Greetings,
I’ve been too busy to get to my latest update on ESNT during the last couple weeks, but better late than never, I say. Here goes –
The basic details:
Current Price = $47.66 (March 9th close)
Current 1YPEG = 0.55
Qtr 1st 2nd 3rd 4th
Earnings
2013 .22
2014 .18 .23 .29 .33
2015 .38 .41 .44 .48
2016 .52 .57 .65 .68
2017 .72 .77 .82 1.65 less .86 = .79 (tax change effect)
YoY Earnings Growth
2014 50%
2015 111% 78% 52% 45%
2016 37% 39% 48% 42%
2017 38% 35% 26% 143% or 16% based on .79
Revenue (million $)
2013 42
2014 48 54 65 73
2015 80 84 92 97
2016 103 108 121 126
2017 128 138 150 161
YoY Revenue Growth
2014 74%
2015 67% 56% 42% 33%
2016 29% 29% 32% 30%
2017 24% 28% 24% 28%
Now to the metrics I use to evaluate ESNT:
Combined Ratio (percent): Lower is better – 36% is still awesome, but rising a little
2013 74% 59% 54% 57%
2014 54% 49% 43% 42%
2015 39% 38% 38% 38%
2016 37% 34% 34% 33%
2017 34% 30% 30% 36%
Price to Tangible Book Value: Ideally < 2.0
OK, 2.38 is a little high for your average insurance company,
but for one growing at this pace, I can live with it (see below).
2014 5.36 5.17 5.01 4.31
2015 4.31 4.18 4.00 3.85
2016 3.64 3.46 3.30 3.23
2017 3.09 2.91 2.53 2.38
Net Premium Growth YoY
2014 110% 83% 76% 68%
2015 68% 56% 39% 32%
2016 26% 29% 32% 31%
2017 25% 26% 24% 27%
Net Income Growth YoY
This was lagging for 1st three quarters of 2017, but caught up in a hurry due mainly to
the change in income tax law. But YOY growth for all 2017 was 44.2% compared to 41.5%
for 2016 even when excluding the one-time tax credit.
2015 132% 90% 63% 54%
2016 38% 41% 46% 41%
2017 39% 38% 31% 68%!! (adjusted for tax change but still skewed)
Float (million $)
2013 106
2014 115 129 147 165
2015 174 190 207 219
2016 228 237 246 248
2017 251 259 277 307
Return on Float (Quarter)
2013 1.2%
2014 1.7% 2.4% 2.3% 2.4%
2015 2.5% 2.5% 2.6% 2.5%
2016 2.7% 2.8% 2.8% 3.3%
2017 3.4% 3.6% 3.8% 3.8%
Return on Float (TTM): Not much change here.
2014 7.5% 8.7%
2015 9.5% 9.6% 9.9% 10.1%
2016 10.3% 10.7% 10.8% 11.6%
2017 12.3% 13.1% 14.1% 14.7%
(1-Combined ratio)+return on float: Well-run company is around 10-15%.
78% is still very good, but starting to drop off a little.
2015 72% 72% 72%
2016 73% 77% 77% 79%
2017 78% 83% 84% 78%
Divide by P/B: Greater than market return? P/BV > 2 maybe justified
2015 20% 21% 22%
2016 23% 26% 27% 28%
2017 30% 34% 37% 36%
Potential Return on Float (TTM): Equities/(fixed income + Cash) - Very aggressive and is
worth watching.
2014 29.2 26.0
2015 27.2 20.2 29.1 25.2
2016 23.6 22.9 31.5 24.2
2017 28.3 18.4 18.9 23.2
Return on Equity: Ideally in the mid-teens
2014 9% 10% 9%
2015 11% 12% 13% 14%
2016 14% 15% 16% 17%
2017 17% 17% 16% 17%
Summary
This was a strange quarter because the changes associated with the new tax laws took effect. This made evaluating the numbers difficult, at best. For example, the YOY net income for the 4th quarter grew at 68% even when the tax credit is subtracted out! But it is still skewed because there were taxes paid out in the 2016 4th quarter, and we don’t know where taxes will be going forward. ESNT increased their book value by 44.4% during the last year (again aided by a prepaid tax credit) so they are motoring right along. Stock-holders equity is now at $1.94 billion up from $1.34 billion a year ago. Impressive.
I listened to the conference call, and CEO Mark Casale mentioned that, as expected, last year’s hurricanes bumped up the rate of loan defaults a bit, but was not too significant, and is now essentially in the past.
So, overall another solid quarter for ESNT, I think, though the details are somewhat obscured by the income tax credit. The way I look at it, this is just another influx of cash that Mark Casale and team can turn into profit. I’m holding tight.
Best,
DT
Long ESNT