This time from Forsyth Barr (kiwi mob) CBL Corporation...

This time from Forsyth Barr (kiwi mob)

CBL Corporation OUTPERFORM
Strategy Execution - Acquiring PfP
CBL has successfully acquired Professional Fee Protection (PfP), an
insurance broker in the UK, as part of its ongoing growth strategy into
niche insurance markets globally. The acquisition, at attractive multiples, is
a good strategic fit and provides ongoing organic growth opportunities
through the addition of new products and channels to market. We estimate
FY16E EPS accretion from the acquisition of +6%, while favourable
currency movements also boost our future earnings expectations. CBL is
trading at an attractive forward PE of 11.5x and we maintain our
OUTPERFORM rating.
What’s changed?
 Earnings: FY15/16/17 EPS have moved -0.6%/+8.9%/+11.2%
 Target Price: Increased +39cps to NZ$2.56
 Rating: We reiterate our OUTPERFORM rating
Acquisition of Professional Fee Protection (PfP)
CBL has acquired 92% of PfP for NZ$17m (£7.5m), on an estimated forward
multiple of 6.8x. PfP specialises in tax investigation insurance, providing cover for
any fees that accountants and SME’s face should the UK’s tax and customs
authority (the HMRC) undertake an examination of tax accounts. PfP has access
to over 5,000 customers, and offers up to a maximum £100,000 in cover across
an array of products. PfP is a Managing General Agency (essentially an
insurance broker in this case) and as such takes no insurance risk. On this basis
no material solvency capital requirements exist. The company generates
revenues through fees and commissions.
In line with strategic objectives
PfP’s modus operandi aligns with the CBL model. The company operates in a
niche insurance market with policies that generate similar underwriting profit
outcomes as those currently pursued by CBL. Strategically CBL will be able to
leverage the new products into its current markets, as well as some of its current
products through the new channel to market. All staff have been retained, with
current PfP CEO Kevin Igoe and Sales Director James Howell maintaining an 8%
share of the business, thus aligning incentives.
Accretive to short term earnings – adds longer term growth proposition
We estimate EPS accretion in FY16E of +6% from the acquisition of PfP. Longer
term, the ability to leverage the products elsewhere will provide growth options,
while CBL’s European-domiciled insurance subsidiary CBLIE is well positioned to
take on tax investigation insurance risk as the company further analyses the
claims profile of policies. Our earnings revisions account for the acquisition of
PfP, as well as the favourable currency movements that will drive NZ dollar
earnings higher.
12-month Target Price NZ$2.56
Expected share price return 13.8%
Net dividend yield 2.6%
Total 12-month estimated return 16.4%
Risk assessment Medium
Market Data
NZX code CBL
Share price NZ$2.25
Issued shares 219.7m
Market cap NZ$494.3m
Average daily turnover 317.4k (NZ$572k)
Share Price Performance
$1.50
$1.70
$1.90
$2.10
$2.30
$2.50
Oct15 Nov15 Dec15
Financials (NZ$m) 14A 15E 16E 17E
NPAT* 20.5 26.3 44.0 54.0
EPS* (NZc) 9.4 12.0 20.0 24.6
EPS growth* (%) 14.4 28.1 67.2 22.7
DPS (NZc) 6.4 0.0 5.8 7.1
Imputation (%) 100 100 100 100
Valuation (x) 14A 15E 16E 17E
EV/EBITDA n/a n/a n/a n/a
EV/EBIT n/a n/a n/a n/a
PE 24.1 18.8 11.2 9.2
Price / NTA 14.1 3.4 2.8 2.3
Gross dividend yield (%) 3.9 0.0 3.6 4.4
*Historic and forecast numbers based on underlying profits
Financials Sector
James Bascand
[email protected]
+64 4 495 5264
Investment View
CBL offers investors leverage to offshore earnings generated by a provider
of specialty insurance products. The company operates a differentiated
insurance model maintaining a best-in-market claims ratio through effective
underwriting, and has demonstrated its ability to materially grow earnings​

over a number of years. Our rating is OUTPERFORM.