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Valuation of $0.280
stale
Added 11 months ago

ENA to be acquired at ~28c/ENAshare by PSI.

I love the structure of the deal;

If PSI falls, the difference is paid out in cash (so that no matter what we get the equivalent of 28c/ENA share).

If the PSI share price moves higher, the value of the deal effectively moves higher too, so the final 'value' of the deal could be more than 28c/ENA share.

Well done to management and congratulations to shareholders.

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#ASX Announcements
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Added 11 months ago

SCHEME OF ARRANGEMENT – PSC INSURANCE GROUP TO ACQUIRE ENSURANCE LTD PSC Insurance Group Limited (ASX:


PSI) (PSC) is pleased to announce that it has entered into a binding scheme implementation deed (Implementation Deed) under which, subject to the satisfaction of various conditions, PSC will acquire all of the shares in the capital of Ensurance Ltd (ASX:ENA) (ENA) by way of a scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth) (Corporations Act) (Scheme).  

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#Q4 FY23 Result
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Added 12 months ago

Circa $0.7 million in net operating profit for the past 12 months — thus ENA is now trading on a PE of approx 25x at the current market cap of $17.6M or a PE of approx 17x on a cash-adjusted basis (approx $5.5 million in net cash on the balance sheet). For a company growing the top line (GWP) at 40% YoY, that seems like reasonable value to me.

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#Musings
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Added one year ago

Just revisiting this given the share price action...

With ~90m shares on issue, we have a market cap of $18m at 20c. In my mind, I'm contemplating what it would take for the share price to double from here. To get to a $36m market cap (40c) on a PE of 15x, we'd need NPAT of $2.4m. That's EBIT of around $3.4m. With an EBIT margin of around 30%, that requires a top line of $11.3m.

If we do a similar calc, but on a PE of 30x, we'd need NPAT of $1.2m, or EBIT of $1.7m, which requires a top line of $5.7m, (assuming a 30% EBIT margin).

That compares to a current top line (run rate basis) of ~$3m. So if the top line was to grow at 25% pa, we'd reach $5.7m rev in 3 years time. I.e. 100% share price uplift in 3 years, if those assumptions hold. But if the stock was to trade on a PE of 15x, it would take 6 years for the same outcome (share price to double).

Either way, that's a better outcome than the long-term average of the ASX All Ords (doubling every 7-8 years) - but it relies on execution success (30% EBIT margin, strong compounding growth of 25% YoY). These calcs also don't take into account the strong cash balance of ~$6m (given the PE multiple approach works off NPAT, not EV).

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#Quarterly 4C Cash Flow Report
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Added one year ago

efa3c8e84bd40d6fda62e80802ff89f8b8d462.png

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Here is 1.9 Net cash form Operaring Activities: $312,000 see Below:

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Market cap $21Mill only a minnow small one here.

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#Earnings Yield
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Added one year ago

I believe the current leadership team has shown itself to be a safe set of hands. An impressive track record is beginning to be built here ever since the involvement of Tony Leibowitz (and subsequently Tom Kent), and they are backing themselves to continue this success with collective ownership of > 30% of the company (with ongoing on-market share purchases).

FY23 and beyond should show a higher profit margin now that the UK business has been sold, and they are doubling down on Australia. At 22c, we have a market cap of ~A$20m and net cash and investments of ~A$8m (of which $1.5m is in KOBA and $2m is in ASX PSI), thus an EV of ~A$12m.

The business is set for around ~A$1m in profit in the next 12 months (based on normalised numbers from the last 4c), so by my calculations, ENA is trading on an NTM earnings yield of 1/12 = 8.3%, for a low-moderate level of risk (insurance being a defensive industry). There's no way I will beat that in bonds or a high-interest cash account.

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#Business Model/Strategy
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Last edited one year ago

Not sure this is the type of investment I was expecting from ENA - not sure what I think of it. No financials given.

Could well be $1.5M torched or a significant winner. Not sure how likely it is for people to want to install something on their car, those that don't drive much I imagine would be classic cars which would def not want to add something and probably wouldn't work being electronic?

Ensurance Limited (ASX: ENA) (Ensurance or the Company) is pleased to announce that it has made a strategic investment in innovative car insurance retailer, KOBA Insurance, providing Ensurance with the right to distribute KOBA’s insurance product.

KOBA is a private Australian company that launched in November 2021, offering a data-driven approach to car insurance. Users pay a fixed amount to have their car insured while it’s parked, and then pay only for the distance they drive. Usage is measured through a small matchboxsized device called a KOBA Rider that attaches to a car’s On-board Diagnostics (OBD) port.

pdf (markitdigital.com)

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#Management
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Added one year ago

Ensurance CEO shares growth plan after regulator clears sale of UK arm

13 March 2023


Underwriting agency Ensurance says the business is in a “good position” to grow its Australian presence after completing the sale of its UK arm to Melbourne-based listed PSC Insurance Group for $8.2 million.

The two companies said last week the deal has received approval from UK regulator, the Financial Conduct Authority.

Under the terms of the agreement, 75% of the purchase price will be payable in cash and the other 25% via paid ordinary shares of PSC. The issue price of the shares will be determined by the average closing price of PSC stock for the 10 days prior to completion.

Ensurance CEO Tom Kent says the sale proceeds will allow the underwriting agency to “catalyse” its growth plan for the Australian market.

“Now we can look at acquisitions, work on new products. It’s a good position to be in,” Mr Kent told insuranceNEWS.com.au today.

He says one of Ensurance’s goals is to “achieve growth over and above market rates” and the business has been able to do so.

Ensurance is re-focusing on the Australian market, having worked in the last few years to establish its UK business after selling its local underwriting arm to 360 Construction and Engineering in 2020.

Mr Kent says the feedback from brokers has been positive.

“We’re finding that brokers just want more products, they want tailored service, they want to be able to have a discussion with an underwriter about a risk rather than just being told they have to log on to another quote and bind platform,” Mr Kent said.

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#Financials
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Last edited one year ago

Clearly investing for growth with a $400k increase in employment costs on the pcp. If they hadn't invested for growth the Australian operations would have generated about $450k in NPBT or annualised about $900k perhaps a bit below with other salary increases. Say 800k NPBT or NPAT of about $560k. That would put them on about 40x earnings but adjust for the PSC shares and cash to come in in the 3Q very roughly 22x earnings.

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As long as the investments in staff make sense and they generate revenue ENA looks to be going in the right direction albeit some of it is hidden with the investment. I imagine expenses will increase with the new offices too in the next 6 months.

They would have been FCF positive just from the Australian operations even with the increase in costs which is also nice.

Might take quite some time for everything to show through and be recognised by the market. The insurance PI market may shift to premium softening which would not be good.

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#Industry/competitors
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Added one year ago

A team of former Steadfast executives has launched an underwriting agencies incubator, backed by an American investor, to help new agencies enter the market.

“Rhodian is looking to create and incubate, support the next generation of agency leaders and the brands that they will create,” he says.

Agencies incubator launches with US investor backing - Breaking News - Insurance News - insuranceNEWS.com.au

More interest in the space, a bit annoying for competition with ENA but hopefully there's enough to go around.

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#Q2 FY 2023
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Added one year ago

Continued strong Quarter from Ensurance especially in the core Australian division.

Great to see not only a positive operating cashflow but also continued profitability.

With one off expenses associated with the settlement of the sale of UK division and set up of casualty division within Australia these costs will be yielding future growth in revenue and profitability.

Looking at the quarter I sense its a bit of a reset in terms of preparation of the sale of the UK division and formation of the casualty division in Australia.

Growth will thus occur both organically via price increases but also via new products as mentioned in 4C across the environmental impairment and general liability area across the Australian Market.

@Invmum good call re GWP growth and slowing nature and something to keep a close eye on but feel this the beginning of the journey for Tom and the team not a flattening.

Finally concur with @Mujo re the disciplined manner in which capital is being used. This is a real strength and look forward to the future quarters especially with the receipt of the 6.2 million in cash (in Q3 2023) which will be added to the 1.163 million in cash currently.

Disc. Top 5 position in RL and SM




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#Industry/competitors
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Added one year ago

@mujo appreciate the post and interesting development in the insurance, specifically MGA space.

For me this clearly shows the strength of this sector at the present time and attractive margins that accompany the players that operate in the space.

Fluent will be tested in terms of the multiples they will need to pay to gain a share in the space in Australia or they will need to wait years to see the cycle adjust and thus multiple offered to be lower.

Fluent's advantage may be the ability to provide funding for any MGA whom seeks to grow and capitalise on the positive conditions presented ie, accelerate grow. This makes sense on one hand but the question would be at what cost would equity be offered?

Fascinating to see unfold over the next 5 years.

Tom Kent - ENA CEO has repeatedly commented on the stretched mutiples in the market place presently and the need for patience and discipline.

In respect to being acquired themselves i suspect the offer for ENA to give equity away would need to be very attractive as the high insider ownership would simply lead to dilution.

Would love to here anyone else's thoughts?

DISC: Holder of ENA in RL and SM



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#Industry/competitors
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Added one year ago

A fund manager letter explaining a little about MGAs - Fluent+Risk+Partners+Inaugural+Partner+Letter.pdf (squarespace.co

Obviously getting some attention overseas.

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Valuation of $0.450
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Added 2 years ago

Have assumed rev growth 30% p.a out to FY28 ($12m); 20% thereafter

peak EBITDA margins of 37% - this compares with PSI 37%; AUB 25%; SDF 31%

10 yr DCF using WACC 11%; Terminal gr/r 3%

val $0.45

Lots to like -- founder led, skin in the game, high margin, high ROE, recurring rev, likely M&A target, no debt -- but relies on execution which to date hasn't been great. Hopefully this is the start

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#Director buying
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Added 2 years ago

More on-market trades for Ensurance... this one very small from Anthony Leibowitz, but continues the pattern @TEPCapital



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#Valuation Multiples (Comparato
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Added 2 years ago

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#FY23 Estimates (FY23e)
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Added 2 years ago

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#Chairman buying (again!)
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Added 2 years ago

Chairman Tony Leibowitz continues to top up at ENA with further purchase of over 320,000 shares at 0.23c this week.

Holding now sits at 17.5% with Tom Kent - CEO holding a further 15.8%

This takes past 12months purchases from CEO and Chairman to just under $690k

Disc Hold

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#AGM
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Added 2 years ago

It was terrific to meet two high-quality straw-people at the Ensurance AGM recently (ENA), namely, @wtsimis & @PinchOfSalt; the Strawman network is a good one!

It was very insightful to meet and speak 1:1 with Tony Leibowitz (ENA Chairman, and ex-PLS founder) for a considerable amount of time, in addition to Tom Kent (ENA CEO) after the AGM itself. Both are very down to Earth and humble. They are most certainly the under-promise and over-deliver type.

I also happened to meet Tony's son, Matt, who is a shareholder in ENA and the CEO and Founder of Stake. Suffice to say, the Leibowitz's are a high-performing (and very wealthy) family.

My investment thesis in ENA has strengthened based on a) ENA team morale and b) Tony & Tom's appreciation for smart capital allocation and growing profitability.

Remains my #1 pick and largest holding on Strawman and in real life.

T.E.P.

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#Cyber Insurance
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Last edited 2 years ago

One of ENA's key lines:

"There is an excess demand for Cyber insurance in Australia vs. available supply. Research by insurance brokerage Aon found the most common reason for an insurer declining to quote for Cyber coverage was inappropriate access controls, followed by the lack of business resilience plans. The same analysis by Aon found insurers were increasingly becoming concerned about risks across all sectors."

Will have to be careful though, a lot of policies losing money for insurers:

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Per Macquarie:

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#AGM
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Added 2 years ago

Hi Straws had the opportunity to attend AGM of ENA on Wednesday 23rd Nov and wanted to share some insights in lookng ahead.

Firstly declaring my holding in RL and SM of ENA.

Secondly having attended larger AGM's it was fantastic to be able to able to sit in more of a intimate setting to complete the formalities and then break out in open dialoge and in turn one on one discussion with the key leaders of ENA.

Specifically , CEO - Tom, CFO - Lauren , Chairman - Tony and National Sales Manager in Nick.

In doing so the ability to explore the edge ENA have created and looking to exploit was of high interest and being able to ask how this will be executed to confirm this edge is real .

Key take outs:

  • Ensurance is a very united and focused/ disciplined team led by Tom Kent driven to deliver material returns financially for shareholders for not only in the short term but over the next 5yrs plus.


  • Current climate of insurance underwriting is presenting strong organic growth within Australia particularly with high margins when comparing to UK as an example. Much work has been undertaken this year to develop new products base on market trends which will be coming on stream over the next 6-9months and offer broader options for customers where traditional insurers are not covering at all . Areas include professional indemnity , management liability and cyber liability.


  • UK sale for 8.2m (6.15m cash and 2.05m script of PSC)is on track and waiting for clearance of two regulatory checks. This cash when is lands will ensure funding for growth in Australia.


  • 2022 has seen key positions in Australia fulfilled ( Nick in National Sales and Richard in Vic. Andrew Enc as well other Senior Underwriters) . Growth in Gross Written Premium (GWS) has flowed already but 2023 and beyond will see further opportunities.


  • When delving deeper into the recruitment it is pleasing to see the focus on quality candidates whom are experienced and proven whom had worked with Tom Kent prior and were motivated to shift away from the larger organisations such as AXA due to the slow and bureaucratic nature of how they run and invoke change or meet the changing needs of the insurance market . This was explained as an edge currently being experienced for ENA with other underwriter's seeking to follow Nick's move to ENA (Nick did outline he does not see this continuing too long but in the current tight labour environment was a positive) .I was also able to explore what made a good Senior Underwriter and the response was interesting in terms of gender . We discussed that women's strengths of listening and paying attention to client requirements as well as cover the details is resulting in stronger results than their male counterparts . This is due to male senior underwriters tending to seek the results without necessarily building the relationship.


  • Acquisitions may occur in the short to medium term but will only occur at reasonable multiples ie, under 8x EBITDA .This will be funded with cash where possible or equity / debt . Tom indicated ENA had already walked away to several opportunities but would not entertain acquisition at any price. Growing organically is the main focus .


  • it was also discussed as the business grows over the next 3 plus years Ensurance may consider taking on the first million dollars of risk . This will in turn enable improved margins to transpire ie form 15% to 18% or higher.


  • Liberty agreement working well and ENA look to exploit the opportunities it presents.


What to watch :

  • Growing Operating Margins (especially in Australia)
  • Growing GWP , 30% plus per annum
  • Positive and Growing CF and Profitability
  • Acquisitions to be purchased under 8x EBITDA
  • Remain positive and optimistic for the future of ENA

Call out to to Tom P fro TEP capital . Great to meet him at the AGM and share the experience.










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#Bull Case
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Added 2 years ago


Solid results released by Ensurance this morning .

Key metrics and highlights .

  • Rev growth of 35% total to 2.1million for the quarter .
  • Australian growth was 43% v 22% in UK (which is in the process of being sold)
  • Q1 2022 rev was $955,000.
  • Gross Written Premiums 16.4mill for the quarter up 28% versus Q1 2022.
  • Unaudited Qrtly profit to $265,532 v $271 Q1 2022 .
  • Profit Margin expansion to 12.87% v 0.02% LY Q1.
  • Expect to see this continue expansion to occur in 2023 and beyond especially following the sale of UK operations
  • From a cost side the increases to head count have seen staff costs rise 10% year on year (when taking the average qrtly salaries ) for the quarter to $1,388,000.


Tom Kent - CEO commented on continued strength across all segments and intends to release new product lines in the coming months.

Disciplined nature in terms of growing profitability and shareholder return coupled with high insider ownership and senior management alignment bode well for the next 3-5yrs

Hold my current valuation of 44c

Top 5 position in my portfolio

ENA Q1 2023.pdf

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#Premium Hardening
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Last edited 2 years ago

A little snippet from Macquarie's review of Arthur J. Gallagher (american insurance company.

PC market renewal premiums continue to increase across all major AJG geographies and product lines globally. Sept qtr to date renewal premiums, rates and exposure combined, are up >10% for the group.

Australia is up 15%; property is up >20%; casualty, high teens; and professional liability in the low teens. Most other lines are in the high single-digit range. New Zealand, renewal premium changes over 10%. Most lines renewal premiums are in this range, +/- a few points.

Cyber remains the most challenging coverage for clients in terms of rate, capacity, and terms. Public company D&O, is seeing a moderation of rate increases; and, in some cases, clients renew their programs closer to flat.

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#Chairman buying (again!)
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Added 2 years ago

Another 250,000 units (~$50k AUD) were acquired by the Chairman, on-market.

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Valuation of $0.440
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Added 2 years ago

Taking a deeper diver into the outlook for ENA I have updated and upgraded valuation .

Assumptions that are driving the change are as follows:

Revenue growth (Australian division only ) to be 40% pa over next 5 yrs.

This growth reflects the low base of 2.4m in FY22 .

FY 2027 revenue to reach 12.91million

Although this appears to be aggressive there are clear plans in play on the expansion with offices across the major states in Australia.

EBITDA margins to be 30%.

The Australian division achieved over 50% EBITDA margins in FY22 so the the 30% offers some buffer.

By FY 2027 the EBITDA will growth to 3.87m (FY 22 Australian division was 1.34m)

The motivation of the leadership group to bring on revenue that is of high margin is a clear focus and a priority (best reflected in the sale of the low margin UK business)

Shares on Issue to grow from 90.1m to 104.5m or 3% per year .

This allows for some the board to approve long term incentives for the leadership team.

When deriving at 44c valuation PSC serves as a good benchmark .

The multiples they are trading at as of 23rd Sep 2022

7x revenue

18x EBITDA

At the 7x revenue line provides a MC of 70mill for ENA in 2027 or 67c

At a 18x EBITDA 90mil for ENA in 2027 or 93c

Taking a 10% discount per year for the five years to the 7x revenue (the more conservative figure) with 104.5mill SOI = 44c

With great tailwinds in the current environment and high insider ownership whom are disciplined in their capital management ENA remains a strong buy

Top 5 position in my portfolio in RL and on SM




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#Business Model/Strategy
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Last edited 2 years ago

Capital light and operating leverage.

From the SDF recent results call - not on ENA per se but the model.

Stephen Humphrys

Yes, you get a slightly higher leverage, yes, in an agency. It's probably more like 80% as opposed to 70%. And then it really just comes down to that cost and how each particular business performed. As I said, I think where you might have had a slight imbalance this year, I expect some of that to reverse next year and normalize it all back out. So I wouldn't say there's anything what you might call fundamentally different, ultimately, if you look at over that, say, that 2-year horizon.

Robert Kelly

And also, just to give you a little bit more perspective on that, an underwriting agency can write a lot more business without necessarily exponentially having to put on more staff to do it, whereas a broker may be constrained to be able to write another 20% or 30% more business without having an impact on their expense line. So there is a different metric in underwriting agencies in terms of volume, not necessarily being followed by increasing expenses.

Stephen Humphrys

Hence, why the higher margins.

Robert Kelly

That's why the mark in agencies, particularly the larger ones.

Doron Kur

Makes a lot of sense. And maybe just a bit more color, Robert, on your point there around opportunities for agencies as insurers reposition product lines and distribution.

Robert Kelly

Yes. Look, I think that there's more and more where insurers are being more finite about what they want to write and so that at some products, they're dropping out. They're not as keen to write them, but they've still got to be sold into the market that consumers still wishes to buy them. So in doing that, that allows an opportunity for an MGA to pick up the specialist line to fulfill that gap. And so -- and also in some degrees of how their reinsurance is now put together where they elect not to take certain CRESTA codes on in property, then that allows that part of the property section to go into the open market, which again allows us to more develop products to fulfill that gap.

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Valuation of $0.270
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Added 2 years ago

Seem to be a few different way MGAs are priced at takeover i.e from EBIT multiples, to % of GWP depending on the acquirer. Larger size means higher multiples.

$6M cash from takeover plus $1M in cash existing - $7M.

$2M in PSC Shares.

Australian GWP around $19.5M (my estimate). Going to value this at 75% of GWP so $14.7M.

$14.7M + $9M = $23.7M

86.9M shares on issue.

Value of $0.27.

I think this is quite conservative but current premium hardening cycle, micro cap, execution risk, and lose some scale over fixed costs due to sale of UK. Keen to follow to see how the story unfolds and will increase my valuation as I become more confident.

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#FY22 Annual Highlights
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Added 2 years ago

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#Management
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Added 2 years ago

No surprises from Ensurance today with the release of full year results but what is evident is the pivot to Australian market which net profit (excluding head office) was 1.345million on revenue of 2.462m. Net profit margin of 54%.

The Sold UK business although delivering good top line of 4.832m for the full year contributed 262k to net profit on a margin of 5.4%.

The high insider ownership Tom Kent (CEO ) and Tony L (Chairman ) have and the discipline approach to the business displayed provides comfort that the future is positive.

Hold in RL and SM

Top 5 position

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## Maiden Annual Profit
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Added 2 years ago
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#Bull Case
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Added 2 years ago

Just revisiting progress and this is still on the watch list....breakout didn't happen yet but it looks like there is some underlying strength as not more than a 10% dip on the last market retracement. (also no bounce).

Just follow the chart

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#CEO buying (again!)
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Added 2 years ago

ENA's CEO, Tom Kent, has also dipped his hand into his own pocket to buy another $115,658.40 dollars worth of ENA shares at current prices. Great to see.


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#Chairman buying (again!)
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Added 2 years ago

Tony Leibowitz, has just bought another lazy $279,139.57 dollars worth of ENA shares on (and off) market (1,200,000 units) at an average price of 23.3c to take his total holding from 15.87% of all SOI to 17.13%.

Tony Leibowitz is a Fellow of The Institute of Chartered Accountants in Australia and has over 30 years of professional experience, including as a senior partner with PwC in corporate finance and investment banking. Thus, I suspect the ENA financials are tracking pretty well indeed...

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#Cross Trade
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Added 2 years ago

Very large cross trade on ENA. Not sure whether this is the last of the overhang from a shareholder selling out or something else.


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#Selling ENA-UK was wise
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Added 2 years ago

The situation ENA is left with is now as follows:

  • Amazing balance sheet: ~$8m cash in bank, ~$2m investment in PSI
  • Top line growing, high-calibre team, management buying on market etc
  • EV of ~$12m
  • ENA Australia at ~$3m revenue growing at 50% CAGR
  • A high-margin operation


Why this was a smart strategic move:

  • They sold the lower quality half of their business (ENA UK) at the top of the insurance cycle


Was it a good price?

  • H1 FY22, ENA UK did EBITDA of A$128K and EBIT of A$106K
  • The deal was for A$8.2m (75% cash, 25% shares)
  • That's a transaction multiple of 32x EBITDA and 38x EBIT (and a PE of 40x) if one annualises the H1 FY22 figures
  • It might look like an average price on a revenue multiple (~2x) or on a p/GWP multiple (~21%) but that obscures the fact that the ENA UK business has razor-thin margins, and very heavy regulatory, systems and HR costs


The ENA Australia business is in rude financial health:

  • The Australian business is running at an EBITDA of $823K in H1 FY22
  • That's 6.4x as much profit as ENA UK; the data suggests it is the faster growinghigher quality business for ENA to focus on


The future for the ENA growth opportunity looks immense

  • ENA Aus is at the beginning of a significant growth runway in its specialist sectors in Australia
  • They have expanded from 1 office (Adelaide) to 4 (Melbourne, Sydney, Perth)
  • They now have significant funds to execute on strong profitable growth
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#Q4 FY22 Quarterly Result
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Added 2 years ago

Well done to the ENA team — producing a record quarter at the top-line and bottom-line. Also appears that the Australian expansion is heating up. During the quarter, Ensurance Australia appointed Andrew Hookings as National Manager – Casualty & Environmental Risks in Sydney. This role will commence in October of this year. I like their expansion/diversification strategy of the product set outside professional and financial risks insurance products.

In the space of 1.5 years, the ENA Australia business has grown from 1 office in Adelaide to multiple offices in Sydney, Melbourne, and Perth, all whilst remaining cash flow positive! I personally believe there is a solid chance that ENA will be a dividend-paying stock in 3-5 years' time based on the strong and improving margins of the ENA Australia business, the discipline towards profitability being shown and the fact that Tom Kent himself is the company's largest shareholder – thus dividends provide a way of returning some of the business profits back to his pocket (and that of shareholders).

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JUNE 2022 Quarterly Report:

Ensurance set to announce maiden annual profit after posting fourth consecutive quarter of positive net operating cash-flow

Growing demand for specialist insurance products, in conjunction with an expanded Australian operation, results in another strong quarter

  • FY22 revenue rises to ~$7.2M, a 61% increase over FY21.
  • FY22 unaudited net profit of ~$224K compared to a $1.3M loss for FY21.
  • Strong June 2022 quarter resulting in $2.2M revenue (March 2022 quarter: $1.46M).
  • Gross Written Premium (GWP) of $57M for FY22 and $16M for the June Quarter.
  • Debt-free following repayment of the $1M unsecured loan.
  • Expanded Australian operations with the opening of a Melbourne office joining established offices in Sydney, Melbourne, Adelaide and Perth.
  • Strong business outlook with Australian revenues underpinned by recent 3-year contract with Liberty Specialty Markets.
  • Subsequent to quarter-end, Ensurance signs a non-binding term sheet to sell its UK operations to PSC Insurance (ASX: PSI) for A$8.2M; The sale will allow Ensurance to focus on the immense growth opportunities in Australia.
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#Bull Case
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Added 2 years ago

Really positive results fro ENA this morning .

Hard to fault.

  • Q4 rev was 2.24m up 114% on Q4 2021 taking FY to 7.2mill up 61% on FY21
  • Q4 GWP was 16million up 69% on LY taking FY GWP to 57m up 67%
  • Q4 was fourth quarter in a row of positive CF ($350k) and has enabled ENA to turn a profit of $224k for the FY . 2021 was a loss of 1.3m
  • Debt has been paid off
  • 1million in cash on balance sheet ahead of sale of UK business for 8.2m which will be an enabler for growth in Australia at higher margins.
  • Looking at the costs side for Q4 they came in at 1.8mill in total. Love the focus on the detail and discipline

ENA Q4 and FY 2022.pdf

In commenting on the year ahead Tom Kent CEO explained the uncertain environment presents opportunity for ENA across multiple areas with professional indemnity area particularly strong

ENA Q4 and FY 2022.pdf

Happy holder on SM and RL


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#Valuation Implications
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Added 2 years ago

The ENA Aus business was bought for just ~$2.5m a little over 12 months ago. At that time, the ENA Aus business was doing ~$10m in GWP. It is also interesting to note that that transaction was done at 30c (3c followed by a 10/1 consolidation); so there is a big incentive for Tom Kent to get the share price back above that level. Fast forward a short space of time and the ENA Aus business is doing $15.2m GWP*. So in a little over a year GWP has grown 50%. Is that enough to justify a 4x uplift in market value? Probably not. But, in the last couple of months (yet to be reflected in financials) ENA Aus has also grown from 1 office to 3 and the team has expanded more than 5x. With ENA UK sold for $8.2m (40% of the market cap), my conclusion is that the overall ENA market valuation ($21m MC, $13m EV) reflects the profitable, fast-growing nature of ENA Aus.

* $13.40m in GWP was done in the quarter ending March 31st 2022 across the entire business. Annualising, I get to a run rate of $53.6m GWP. Deducting $38.4m GWP (as calculated in my previous post), I get to $15.2m GWP (annualised) for the ENA Aus business.

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#Sale of UK business
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Added 2 years ago

There are several key reasons why this appears to be an excellent strategic move other than the fact that divestments are generally received much more favourably by the market than acquisitions:

  1. The ENA AUS business has higher margins (more tech-enabled) compared to the ENA UK business. Thus, they are re-directing efforts into areas of the company that have more profit potential and that are arguably higher quality.
  2. The valuation appears to be favourable. This is the right time of the insurance cycle to be selling, which has enabled them to achieve an incredible ~30x EBIT valuation on this transaction (~21% p/GWP)*
  3. 75% of the sale proceeds will be received in cash, which gives them a $6.15m boost to their balance sheet. At the current market cap of $21m, plus the existing $1.7m held in hand, the Enterprise Value (EV) of ENA is now $21m - $6.15m - $1.7m = $13.15m
  4. 25% of the sale proceeds will be received in PSI shares; this is a high-quality ASX-listed company ($1.46b market cap) to have exposure to (an older cousin of ENA of sorts)
  5. ENA can now direct more focused attention to the Australian insurance underwriting market and be laser-focused on the east coast expansion


A potential disadvantage of the decision is that the mix/diversity of insurance sectors in which ENA products are offered will decrease. In addition, there will no longer be a natural seasonality hedge operating in both the northern and southern hemispheres.

All in all, I think this is a smart move.

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#Chairman Buying
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Last edited 2 years ago

Ensurance Chairman Anthony Leibowitz took Wini's advice to buy the dip and bought up another 500,000 shares on market yesterday. This adds to shares he and CEO Tom Kent had bought in recent weeks. With more than 14.9m shares already owned he wasn't exactly underweight on the register either. Lots of reasons to sell but only one to buy.

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#CEO Buying
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Added 2 years ago

Following on from recent news of the Chairman buying (last week), ENA's CEO Tom Kent (a former Strawman guest) has also picked up another 100,000 units at 25c ($25,000 AUD) with an off-market trade as of Wednesday this week (8th June 2022). Management continues to eat their own cooking and evidently, like what they are tasting...

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#Chairman Buying
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Added 2 years ago

At it again! ENA non-exec chair Tony Leibowitz has picked up another 100,000 units at 25c ($25,000 AUD) in an off-market trade to bring his total to 14,316,083 fully paid ordinary shares (worth $3,793,762 AUD at the current price). Love it.

"Let’s take a minute to understand who this Tony guy is. He is one pillar of the famous trio who took a small sub $10 million shell and turned it into a one of the largest billion-dollar lithium players in the world in less than 5 years. That company is Pilbara Minerals and the famous trio is Neil Biddle, John Young and Tony Leibowitz. The trio was the most active within the company up to 2017 when they started to venture out elsewhere. In 2017 all three joined Bardoc Gold which has grown more than five times in value since then. Needless to say, Tony Leibowitz knows how to make money." Source: https://www.templargin.com/ena.html

I love that this company has a stellar team behind it with skin in the game and an owner's mindset. That has major implications for capital management (lean profitable operations favoured over capital raises), strategy and growth. Together, the board and management hold more than 30% of all shares on issue (SOI) and the top 20 hold more than 70% of SOI (and rising).

Personally, I'm very content to continue to soak up shares here at a $24 million valuation (MC) given management's credentials, $60m+ in GWP, 30%+ YoY growth, $6m+ in TTM revenue and a recent shift towards consistent (3 consecutive quarters) cash flow positive operations. That values the company at circa 40% p/GWP. In addition, the recent early repayment of the loan suggests another quarter of CF+ operations is incoming.

For me, this is a long term game. This is not a disruptive business. It is an independent, steady performer with a strong business model (MGA), and strong connections (such as Liberty) in a macro-favourable and growing industry with tailwinds (rising premiums associated with rising interest rates). A couple of years from now and ENA has a good chance to be paying dividends. Aside from a takeover of ENA, dividends (coupled with share price growth) are the best strategy for the ENA MD (Tom Kent) to reward shareholders and himself (he took a $2.5m all-script deal at 30c/share to roll his business, TKSR, into ENA last year so he's not going away anytime soon).

Given the macro environment, I believe investors on the ASX will increasingly be seeking out cash-generative businesses in the coming months and quarters. I think insurance and ASX:ENA in particular is very well positioned to benefit from that...

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#Early Repayment of Loan
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Added 2 years ago

A very positive signal to the market that the cash flow and profit outlook for ENA is looking strong. This also provides an immediate saving of $36k in interest payments per quarter.

35ee550f86f7653ca860459dfb31e4c9f58c63.png

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#Inflation & M&A
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Added 2 years ago

Plenty of M&A activity in the insurance underwriting sector happening at the moment!

Tysers is being acquired by ASX:AUB on ~12x EV/EBITDA and ~25% p/GWP. AUB will likely get a solid deal there. That's earnings accretive for them, as AUB are trading on more like 40% p/GWP. In saying that, their (Tysers) revenue has been declining ($363m in CY19 to $322m in CY21) as has EBITDA ($81m in CY19 to $64m in CY21), which explains why the acquisition multiple is lower than other recent M&A comparables in the sector.

For all stocks in my portfolio, I've been contemplating how a rising interest rate environment and an inflationary environment will play out for the stock and the sector in which it resides. It will be negative for many/most industries, but I believe insurance is an exception to that.

From what I understand, ENA's lines of insurance (speaking about Australia primarily) are 'long tail' and typically reflective of the state of an economy, so where the cost of living increase alongside interest rates & fraud increases, people become more litigious etc. so the loss ratios tend to increase which means insurers offering long tail products will increase their premiums.

On the flip side of this, the biggest negative of a rising interest rate and inflationary environment for ENA is hiring talent, it becomes very costly in this part of the economic cycle and the wholesale nature of ENA's business means they are reliant on people's brains and relationships to scale this business.

Net-net, I think ENA is a beneficiary of the current macro environment (rising interest rates & inflation). Insurance is one of only a few sectors that can lay claim to that. I continue to accumulate here where I can.

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#Q3 FY22 Quarterly Result
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Added 2 years ago

To further add to the comments of the 3rd Qrt results both revenue and GWP grew at 46% and 62% which is in line with the YTD revenue and GWP growth of 43% and 66%.

Looking to see this expand in the coming Quarters as TEP capital eluded to .

Currently 28.8mill of 40mill GWP is being generated out of UK arm with construction driving 60% of revenue and 25% revenue coming from cyber security.

The opening of Sydney on jan 1st 2022 and Melbourne branches May 2022 with two senior underwriters in line with Liberty agreement provides confidence growth can continue to accelerate .(Using what Tom at TEP capital outlined if each senior underwriter employed brings in 3.75mill and additional = $7-8mill additional in GWP annually which is 57% increase for the Australian division).

To support this the reference to the following conditions is another positive indicator for the future.

"The Australian division of the Company has again seen an increase in premiums, particularly in the classes of Professional Indemnity insurance and Cyber Liability insurance. The scarcity of capacity, particularly in construction related classes, has contributed to growth in new business enquiries and retention rates across the Ensurance Australia renewal portfolio"

The reference to scarcity of capacity provides ENA a real edge in what ENA elects to take on to ensure the quality of the GWP is enabling the business to be profitable.

With respect to costs ENA is on the cusp of profitability and in 3rd Qrt its costs were 1.481m which were 9.3% below the average costs of the first two quarters in FY22.

This disciplined nature will no doubt will be real positive as the quarters unfold for ENA.

Disc Held on SM and RL


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#Q3 FY22 Quarterly Result
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Added 2 years ago

In my eyes, this is a very solid quarter. The business hasn't shot the lights out just yet (such as by demonstrating material growth cash), but they are trending firmly in the right direction with a 3rd consecutive quarter of CF+ operations. The odds are now in ENA's favour of seeing a full-year profit (albeit a small one) for FY22. Top-line growth also appears promising with quarterly revenue up 46% pcp and quarterly GWP up 62% pcp. My thesis is that the recent opening of the Sydney branch and the scheduled opening of the Melbourne office (May 2022) should drive an acceleration in revenue across the next couple of quarters. They are doing well so far to balance this expansion with CF+ operations. ENA's ambition is to drive to a ~30% EBITDA margin once at scale. So converting a 15x EV/EBITDA multiple to a revenue multiple (at 30% margins) leads me to believe that a ~4.5x revenue multiple is fair. At a market cap of $22m, (and YTD revenue of $5m, with another quarter still to come in the financial year), I'm happy to keep accumulating here.

0ac4544066b2bd5fdfe8a5b033598c14e35a9d.png

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#TA Update (20.04.22)
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Added 2 years ago

ENA weekly-chart shaping up well here leading into the next quarterly announcement.

be621148cf2327876f08d971dc9436f706e387.png

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#Overhang Cleared
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Added 2 years ago

Yes nice to see the overhang clear.

I was able to chat with Tom Kent today and can align the sentiments of TEP capital.

Tom Perfrement really appreciate the insight you have provided to date on ENA.

The business is strict on where it plays with a keen eye on high margins niche areas which continue to emerge such as terrorism.

Tom having rolled his TKSR business into ENA is keen to pay off debt (last 1mil) and in turn look to distribute via dividends in time if small acquisitions don't eventuate.

With approx 12 small ensurers being independent in Australia Tom Kent made it clear he sees the road to drive GWP organically as attractive as any acquisition if multiples to EBIT are greater than 4x.

Tom agreed that seeking to grow GWP by 20-25% was a reasonable assumption and in line with this remain cashflow positive

This is a bet which provides nice upside with low risk.

Held in IRL (in top 6 position in portfolio) and SM

BT

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#Valuation Matrix
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Added 2 years ago

The shaded areas in green, below, are my best guess at what a fair p/GWP and PSR multiple is.

In terms of the p/GWP multiple, above $100m AUD in GWP, I'm assuming a 50-80% p/GWP multiple is fair based on what we have heard about acquisitions in the space for fast-growing MGA entities.

In terms of the PSR multiple, AUB/SDF/PSI (ENA's closest peer group on the ASX) actually trades at 5-7x TEV/LTM rev, which reflects the highly recurring nature of insurance underwriting revenue and high gross margins. But, I have been conservative and suggested 3-4x revenue is a fair valuation range at this stage due to the smaller scale of ENA.

In the last half, ENA did $29m AUD in GWP (up 70% YoY) [so running at c.$60m GWP annualised) and $3.6m in revenue (up 49% YoY) [so running at $7.2m AUD annualised].

I really like the story playing out here (and the management team), so personally, I'm planning to hold this one for the long term. Let's see where we get to over the coming weeks, now that the overhang is cleared. It could move quickly — that's the benefit of having an aligned and tight shareholder register.

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#Overhang Cleared
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Added 2 years ago

The ENA overhang (800k units at 25c for ~$200k AUD) that was sitting in the market for weeks was just line wiped in one massive swoop (see screenshot below) today. This could get very interesting: a run back to the 30s or 40s is on the cards in my opinion.

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#Kindergarten Cop
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Added 2 years ago

Adil Templargin is a full-time private investor from Seattle and a top-ranked member of Micro-Cap Club (the US equivalent of Strawman). His website can be found here: https://www.templargin.com/index.html. Below is Adil's investment notes on ENA.

Ensurance Ltd (ENA.AX)

Feb 22, 2022

Intro

Have you ever watched Kindergarten Cop? An undercover police officer acted by legendary Arnold starts a job as a substitute teacher with 6-year-olds. Soft kids in chaotic environment at the beginning of the movie transform into disciplined soldiers with inner peace by the end.

I think we are watching a very similar movie with Ensurance after Tony Leibowitz came on board and started bringing things to order. He got rid of things that did not work, focused on what worked, cleaned up the company structure, appointed new leader and laid the foundation for the future success of this organization. Now we have a profitable small company with big vision and I think we are about to see the “everyone is happy and marching together” part of the movie soon.

Insurance

Ensurance is an insurance company. I have very little knowledge about the industry aside from the logical conclusions one can make from being a customer. I pay for car, medical and home insurances. I pay small amounts every month or every year so that in case of a major disaster happening insurance company covers the cost. Insurance company collects all the money upfront, which is nice. The company needs to calculate the risks and probabilities of the disastrous events. Insurance claim is an event in which customer asks the company for the money because something happened.

Warren Buffett used the virtue of having the money upfront to his advantage. He just happened to know how to allocate that free upfront money – the float all investors talk about.

This pretty much rounds up my knowledge about insurance.

After coming across Ensurance I did a bit more research on the industry. The main thing was to understand the meaning of the “insurance company”. There are a few terms we need to know: insurer or carrier, insurance agent, insurance broker, coverholder, underwriting.

Insurer or carrier. This is the main player in a customer-insurance relationship. This is the company which gets most of the money and takes most of risk.

Underwriting is a process of evaluating risks of a certain transaction. For example, you pay $50 a month in insurance. What should the total amount of money be paid to you in case of an accident? Well, it depends on your age, location, credit history or any other factor depending on the insurance type we are dealing with. Looking at all the factors together and coming up with a risk evaluation is called underwriting. 

Insurance agent and insurance broker are somewhat similar. Both are paid a commission which is a percentage of total sum that customer spent (gross written premium or GWP). The difference is that agent represents the insurer and broker represents the customer.

In summary, insurance agents, who represent the insurer, work with insurance brokers, who represent the customer: insurer -> agent -> broker -> customer. Why do insurers need a middleman and not work directly with customers? There are many factors but in my understanding the answer is – it is impossible to be everywhere and know everyone. It is technically possible but that requires too much time and money. It is much cheaper and easier to have someone who already knows the audience in a certain geography, motivate them with commission and let them distribute your products. Apparently, in US, the raise of agents and brokers took place when big insurance companies, which were mostly placed in the northeast, started their expansion to the west.

Managing general agent (MGA), or underwriting agency, or coverholder – is an entity which in addition to what a regular agent does can also underwrite and bind packages for customers. Obviously to deserve this MGA needs to go through a process of certification and earn trust of the insurer. Why? MGA does not bare any risks should claims start rolling up, all the risk remains with the insurer most of the time. MGA only works on commission from the total amount spent by customer.

Today, Ensurance fully incorporated MGA business model in UK and Australia and is ready to grow.

Company history

Ensurance listed on ASX through a reverse takeover in 2015. At the time there were three divisions in the company: insurance broker (Savill Hicks Corp), underwriting agency (Ensurance Underwriting) and IT company (Ensurance IT). All three divisions were operating only in Australia. Every division had managers with high compensation, operating expenditures were through the roof and the company was losing money. The whole picture was far from good looking. They kept losing money, raising money, losing money, raising money and so on.

IT company (third division) was trying to push their software solutions to other companies riding the digitalization wave. Their platform was created with knowledge about what insurance company needs and hence appealed to a lot of players in the sector. White labeling the product helped too because the customers (agencies, brokers) could in turn offer these online platforms to their clients as their own.

Thanks to the online platform Ensurance developed company was able to penetrate the UK market and generate interest from the local players. At the end of 2016 Ensurance UK was formed as an MGA with Tim James at the helm and it was, looking back today, a company making moment.

Ensurance UK with its MGA business model started to grow quickly. In 2017 yet another capital raise took place and that’s when uncle Tony entered the game. Tony Leibowitz filled 50% of the $3 million placement, became an executive chairman and shortly after extended a $2 million debt facility to the company.

Let’s take a minute to understand who this Tony guy is. He is one pillar of the famous trio who took a small sub $10 million shell and turned it into a one of the largest billion-dollar lithium players in the world in less than 5 years. That company is Pilbara Minerals and the famous trio is Neil Biddle, John Young and Tony Leibowitz. The trio was the most active within the company up to 2017, when they started to venture out elsewhere. In 2017 all three joined Bardoc Gold which has grown more than five times in value since then. Needless to say, Tony Leibowitz knows how to make money.

2017 is the year when Tony Leibowitz spotted Ensurance and participated in its private placement. What did a guy like Tony see in this small money losing microcap? We got an answer in May 2018. In May 2018 Ensurance made an announcement which outlined a new direction for the company. The announcement basically stated that everything except UK MGA business was bad and that the company was going to start a big clean up. In the presentation it was said that company will divest insurance brokerage business, adopt UK model to existing Australian underwriting agency, cut costs and start launching new products. They said it would take 2-3 years for the full transformation.

Slowly but surely Ensurance methodically started to turn the big plan into reality. First, they sold off money losing insurance brokerage shortly after announcing company’s new direction. Second, the money losing Australian underwriting agency division was sold in 2020. A lot of top managers and some directors left because of these two events and, combined with proper instructions from Tony, the operational costs began to decrease dramatically.

Something interesting happened in May 2021. Ensurance acquired a boutique underwriting agency in Australia – TK Specialty Risks (TKSR). Why sell one and then buy one? I think it was way too difficult to implement the UK model into existing money losing business (just my guess). It was easier to get rid of it and find something more ready-to-go, which TKSR exactly was. TKSR was founded by Tom Kent in 2015 as a Professional and Financial insurance underwriting agency. By 2021 it was a profitable business and had insurance premium under management in excess of $10 million.

I think Tony saw in Tom what he wanted to see – a person who is young and hungry and who can take Ensurance to the next level. The TKSR acquisition was fully financed with Ensurance shares which demonstrated a vote of confidence from Tom and his alignment with the company’s vision. Recently Tom (owns 14%) became an executive director and CEO of Ensurance and Tony (owns 15%) stepped down to being a non-executive director.

It took a bit longer than 2-3 years (it always does, doesn’t it?) but what a setup do we have today! We have profitable UK division led by industry veteran Tim James, profitable Australian division led by Tom Kent and it is all happening under uncle Tony’s guidance. Both divisions are growing rapidly by adding new products, expanding geographies and increasing efficiencies with the help of IT efforts.

Products

Ensurance’s two major money-making products are construction and engineering insurance (UK) and professional and medical indemnity insurance (AU). Company followed through with the promise of adding new products. Ensurance added cyber offering in 2018 and latent defects and terrorism and sabotage offerings in 2019. Ensurance offers their products through global partnerships with the largest insurers in the world – AXA, Lloyd’s, Beazley.

Competitors

Ensurance is the only truly independent MGA player listed on ASX. There are a few peers on ASX (not necessarily peers, since they are all billion-dollar companies) like AUB Group (AUB), PLC Insurance (PSI), Steadfast Group (SDF). These companies are largely insurance brokers, though, with smaller underwriting divisions. It seems that this industry is ripe for acquisitions as these companies are actively looking and buying profitable underwriting agencies and insurance brokers. Currently AUB has 27 underwriting agencies, AUB - 24 and PSI - between 10 and 20.

Numbers

Let’s look at the numbers – Ensurance is valued at $22 million market cap, recorded $3.5 million revenue and $29 million of GWP in HY2022. The company reported two consecutive positive quarters in FY2022 for the first time since origination.

How are underwriting agencies valued? Quick research gives a “6-8 times EBITDA” answer. However, if an agency is to be acquired by an insurer it is valued as a multiple of GWP number. It seems that $100 million in GWP is a number when a company begins to matter and falls under acquirers’ radars. Companies can be valued at 50-100% of their GWP depending on a growth rate.

This year Ensurance will cross $50 million mark and I believe they will achieve $100 million within another year or two. At that point they will be generating cash, establish themselves as a strong growing player in a growing market and will finally outshine their murky past. Earnings growth combined with a likely rerate due to change of perception sets up a good risk reward opportunity. 

Conclusion

As they say, champions are not made in the ring, they are merely recognized there. The actual work happens in the gym. Ensurance has been patiently working out since 2018 and they are about come to the ring. I believe the recognition is to follow in a not-so-distant future.  

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#Partnership with Liberty Mutua
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Added 2 years ago

Brilliant, once again.

Ensurance Ltd (‘Ensurance’ or ‘the Company’) (ASX: ENA) is pleased to announce a significant partnership between Ensurance Australia Pty Ltd (‘Ensurance Australia’) and global insurer LibertyMutual Insurance Company, Australia Branch, trading as Liberty Specialty Markets (‘Liberty’). Ensurance Australia has executed a 3-year agreement for delegated underwriting authority, effective16th March 2022 and running through to 16th March 2025. Under the terms of the agreement, Liberty will provide insurance capacity for Ensurance Australia’s current Professional Risks portfolio, as well as additional capacity to enable growth via new products. In Australia, Liberty operates as a branch of its US incorporated parent, resulting in the entire balance sheet of the parent standing behind the policies underwritten in Australia. Being regulated by APRA, Liberty must hold sufficient assets in Australia to meet the obligations of the Australian operations. This corporate structure therefore provides for the strength of a global company combined with the safety of Australian Prudential Regulation.

Mr. Kent commented “This is a transformational moment for our Australian division. The signing of this contract forges a path for long-term mutually beneficial growth with improved margins and increased capacity. Securing such a high calibre relationship in these uncertain times is a very positive result for the Company. We are excited to bring the global strength of Liberty to our local client base.”

ENA has a strong, tightly-held register of shareholders who understand the long term vision playing out here. Once the rest of the 26c overhang (circa $200k) from a particular Perth businessman is cleared (Bob Peters), this could easily run back into the 30s or 40s. There's barely any sell-side liquidity other than that on offer because I would imagine current holders are not planning to let this go anytime in the next couple of years while this company is still in the early stages of its accelerating growth journey.

Onwards and upwards.

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#Reach Markets Presentation
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Added 2 years ago

This call was recorded and is available to the public on the Reach Markets website: https://reachmarkets.com.au/webcast/the-insider-meet-the-ceos-16-february/

Regarding takeovers and acquisition activity in the space (and the corresponding valuation multiples), underwriting businesses like ENA are valued either on a multiple of EBIT or on a percentage of gross written premiums (GWP).

Ultimately, it all comes down to size. The larger the business, the higher the multiple, to the point where medium to large firms with more than $100m AUD in GWP are valued on close to a dollar for dollar with GWP (1:1 ratio, i.e. 100% of GWP).

Currently, I think fair value is in the order of ~50% of GWP, but as ENA scale, I think that ratio will increase to ~75% of GWP and potentially higher. Tom Kent mentioned examples of historical transactions occurring at north of 40x EBIT.

In terms of growth, ENA appears to be highly efficient. Across the industry, each employed underwriter typically handles around ~$2.5m AUD of written premiums. But the ENA AUS business appears to do about ~$3.75m AUD per underwriter because of their system (tech) enhancements.

So, to borrow an analogy from a smart friend: "ENA is the BHP in iron ore (Fe) on the cost curve".

I like this business: It is profitable, with high gross margins, is growing well, has proven management and most certainly flies under the radar (because, and no offence to anyone, insurance is not always a riveting topic and is dismissed by most!).

This is a long term compounding machine.

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#Q2 FY22 Quarterly Result
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Added 2 years ago

This is an outstanding result, kudos to management. The market will appreciate that 60% of total debt has been repaid with a lump sum payment of $1.5m repaid on the Kalonda loan (associated with Chairman Tony Leibowitz).

From an operations perspective: we are witnessing record revenue (up 35% on PCP), gross written insurance premiums (GWP) of $29m for H1 FY22 (up 70%) YoY, CF+ (for the second quarter in a row) and profit margins increasing. The CEO, Mr Tom Kent, is the second-largest shareholder in ENA himself (having purchased a massive amount on market last year) — it has been a busy quarter and he is continuing to make his mark.

Businesses like Ensurance are valued on a percentage of total GWP, that's how discussions were structured for ENA's acquisition of TK Speciality Risks. For ENA, they are now clearly hitting a higher level of scale deserving of a valuation in the order of 50% of annual GWP. Underwriting businesses with >$100m in GWP can trade for up to 75% of GWP.

ENA achieved $29m for the first half of FY2022 (up 70% YoY). If we annualise this figure to $58m and apply a 50% GWP multiple, we are looking at a business that is very conservatively currently worth $29m (32c) (versus a market cap of $18m at 20c), without considering the growth rate of the business. At the current growth rate, ENA will soon surpass $100m in annual GWP, by which point the company should conservatively be valued at $50m AUD at a 0.5x GWP multiple. With 90m SOI, that equates to a short term share price target of 55c.

Given that the company is CF+ and growing well, in a strong insurance market, with aligned and proven management (Tony Leibowitz owns 18% and Tom Kent owns 15%), this is a low-risk asymmetric play for me. It also helps that I know the management team is honest, hard-working, and driven to make this a massive success. For that reason, I've increased my position here.

The market will wake up to this growth story soon...

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#Small Legacy Overhang
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Added 3 years ago

Based on a bit of digging around, I've worked out that there is one final legacy shareholder who is selling out for personal reasons and is almost done, who has an AEP of around 15c. This shareholder has around 1.6M units remaining and has them on offer at 24c and 25c on-market. Would be a great opportunity for anyone with deep pockets to take a meaningful position.

Although this has put pressure on the share price in the short term, I expect the company to release further positive news in the upcoming quarters, highlighting profitable growth, which should help drive a gradual climb in the share price up to 50c levels (circa $40m MC).

Great to have Mr. Nick Beswick commence in the role of Professional Risks Manager for the Australian division of the Company (from 1st January 2022). Lastly, Chairman, Anthony Leibowitz, is continuing to buy on market with his most recent purchase on the 10th of January 2022. In the interim, I'm content to continue to sweep up small parcels around the 21c/22c mark (circa $20m MC), while the market awaits the overhang to be cleared.

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#Equity Research Report
stale
Added 3 years ago

The role of financial markets is to take money away from mediocre and underperforming companies and put it in stable, growing, high return on capital companies.

You can fight this trend, but it will always be an uphill battle. As an investor, you want to find opportunities to support the latter not the former, ideally before the market does the same. What I’ve learned so far from a decade in the financial markets is that the small, micro and nano-cap arena is the best place to go hunting for these types of companies. Sometimes, you are catching these opportunities before institutional funds are allowed to invest, sometimes these stocks are temporarily misunderstood and sometimes they are simply missed among the forest of opportunities in the small-cap ASX universe.

I believe Ensurance Limited to be one of these such companies; having held shares in ASX:ENA since circa May 2021 (refer here). Ensurance Limited is a speciality underwriter providing insurance underwriting on behalf of larger insurers in niche sectors primarily within the U.K and Australia. The company offers a comprehensive suite of products through its extensive insurance broker network and is backed by several significant agreements with major global insurers (AXA XL and Beazley).

Ensurance has a low-risk, high-margin business model (Ensurance does not retain or incur any underwriting profit or loss), is restructured and backed by proven business leaders (particularly Executive Chairman Tony Leibowitz) and is expanding into niche fast-growing sectors. Board and management are aligned and have significant skin in the game. Moreover, the company is competitively positioned having secured ongoing agreements with leading insurers such as AXA XL, AXA UK and Lloyd’s; which are difficult to secure, and grant Ensurance significant capacity to provide specialised underwriting.

I was recently provided with the opportunity to produce an equity research report on the company. In this note, I’ve done my best to provide a balanced view of the company; its history, industry overview, valuation analysis, the investment case and consideration of key risk factors. Although all due care has been taken with the preparation of the report, this document has been produced for informational purposes only and should not be considered as a recommendation to buy or sell.

Read the Report: Ensurance Ltd (ASX:ENA) ‘Maiden U.K. profit achieved & global growth strategy refined: accelerating accretive acquisitions within the underwriting sector’

I look forward to watching the Ensurance Ltd story unfold over the coming quarters. Let's see how the business and share price progresses.

Disclosure: Held in portfolio with ~6% weighting.

T.E.P.

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