1. Company
Investor Title Company (ITIC) is in the business of underwriting title insurance policies. It has been in business since 1972 and is still ran by its founder J. Allen Fine. The company is headquarterd in North Carolina were it gets 26% of its premiums and profits from. Over the last 10 years the firm has compound its book value between 10% and 15%.
Market Cap: $142.1 million
Enterprise Value: $143.84 million
Debt: $60.3 million
Book Value Per Share: $61.87
Total Premiums Earned: $113.9 million
Float Per Share: $54.24
Investment Per Share: $116.11
Cash and Cash Equivalent: $20 million
Earnings: $14.7 million
Retained Earnings: $116.7 million
Pretax Earnings: $21.5 million
Free Cash Flow: $14.8 million
Cash and Cash Equivalent Per Share: $9.52
Earnings Per Share: $7.08
Retained Earnings Per Share: $55.57
Pretax Earnings Per Share: $10.24
Free Cash Flow Per Share: $7.14
Ticker: (ITIC)
1.1 Company History
- Founded in 1972 by J. Allen Fine.
- First Policy Wrote in April, 1972.
- In 1973, the firm established Investor Title Company as a holding company above its subsidiaries.
- By 1984, the firm had become the largest title insurer in North Carolina.
- In 1985, the firm adopted the Canadian Goose as its Corporate Logo.
- In 1986, the firm went public on the NASDAQ.
- In 1988, the firm established Investor Title Exchange Corporation. As an 1031 exchange service to act as a qualified intermediary in tax-deferred exchanges of Real Property.
- In 1994, the firm established Investor Title Accommodation Corporation, As a provider an exchange accommodation title holder vehicle for reverse exchanges.
- Established Investor Title Management Service Inc in 1999 to provide management services to affiliated owned title and real estate providers.
- In 2001, the firm launched EPLITE a web application for preparing title report, opinions, and supplemental documents.
- Establish in 2004, Investors Trust Company to provide trust and fiduciary service.
- In 2011, the firm launched iTracs a proprietary escrow reconciliantion service.
1.2 Overview of the Business
The sale of residential and commercial real estate properties are highly complex process and title insurance is an indispensable component of any successful real estate transaction. The firm is in the business of providing lenders and owners of real estate title insurance to provide risk cover loss to both parties. Title claims can arise years after a policy is writter. This has lead Investor Title to maintain the highest financial stability rating in its industry.
2. Managment
The company is still run by its founder J. Allen Fine and he is the chairman and chief executive officer. His son James A. Fine Jr. is the chief financial officer and executive vice president of the company. Investor Title has a dedicated managment team with years of experience under their belt and prudent financial managment.
2.2 Executive Compenation
Management pays themselves all in cash and all bonuses are in cash. The firm's top managment is not receiving stock options or any other form of equity compenstion. The compensation for top managment is reasonable and Mr. Fine, the founder of the company, is the lowest paid top executive.
| Name/Title | Total Cash | Equity | Other | Total Compensation |
|---|---|---|---|---|
| J. Allen Fine Chief Executive Officer and Chairman of the Board | $828,333 | $0 | $23,912 | $852,245 |
| W. Morris Fine Executive Vice President & Secretary | $852,917 | $0 | $33,535 | $886,452 |
| James A. Fine Jr. President, Chief Financial Officer and Treasurer | $852,917 | $0 | $31,526 | $884,443 |
2.3 Insider Ownership and Large Outside Owners
| % of Shares Held by All Insider and 5% Owners: | 28% |
| % of Shares Held by Institutional & Mutual Fund Owners: | 31% |
| % of Float Held by Institutional & Mutual Fund Owners: | 42% |
| Number of Institutions Holding Shares: | 44 |
Insider Transactions for the last two years
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Largest Insider Shareholders
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Top Institutional Shareholders
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3. Financials Summary
For fiscal year 2013 the firm's revenues increased 10% to $126.3 million and net income increased 32% to $14.7 million. Revenues reflecting Title Insurance Segment increased 15% to $122 million and other segments increased 19% to $5.9 million. The firm receives 96% of its revenues and profits from title insurance underwriting and about 26% of revenues, profits and insurance underwriting takes place in North Carolina.
For the three month ending in March of 2014, revenues have increased 10% to $28.5 million and net income has decreased 71% to $986 thousand. Revenues from title insurance segment increased 9% to $27 million and other segments increased 37% to $1.6 million.
Profitability
| Operating Margins | 17.09 |
| Pretax Margins | 17.06 |
| Net Margins | 11.65 |
| Return on Assets | 7.96 |
| Return on Equity | 12.12 |
| Return on Total Capital | 12.12 |
| Return on Total Invested Captial | 121.12 |
Balance Sheet
| 2013 31/12 | 2012 31/12 | 2011 31/12 | 2010 31/12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total Current Assets | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 188.31 | 171.92 | 157.96 | 153.49 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total Current Liabilities | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | 60.24 | 57.28 | 51.45 | 49.56 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total Equity | 128.06 | 114.64 | 106.51 | 103.93 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total Liabilities & Shareholders' Equity | 188.31 | 171.92 | 157.96 | 153.49 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Common Shares Outstanding | 2.04 | 2.04 | 2.11 | 2.28 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Preferred Shares Outstanding | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Flow Statements
| 2013 31/12 | 2012 31/12 | 2011 31/12 | 2010 31/12 | ||||||||||||||||||||||||||||||||||||||||||||||
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| Period Length: | 12 Months | 12 Months | 12 Months | 12 Months | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income/Starting Line | 14.8 | 11.19 | 6.93 | 6.37 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash From Operating Activities | 16.25 | 8.71 | 9.01 | 4.23 | |||||||||||||||||||||||||||||||||||||||||||||
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| Cash From Investing Activities | -8.55 | -1.48 | 7.3 | -3.96 | |||||||||||||||||||||||||||||||||||||||||||||
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| Cash From Financing Activities | -4.88 | -4.46 | -6.38 | -0.88 | |||||||||||||||||||||||||||||||||||||||||||||
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| Foreign Exchange Effects | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net Change in Cash | 2.82 | 2.77 | 9.93 | -0.62 | |||||||||||||||||||||||||||||||||||||||||||||
4. Valuation
Investor Title Company is selling for 11x its earnings, 1.1x its book value and about 6.9x its pretax earnings. If the company sold at the same P/E as of the insurance sector of 12x earnings then it would sell for $84.96 per share. Or if it sold at 13x to 15x its earnings then its would sell for $92.04 to $117 per share. Wich are reasonable multiples for a profitable and debt-free insurance company. If it sold at its historic price to book ratio of 1.3x it would sell for $83.52. By looking at the firm's pretax earning of $10.24 per share and using 9x to 10x mulitple you will get $92.16 to $102.40. The best way to value an insurance company is to look at investments per share or portfolio per share. Investor Title has $115 per share investments and the majority of its investment are in bonds with a majority of around 10 years. The firm has very little of its float or assets invested in the equity market. Based on its investment per share and pretax earnings it's very clear that the company is undervalued. I give the firm a value range of $102 to $115 per share.
5. Risk
The risk to Investor Title is that it will suffer major claims on its underwriting premiums that it doesn't have reserves for will suffer massive losses. Or it will suffer massive losses on its investment portfolio because it's so heavily invested in the bond market. As interest rates go up bonds lose their value, and that will cost the firm a lot of money if there not hedging their investment portfolio. Those are the only risks to the company that I see.
5.1 Outlook
The firm will continue to be conservative in its underwriting and will hopefully start investing more of its floats in the equity market and not the bond market. Over time the company stock price will move up to its intrinsic value.
