Research Notes - MST Access
This is forbar research. TWR has paid them to put this together. This is money well spent by TWR on behalf of shareholders imo. You can click the link above and see all the free research reports on many a company. pretty cool aye.
Rawz executive summary: TWR cheap as chips.
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Tower (TWR) has experienced a positive reversal of fortunes, with its 1H24 likely including zero large events. The absenceof large events means: (1) TWR is likely to report an exceptionally strong 1H24 result, and (2) there is significant upside riskto FY24 guidance of ‘the upper end or above the NZ$22m–NZ$27m range in underlying NPAT’. TWR's guidance includesNZ$45m of large events allowance, and we estimate none was utilised in 1H24. Accordingly, we adjust our forecasts byreducing our FY24 large events allowance -50%, choosing to be conservative despite large events having historically beenheavily skewed to the 1H. We also reduce our business as usual (BAU) claims ratio to account for premium growth and acontinued normalisation of motor claims, seeing our FY24 underlying profit estimate lift by +84% to NZ$49.2m. TWRtrades at a large discount to its peer group. We view the widening valuation gap as increasingly unjustified, especially giventhe upside risk to FY24 earnings expectations. Our blended spot valuation increases by +22% to NZ$1.41
A stellar 1H24 result likely on 28 May 2024
TWR is likely to report a stellar H24 result on 28 May 2024. We anticipate tailwinds from: (1) the lack of large events in the period, (2)continued strong GWP growth, (3) robust investment returns, (4) a normalisation in claims frequency and severity, and (5) furtherimprovements in the management expense ratio (MER). Assuming a business as usual (BAU) claims ratio of 52.1% and MER of 29.6%,we forecast underlying NPAT of NZ$35.1m. While not included in our forecasts, the strong 1H24 result may allow sufficient capitalrecovery for TWR to declare an interim dividend.
Benign weather boosts FY24
We estimate that TWR experienced no large events in the 1H24 period that ended on 31 March 2024. Given this fortunate position,we expect TWR to provide an update regarding its large events allowance for FY24 at its 1H24 result or earlier. A partial unwind ofthe allowance is a near certainty, especially in the context of ~81% of TWR's large events costs occurring in 1H periods since FY18,and the worst 2H large events expense since FY18 being only NZ$4.6m. Nevertheless, we expect TWR to be conservative and retain asignificant allowance. Reflecting this, we reduce our FY24 large events allowance -50% to NZ$22.5m.
Valuation support increasing
TWR trades at just 5.2x 12-month forward underlying earnings on our updated estimates, offering substantial upside to peers IAG on16.3x and SUN on ~15.1x. Over the last seven years TWR has traded on an average 12-month forward PE of 9.4x and at an averagediscount to its peers of -37%, meaning TWR trades below its historical valuation ranges. We find this difficult to reconcile given TWR'simproving business fundamentals, with increased scale driving improved efficiency and returns
Originally Posted by Rawz
Research Notes - MST Access
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