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Investor Title Co: Sound and Stable

July 14, 2014 | About:
cody56

cody56

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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

Date Insider Shares Type Transaction Value*
May 14, 2014 FRANCIS DAVID LDirector 157 Direct Acquisition (Non Open Market) at $49.04 per share. 7,699
Apr 29, 2014 KING H JOE JRDirector 654 Direct Acquisition (Non Open Market) at $27.21 - $49.04 per share. N/A
Apr 29, 2014 FRANCIS DAVID LDirector 500 Direct Acquisition (Non Open Market) at $27.21 per share. 13,605
Jan 31, 2014 JOHNSON R HORACEDirector 196 Direct Acquisition (Non Open Market) at $49.04 per share. 9,611
Dec 18, 2013 FINE W MORRISOfficer 255 Direct Disposition (Non Open Market) at $0 per share. N/A
Nov 26, 2013 FINE J ALLENOfficer 9,483 Direct Disposition (Non Open Market) at $80.01 per share. 758,734
Nov 26, 2013 FINE JAMES A JROfficer 9,330 Direct Disposition (Non Open Market) at $80.01 per share. 746,493
Nov 26, 2013 FINE W MORRISOfficer 9,317 Direct Disposition (Non Open Market) at $80.01 per share. 745,453
Nov 1, 2013 MURPHY TIMOTHY BOfficer 100 Direct Purchase at $7.04 per share. 704
May 24, 2013 FINE J ALLENOfficer 15,517 Direct Disposition (Non Open Market) at $71.49 per share. 1,109,310
May 24, 2013 FINE J ALLENOfficer 25,000 Direct Option Exercise at $27.97 per share. 699,250
May 24, 2013 FINE JAMES A JROfficer 25,000 Direct Option Exercise at $27.97 per share. 699,250
May 24, 2013 FINE W MORRISOfficer 15,683 Direct Disposition (Non Open Market) at $71.49 per share. 1,121,177
May 24, 2013 FINE JAMES A JROfficer 15,670 Direct Disposition (Non Open Market) at $71.49 per share. 1,120,248
May 24, 2013 FINE W MORRISOfficer 25,000 Direct Option Exercise at $27.97 per share. 699,250
Apr 26, 2013 JOHNSON R HORACEDirector 189 Direct Acquisition (Non Open Market) at $43.78 per share. 8,274
Apr 26, 2013 KING H JOE JRDirector 689 Direct Acquisition (Non Open Market) at $25.28 - $43.78 per share. N/A
Apr 26, 2013 FRANCIS DAVID LDirector 689 Direct Acquisition (Non Open Market) at $25.28 - $43.78 per share. N/A
Feb 6, 2013 MORTON JAMES RDirector 3,500 Direct Option Exercise at $32 - $49.04 per share. N/A

Largest Insider Shareholders

Holder Shares Reported
MURPHY TIMOTHY B 598,358 Nov 1, 2013
FINE JAMES A JR 81,451 Nov 26, 2013
FINE W MORRIS 79,757 Dec 18, 2013
FINE J ALLEN 45,376 Nov 26, 2013
KING H JOE JR 19,693

Apr 29, 2014

Top Institutional Shareholders

Holder Shares % Out Value* Reported
Dimensional Fund Advisors LP 151,037 7.42 11,463,708 Mar 31, 2014
Markel Corporation 213,300 10.47 16,189,470 Mar 31, 2014
BlackRock Institutional Trust Company, N.A. 40,520 1.99 3,075,468 Mar 31, 2014
BlackRock Fund Advisors 38,846 1.91 2,948,411 Mar 31, 2014
Vanguard Group, Inc. (The) 34,241 1.68 2,598,891 Mar 31, 2014
Northern Trust Corporation 22,918 1.13 1,739,476 Mar 31, 2014
State Street Corporation 19,313 0.95 1,465,856 Mar 31, 2014
Dean Investment Associates, LLC 16,954 0.83 1,286,808 Mar 31, 2014
Punch & Associates Investment Management, Inc. 14,600 0.72 1,108,140 Mar 31, 2014
Morgan Stanley 12,639 0.62 959,300 Mar 31, 2014

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

Total Current Assets - - - -
Total Assets 188.31 171.92 157.96 153.49
Cash - - - -
Cash & Equivalents 23.63 20.81 18.04 8.12
Total Receivables, Net - - - -
Prepaid Expenses - 4.65 2.74 2.69
Property/Plant/Equipment, Total - Net 4.33 3.6 3.55 3.67
Property/Plant/Equipment, Total - Gross 11.53 10.45 10.27 9.98
Accumulated Depreciation, Total -7.2 -6.85 -6.72 -6.31
Goodwill, Net - - - -
Intangibles, Net - - - -
Long Term Investments 142.76 130.78 125.7 130
Insurance Receivables 8.75 11.04 6.81 7.25
Note Receivable - Long Term 0.37 - - -
Other Long Term Assets, Total - - - 0.48
Deferred Policy Acquisition Costs - - - -
Other Assets, Total 8.47 1.04 1.11 1.28
Total Current Liabilities - - - -
Total Liabilities 60.24 57.28 51.45 49.56
Accounts Payable - - - -
Payable/Accrued - - - -
Accrued Expenses - - - -
Policy Liabilities 35.36 39.08 38 38.2
Notes Payable/Short Term Debt - - - -
Current Port. of LT Debt/Capital Leases - - - -
Other Current liabilities, Total 20.32 16.81 12.97 11.36
Total Long Term Debt - - - -
Long Term Debt - - - -
Capital Lease Obligations - - - -
Total Debt - - - -
Deferred Income Tax 4.01 0.89 0.48 -
Minority Interest 0.55 0.49 - -
Other Liabilities, Total - - - -
Total Equity 128.06 114.64 106.51 103.93
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total - - - -
Additional Paid-In Capital - - - -
Retained Earnings (Accumulated Deficit) 116.71 105.82 99 98.24
Treasury Stock - Common - - - -
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) 11.4 - - -
Other Equity, Total -0.05 8.82 7.51 5.69
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

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
Depreciation/Depletion 0.67 0.49 0.48 0.51
Amortization 0.51 - - -
Deferred Taxes 1.8 -0.29 0.02 0.83
Non-Cash Items 1.76 6.62 3.88 5.02
Cash Receipts - - - -
Cash Payments - - - -
Cash Taxes Paid 5.72 4.48 2.96 1.08
Cash Interest Paid - - - -
Changes in Working Capital -3.29 -9.3 -2.3 -8.51
Cash From Investing Activities -8.55 -1.48 7.3 -3.96
Capital Expenditures -1.42 -0.57 -0.36 -0.32
Other Investing Cash Flow Items, Total -7.13 -0.91 7.66 -3.65
Cash From Financing Activities -4.88 -4.46 -6.38 -0.88
Financing Cash Flow Items -0.04 -0.04 - -
Total Cash Dividends Paid -0.66 -0.6 -0.6 -0.64
Issuance (Retirement) of Stock, Net -4.19 -3.81 -5.79 -0.24
Issuance (Retirement) of Debt, Net - - - -
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.


Rating: 5.0/5 (2 votes)

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