The insurance brokerage industry is one of the oldest and most fragmented industries that has had a very limited penetration of technology over the years. This is the reason why any move by a company in the direction of technological implementation, particularly at a B2C level, could be perceived as a major green flag in favor of its stock.
Reliance Global Group, Inc. (RELI, Financial) is a microcap within this space that recently came out with a press release with respect to the launch of its new technology platform known as 5MinuteInsure.com. On closer inspection, it seems that the company has gained immense sales momentum over the past few quarters through M&A activity, and I believe it is a true hidden gem within the insurance brokerage space.
What does Reliance Global do?
Reliance Global is a New-Jersey-based insurance technology company. Its core business over the years has been the acquisition and management of wholesale and retail insurance agencies in the U.S., and it has worked on a commission-based model for dealing in medicare, personal and commercial insurance, trucking and transportation insurance and employee benefits insurance products.
However, the company has evolved into an emerging insurance-tech player, as it has developed its own technology platform known as 5MinuteInsure.com, which helps consumers in buying policies by providing quotes and linking them to the relevant agents. Reliance is also using its technology to reduce back-office paperwork and allow agents to focus on selling policies. With technological intervention, the company looks to enhance operational efficiency and drive margin expansion at the agency level.
The 5MinuteInsure.com Platform
Reliance Global has recently been in the news for the beta launch of its 5MinuteInsure.com platform – an artificial-intelligence-based tool that can produce competitive insurance quotes for customers within a very short span of time. The company's latest tool has advanced data mining capabilities and takes minimal input from customers before scanning its database to come up with the most relevant quotes.
The platform is meant to be a complementary offering to customers and has strong synergies with the company's recent spree of agency acquisitions. Upon selection of the relevant insurance quote, a customer is instantly directed to the geographically closest agent and/or affiliate of Reliance Global. These agents can answer all the customer queries and provide the necessary human touch required for closing the policy sale.
While this beta launch is restricted to the state of Ohio and specific to only automotive insurance, it is an important first step by Reliance in tapping into a massive online insurance policy sale market. After the Covid-19 pandemic began, there has been a visible shift in consumer behavior towards online shopping, and there is no reason why the same shouldn't apply to insurance policies. The platform is expected to be a strong driver for growth in the near future.
Acquisition-based growth
The core of Reliance's growth has been acquiring smaller insurance agencies for reasonable valuations and pushing them through its platform. I think this is a viable strategy given the heavy industry fragmentation (over 420,000 businesses operating in a $161 billion market as per IBISWorld data). This is the reason why Reliance has grown from about $1.02 million in revenues for 2018 to as much as $7.07 million in trailing 12-month revenues. The management has looked to acquire growing and profitable businesses that can boost its bottom-line.
Its most recent fundraising round of $12.42 million was also for this purpose of gaining funds for more acquisitions, along with up-listing the company to the NASDAQ. The management believes that it can create strong economies of scale through its technology infrastructure and its platform can help the smaller insurance agencies become truly national players.
Reliance started the acquisition spree by acquiring Michigan-based health insurance agencies Employee Benefits Solutions and U.S. Benefits Alliance in September 2018 and eventually went on to diversify its activities through the acquisitions of Commercial Coverage Solutions, LLC (property insurance, commercial trucking and transportation insurance), Southwestern Montana Insurance (group health insurance), Fortman Insurance Agency, LLC (property insurance, life and health insurance), Altruis Benefit Consulting (individual and group health insurance) and UIS Agency, LLC (commercial transportation insurance).
Valuation
As we can see in the chart above, Reliance Global stock is trading at a little over $4 a share and is heavily undervalued as per the Gurufocus value chart. This is also evident from the fact that its price-to-sales ratio of 2.18 is significantly below that of its peers. Reliance Global's closest peers are Goosehead Insurance (GSHD, Financial) and Lemonade Inc (LMND, Financial). As per Gurufocus data, Goosehead insurance is valued at 30.46 times revenues whereas Lemonade is valued at 72 times revenues. It is worth highlighting that Lemonade has significantly lower margins than Reliance Global.
Final thoughts
In my opinion, the biggest factor responsible for Reliance Global's low valuation is limited management communication with respect to its growth. The market is thus relatively less aware of the ongoing initiatives of Reliance Global, and so the huge growth potential, particularly with respect to its 5MinuteInsure.com platform, is not yet factored into the stock price. The undervalued stock coupled with the M&A-focused growth strategy and the strong technological backbone make Reliance Global a very compelling investment at current levels.
Disclosure: No positions.
Read more here:
- Applied UV: Value Unlocked
- Investors Can Benefit From the Holiday Season Through These Stocks
- Kubient: High-Growth Ad-Tech Opportunity
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
