Intact Financial Corporation

IFC-TSX
Michael Overvelde

CFA, CPA, CA | 416.777.4943 |

michael.overvelde@raymondjames.ca

Brenna Phelan

CFA, CPA, CA (Associate) | 416.777.7042 |

brenna.phelan@raymondjames.ca

Diversified Financials

Dividend Growth Story Intact; Initiating at

Market Perform
Recommendation
We consider Intact Financial (Intact) to be a best-in-class operator with
leading scale and sustainable competitive advantage in a mature industry
that still offers plenty of accretive consolidation potential. It features several
defensive investment characteristics, including defensible market positions,
superior profitability, an already compressed investment yield with minimal
downside risk, and relatively consistent product demand in its largest
markets (e.g., personal home and auto insurance), which, in our view, have
been attracting increased investor appreciation lately. While we characterize
Intact as an extremely high-quality investment, our enthusiasm about its
share price is tempered by its valuation, which is currently tracking toward
the high end of its historical valuation range.

Analysis

A Market Leader With Consistently Superior Performance With 17% share of the Canadian P&C insurance market, Intact has a
leading domestic market position that provides it with a sustainable
competitive advantage evident in its consistently industry-leading
profitability and growth. The scale and breadth of its operations
provides it with superior operating leverage, underwriting
capabilities, diversification benefits and acquisition opportunities.

The Best Buyer in a Consolidating Industry M&A has

historically proven to be a strength of management and a source of
consistently high earnings accretion. We believe Intact is positioned
as the best buyer in the industry owing to its large size, excess
capital position (growing at >$100 million/quarter), low cost of
capital, easy access to capital, low cost structure and integration
experience. Given the still-fragmented nature of the industry, we
foresee plenty of potential for both tuck-in and transformational
deals over the medium-term.
Intact is a Dividend Growth Story Since its 2004 IPO, Intact
has raised its payout every four quarters, like clockwork, and by a
CAGR of 12.5%. Based on our forecast Adjusted EPS CAGR of 11%
through 2017, the potential for acquisitions to supplement this
growth (i.e., our forecasts conservatively assume no capital
reinvestment) and its sizeable excess capital position, we expect
Intacts enviable track record of double-digit dividend growth to
continue through at least 2017.

Valuation
Our $99.00 target price is based on a 2017E PE of 13.5x, in line with its
one-year average forward PE multiple of 13.6x (but below its current
14.2x multiple) and established at a premium to the average valuation
of large Canadian financial sector peers to account for its relative
earnings growth, defensive investment characteristics, and M&A
optionality. Please see Exhibit 67 on page 48 for more detail.
Adjuste
d
EPS

1Q
Mar

2014A C$1.23

2Q
Jun
C$1.65

3Q
Sep

4Q
Dec

C$1.55 C$1.58

Full
Year

Net
Premiums
Earned

BVPS

C$6.01

C$7,207

C$37.75

2015E

1.38A

1.56A

1.45

1.62

6.01

7,518

40.97

2016E

1.72

1.66

1.63

1.77

6.78

7,809

44.81

2017E

1.86

1.81

1.74

1.95

7.36

8,129

49.00

Source: Raymond James Ltd., Thomson One

Analyst

(000s)
Dividend/Yield

September 28, 2015

Company Report - Initiation of Coverage

Market Perform 3
C$99.00 target price
Current Price ( Sep-24-15 )
Total Return to
Target
52-Week Range
Suitability

C$94.45
7%
C$95.82 C$71.11
Total Return

Key Financial
Metrics
2014A
P/E
15.7x
P/B
2.5x
Adjusted ROE
16.8%
Combined Ratio
92.8%

C$2.12/2.2%

2015E

2016E

2017E

15.7x

13.9x

12.8x

2.4x

2.1x

1.9x

15.2
%

15.8%

15.7%

92.1
%

92.0%

91.9%

Market Data
Market Capitalization (mln)
Current Net Debt
(mln)
Enterprise Value
(mln)
Shares Outstanding (mln,
f.d.)
10 Day Avg Daily Volume

C$12,42
4
C$982
C$13,40
6
131.5
246

Company Description
Intact Financial is Canada's leading
property & casualty insurance company.
Personal auto insurance is its largest line,
with personal property, commercial auto
and commercial P&C its other lines of
business. It operates exclusively in Canada,
with significant presence in markets not
dominated by government-owned auto
insurers.

Please read domestic and foreign disclosure/risk information beginning on page 62 and
Analyst Certification on page 61.
Raymond James Ltd. | 2100 925 West Georgia Street | Vancouver BC Canada V6C 3L2