IGIC - International General Insurance Holdings: Fantastic Market Position For Dividend Increases

2023-08-07 18:53:50 ET

Summary

• International General Insurance Holdings Ltd has seen a 30% increase in share price in the last year.
• IGIC is undervalued compared to its book value per share of over $13.
• The company operates in the specialty insurance business and has a high ROE of 21%, indicating potential for dividend increase and buybacks.

Introduction

The share price trajectory for International General Insurance Holdings Ltd ( IGIC ) has been anything but disappointing in the last 12 months as it's up nearly 30%. This has however not meant that IGIC is by any means overvalued right now. The book value per share has been steadily increasing over the years and sits at over $13 right now. This means that IGIC is undervalued in comparison to that, but it seems that it has historically traded below it. Perhaps as a result of the size of the business and the relatively low dividend yield too.

The company operates in the specialty insurance business and this has lent to grow their business quite well over the years. They have constantly performed and are well-positioned to gain from further tailwinds and market momentum. The ROE is incredibly high at 21% and this for me indicates that perhaps a dividend increase and strong buybacks might be around the corner. I hope this segment comes off as very positive because that is what I am on the future of IGIC as I rate them a buy.

Company Structure

As mentioned, IGIC operates in the property and casualty insurance industry where it has performed very well over the years and has created a lot of value for stakeholders. The company is based in Jordan but has operations across the world and the bond portfolio is very well diversified.

What has intrigued me about IGIC is its low valuation in comparison to the actual book value of $13. I think that given that the company is based out of Jordan, an area that has had a lot of struggling times and uncertainties, this is suppressing the value of the business. But I think most of the risks are accounted for, and the company is still presented as a solid investment opportunity.

In the industry, IGIC focuses on providing specialty insurance and reinsurance solutions to a worldwide customer base. Within IGIC there are three various segments, those being Specialty Long-Tail, Specialty Short-Tail, and lastly Reinsurance. The last segment is a lot about proper risk management as they are essentially taking on the risk and insuring insurance companies. It's a thin line to tread and can cause difficult quarters or years sometimes. But assessing IGIC it seems like they have been able to capitalize from it nonetheless and drive strong earnings growth, averaging a 104% yearly EPS growth over the last 5 years.

The company engages in various investment strategies and one of these is investing in bonds. The portfolio that IGIC has is very diverse with an average credit quality of A-. On an international basis, IGIC holds the largest amount of bonds in North America, at 33%. The market for bonds has been quite volatile as the rising interest rates took a toll on it. But it hasn't seemed to recover very well and there are still some uncertainties looming. IGIC still has a solid ROE of 21% as it has leaned into other parts of the investment markets and gained returns there instead. In the short-term bonds might continue to falter, but over the coming years, I think a rebound is likely.

Earnings Transcript

From the last earnings call that IGIC had there are some interesting comments from the CEO Wasef Jabsheh that I think are worth highlighting.

• " We are seeing positive momentum in many areas of our business, and we expect this to continue throughout 2023. The market today for IGI is one of the healthiest we have seen in more than a decade, and we are very excited about the opportunities in front of us. We have remained focused and disciplined, which has positioned us very well to be able to anticipate and take advantage of opportunities at the right time. There has been a significant increase in the flow of business that we are seeing, and that has allowed us to be more selective ".

As the CEO states, the market condition that IGIC operates in is incredibly beneficial to its business model. With a disciplined approach, the company seems adamant about this growing the margins and ROE. I think that IGIC is still in its growth phase as we have seen from previous reports and results. But I don't think they are far from being able to have a consistent dividend being distributed. Its history of it is quite poor but as ROE remains high and market conditions positive now is the time to establish one I think. Another way that IGIC has been able to pass on earnings is through buybacks which in recent years seem to have accelerated somewhat.

Valuation & Comparison

Playing with the idea that IGIC starts with a dividend and has a 20% payout ratio for it the company does look quite attractive right now. This is of course all speculation, but the high ROE does make the company able to do this in my opinion. The target price lands on $10.7 per share and that is above where IGIC trades today. I think that IGIC is not just a potential dividend distributor, but also a growth opportunity in the insurance industry. Driving strong EPS growth and a share price that follows will come from the broad diversification that they have and being able to be selective in which areas they focus operations on.

Risk Associated

While the aggregate combined ratio for the entire fiscal year appears notably low, a closer examination of the most recent quarter reveals a modest uptick. Specifically, the company recorded a combined ratio of approximately 92.4%, which, although still below the industry average, is higher than the corresponding period of the previous year. This shift in the combined ratio could potentially signal a future trajectory where losses might experience an uptick.

Investors should consider the broader context in which the company operates. The insurance industry is inherently sensitive to fluctuations in economic conditions, regulatory changes, and even external events. As a result, while the historical ability of the company to handle such fluctuations might offer reassurance, it's crucial to remain cognizant of the evolving risk environment.

Investor Takeaway

IGIC is right now presented as a rather low-risk investment I think. They have a fantastic track record and the management continues to see a lot of potential in the market which bolsters investor confidence in them. I think that for investors who seek a long-term and potentially dividend-distributing company then IGIC is solid. As a result, I am rating them a buy right now.

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