ESNT 4th Qtr

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

8 Likes

Cap 5 b

Rev 576 m

Rev growth 25%

Stock appreciation over last 12 months 30%

Hmmm,

I guess someone didn’t like my 4th quarter review? Ha! ESNT is off 7.5% on heavy volume and no news that I could find.

DT

OK, this explains the sell-off:

From Seeking Alpha:

RBC says mortgage insurers are a Buy

Mar. 12, 2018 1:40 PM ET|By: Omer I., SA News Editor
RBC analyst Mark Dwelle responds to earlier reports of a partnership between Freddie Mac and Arch Capital saying, investors should buy the weakness in private mortgage insurers as the impact will not be as bad as the stock selloff.

The pilot program being tested by Freddie Mac (OTCQB:FMCC) in partnership with Arch Capital (NASDAQ:ACGL), has investors concerned, but Dwelle notes that the plan - is a pilot test program - only impacts the “singles” business - which is 15% to 20% of the total - and it will need be adopted by Fannie and other lenders to be of significant immediate concern.

Radian Group (RDN -9.8%), MGIC (MTG -9%), NMI Holdings (NMIH -10.9%), and Essent Group (ESNT -9.6%) all crashed on the news earlier today.

May be an opportunity…

DT