AGII (Argo
Group): Still in Play!
By: Wenting
(Mavis) Peng, student at
Marquette University
Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
Argo Group International Holdings underwrites specialty insurance and
reinsurance products in the property and casualty (P&C) market globally. AGII’s Excess and Surplus Lines segment underwrites
casualty, property, and professional liability coverage for contractors,
manufacturers, distributors, property owners, retailers, restaurants, environmental consultants and
contractors, and smaller medical facilities.
• A rising tide will lift boats in the
industry. When compared to other industries out there, the Property &
Casualty Insurance segment is boosting securities now.
• Even in the
tough environment, AGII is seeing a solid earing estimate over the past month,
suggesting that it has good potential in both short-term and long-term.
• Stock
repurchasing and stronger market share provides up-trend for AGII.
•
Alteris, a member of Argo Group, announced that it would serve as insurance
administrator for newly formed CalMutuals Joint Powers Insurance Authority and
work with nonprofit water systems in California.
Argo Group International Holdings, LTD (NASD: AGII) Should be a surge. Although the
catastrophe
loss ratio has improved about 5 pts since 2012, favorable development has been a consistent 2.5-3.0 pts benefit
(versus less consistency in earlier years)
and catastrophe volatility has been reduced (through both underwriting and reinsurance buying). In fact, in the past month, the current
quarter estimate has risen from 74 cents per share to 80 cents per share.
Meanwhile, the current year estimate has risen form $3.2 per share to $ 3.23
per share, an improvement of 12.3%. I think the
estimate will better reflect these results over time because the industry is
bullish and the company continues to
demonstrate a sustainable track record on the expected improvements.
Argo
Group has a very unique business mix and high quality business model, serving
special customer segments. The company has a global business mix primarily
focused on smaller/middle account specialty
insurance yet trades at a discount to on shore and Lloyd's specialty companies. Most noticeably, AGII’s mix of business is
primarily insurance that focuses on 92%
of total GWP with reinsurance accounting for about 8%.
In addition to a niche
retail commercial business AGII offers a sizable US Excess & Surplus
insurance platform and a large Lloyd’s syndicate to its customers. It also
serves for wide areas such as grocery, restaurants, dry cleaners and the mining
industry and public entity business. The company is
expected to continuously diversify its distribution network of independent
agents, MGA, wholesale brokers and Lloyd’s market and to maintain its strong
market position in the following year. In a word, the diversified global specialty
insurance platform with niche focus will continue to
contribute to AGII’s reputation as the industry leading company with strong
market position.
For
the three months ended September 30, 2015, AGII repurchased 85,959 common
shares for $4.8M. The repurchases were a part
of the 2013 Repurchase Authorization to repurchase
$150M in common shares; as of September 30, 2015, there was $63.1M remaining on the authorization. AGII continues to return capital to
shareholders in the form of repurchases and dividends at a similar annual run rate.
Alteris, a member of Argo Group, serves
as the Insurance Administrator for the new joint. This will create products
stability, responsive insurance coverage, and attractive pricing for the water
companies from California. This is also a win-win for both mutual water
companies and insurance providers.
How’s the Stock Performance
Recently?
During the past 52 weeks, the stock of
Argo Group International Holdings Limited has
outperformed the three comparable companies, which saw gains between 1% and
14.6%. During the past 12 months, the earnings per share
was totaled $6.34. Thus, P/E is 8.85, which is the lowest among its major
competitors. It shows the potential to buy AGII right now.
Past
Year Performance: Each of
the previous years, this stock increases in value. At the end of 2011, AGII was
at $23.93; however, the 52 weeks ending January 15 2016, the stock price of
AGII was up 15% reaching $56.13. The stock is nonetheless on the bargain table with a relatively low book value of 0.99-1.13
times. Moreover, AGII paid $0.8 dividend, giving you a promising “fixed income”
of 1.4%.
Source: FactSet
My Takeaway
The company’s
management team are confident and optimistic about AGII’s stock performance and
its earning’s momentum in short-term and long-term perspective. Because the bullish
trend of Property & Casualty Insurance industry, I firmly think AGII will
maintains its strong profit performance and its solid market position by
expanding its business through diversifying business mix, platform,
distribution networks, and products. Moreover, AGII is actively to improve its
capital efficiency, increasing stock buyback, which would potentially drive
AGII to a new high price sooner. In short, AGII should be a solid choice for
investors.
