Hi peterdoobes,
Good to see you on HC IPO again.
Had a closer look at your observation and essentially they are trying to match trail commission revenue with the work they have done. In short, all work done upfront to write the policy and then trail comes in as long as policy is in force ( renewed annually ) Effectively, not accurately matching revenue and expenses.
( In this scenario, you will have a business with lots of up front expenses as policies are written and the trail coming in over future years with limited expenses. )
Instead, they are recognising more of the trail upfront to match more closely with the work they have done.
This is fine but if many of their policies do not renew then the revenue recognition model runs into trouble.
I do think the market will discount the value of this business because of their revenue recognition model but at 35 cents it is still half the price of other benchmarks . ( In addition , their model will need to comply with IFRS accounting standards so assumptions etc will be audited )
In summary, still comfortable unless the market totally discounts their revenue recognition model which I think is unlikely.
Let's see.
