ESNT reported for the 3rd qtr last week. I’m providing a summary here using essentially the same format as last quarter.
Here are updated numbers for ESNT through 3rd qtr 2016:
Qtr 1st 2nd 3rd 4th
Earnings
2013 .22
2014 .18 .23 .29 .33
2015 .38 .41 .44 .48
2016 .52 .57 .65
YoY Earnings Growth
2014 50%
2015 111% 78% 52% 45%
2016 37% 39% 48%
Current 1YPEG = 0.24
Revenue
2013 42
2014 48 54 65 73
2015 80 84 92 97
2016 103 108 121
YoY Revenue Growth
2014 74%
2015 67% 56% 42% 33%
2016 29% 29% 32%
Combined Ratio (percent)
2013 73.8 58.7 54.1 57.0
2014 54.4 48.9 42.9 42.3
2015 39.3 37.6 38.4 37.8
2016 37.2 34.1 34.1
Earnings and revenue continues to grow and are accelerating for 2016 3rd qtr, and Combined Ratio is unchanged at 34.1 % (which is awesome). 1YPEG is at .24 for share price of $27.10, which is much than at the last quarter (.30).
As I noted in my previous summaries, these articles explain the metrics I am calculating, and can be used to value insurance companies in general:
http://www.investopedia.com/articles/investing/082813/how-va…
http://seekingalpha.com/article/3280525-how-to-find-a-great-…
Here are updated metrics.
Metric 1: Price to Book Tangible Book Value
Rule of thumb is P/B should be less than 2.0. At a share price of $27.10, ESNT has P/B of 1.91 based on 2016 3rd qtr numbers. Not over 2, so OK, and essentially unchanged from last quarter.
Metric 2: Premium Growth
YoY premium growth was 46% for 2015, 25% for 1st qtr 2016, 29% for 2nd qtr, and 32% for 3rd qtr. Steady increase in premium growth continued this quarter.
Metric 3: Net Income Growth
YoY net income growth was 78% for 2015 and 38% for 1st qtr 2016, 41% for 2nd qtr, and 46% for 3rd. More increased growth. This is becoming a pattern.
Metric 4: Combined Ratio
The lower the better for this metric that measures how well an insurance company turns sold premiums into profit. For all of 2015, the combined ratio was 38.3% and reduced to 37.2% for 1st qtr 2016. Dropped in 2nd qtr to 34.1% and remains there for 3rd. This level is still just silly good.
Metric 5: Float Calculations
Float for 2015 was $219 mil and they had 20 mil return on investment for 9.1% and 1st qtr 2016 float was up to 228 mill with return of 2.7% for qtr. 2nd qtr was at 2.8% on $237 mil and 3rd is still 2.8% but on $245 mil – very nice. (1 – combined ratio) + return on float came in at 76.7% for prior 4 qtrs. Finally taking the last step suggested in the Rokke article, and dividing by P/B gives 40.2% based on 3rd qtr numbers. Even better than last quarter - which was awsome.
Metric 6: Potential Return on Float: Equities / (Fixed Income + Cash)
For ESNT, this ratio is 31.5% for 3rd qtr 2016. Even more aggressive level than last qtr which is OK as long as they are not required to pay out on a lot of claims
Metric 7: Return on Equity
ESNT ROE was at 14.1% for 2015 and updated for the 3rd quarter is 15.6% for the prior 4 quarters. Since an ROE in the mid teens is considered ideal for a well-run insurance company, ESNT passes this metric.
Summary
ESNT has put together another great quarter, and has continued to improve and grow almost every one of their metrics. Share price is still in the $26 - $27 range, which is about where it was last quarter, which means the YPEG is down to .24 from .30. I think shares are very reasonably priced right now, and I will definitely be adding shares if Mr. Market gives me a gift.
DT