Capital Raising, page-3

Interesting situation. I don't like insurers generally as they're too complex and too much can go wrong (TWR is a good example), but this is ostensibly cheap - if they hit the midpoint of their aspirational 12-14% ROE target by FY20 (when full benefits of the IT driven cost-out will have been reaped), that implies NPAT of ~NZ$37m (NPBT of ~$53m) assuming pro forma post equity raise balance sheet equity of ~$285m - a 6.0x FY20(F) P/E.

That $53m NPBT is a long way up from FY17's $28m (underlying), but it does broadly pencil out to their strategic goals in terms of 4-6% p.a. NEP growth and 35% expense ratio:

- 3 years of 5% growth in premiums from FY17 net earned premium base of $257m = FY19 $297m NEP
- 50% NEP loss ratio is $149m claims expense
- Management/sales expense at aspirational 35% NEP target is $104m
- $5-7m investment revenue
- Underlying NPBT of ~$50m-$52m

Potentially interesting. Would be interesting to look at the sustainability of that 85% combined operating ratio, or how often they're having big "one-off" events that make one question the veracity of the 50% loss ratio.

I personally, as a non-holder, would be hesitant to do anything here pre Xmas given shares on issue will soon double overnight at what is currently a 57% premium to offer price and 12% premium to TERP. At TERP of $0.59, market cap is NZ$199m which is FY20 P/E of 5.4x...which is certainly cheap, even for a subscale insurer.