with effect from 1 January 2026 reduces the risk of similar issues in the future, although I note the latest issue doesn't specifically relate to multi policy discounts.  Hopefully there aren't too many more legacy issues waiting to be discovered.

A valid question as to why there wasn't a pre results announcement highlighting the issue.  Arguably price sensitive.