Sagicor Financial Co. Ltd. (TSX:SFC, Financial) is a $501.5 million market cap financial holding company dealing in a range of financial services, including life and health insurance, annuities, pension administration, property abd casualty insurance products as well as securities, real estate, brokerage, merchant and commercial banking services.
The Bermuda-based company operates in the Caribbean as well as the U.S. and has recently expanded into Canada. Established in 1840 as The Barbados Mutual Life Assurance Society, Sagicor is one of the oldest providers of insurance in the Americas. Its principal markets are Barbados, Jamaica, Trinidad and Tobago and the U.S.
Sagicor was listed on the Toronto Stock Exchange in 2019 through a special purpose acquisition company transaction with Alignvest Acquisition II Corp., raising $450 million in new equity.
Since its initial public offering, as can be seen in the chart above, the company has lost over half its value. This was likely due to the Covid-19 pandemic, which hit the Caribbean countries hard, devastating their tourist-driven economies. The company hs begun to recover, however, and the financial performance has been generally satisfactory, taking into account the volatile rising interest rate environment. This improvement is evident in the company's high Piotroski F-Score of 8. Piotroski F-score is a number between 0 and 9 which is used to assess strength of company's financial position. The score is used by financial investors in order to find the best value stocks (9 being the best).
Financial review
For the fourth-quarter and full-year 2022, the company, while still facing challenges, delivered strong growth in its net premium revenue and net income to shareholders for the year. However, its total revenue and total comprehensive income to shareholders for the quarter decreased compared to the previous year due to lower investment income and higher claims.
The company's total revenue for the fourth quarter was $531.2 million, a 16% decrease from the same period last year. For the full year, its total revenue was $2.54 billion, an 8% increase from 2021. Similarly, quarterly net premium revenue was $352.4 million, a 21% decrease. Its net premium revenue for the year was $2.05 billion, a 20% increase over last year.
Sagicor's quarterly net income to shareholders was $13.1 million, down from $18.4 million in the same period last year. For the full year, its net income to shareholders was $115.6 million, which compares to $97.3 million a year ago. Further, the company's total comprehensive income to shareholders for the quarter was $56.3 million, compared to a loss of $12.7 million a year ago. For the full year, its total comprehensive income to shareholders was a loss of $16.6 million, down from gain of $38.9 million in 2021.
The company's earnings per share for the quarter were 9.20 cents compared to 12.90 in the year-ago quarter. For the full year, its earnings per share were 80.90 cents, an increase from 68.20 cents last year.
The annualized return on shareholders' equity for the quarter was 5%, which was down from 7.1% in the same period last year. For the full year, its return on shareholders' equity was 11%, up from 9.8% in 2021.
Sagicor's book value per share as of Dec. 31 was $7.59, up from $7.34 the year prior.
Acquisitions
Sagicor announced on Aug. 25 that it had entered into a definitive agreement to acquire Ivari, a subsidiary of Wilton Re Ltd. The company is a life insurer targeting middle-market customers in Canada, with over 80 years of history and approximately 700,000 policyholders across the country. The acquisition aligns with the company's strategy of growing in business lines it understands well, such as individual life insurance, and expanding into adjacent geographic markets to increase its scope for growth. As Canada has a large, well-established and growing life insurance market, the acquisition of Ivari has the potential to be transformational for Sagicor as it will nearly double the assets on its balance sheet and further increase the proportion of its assets that are investment grade. Sagicor is diligently pursuing its approvals on this acquisition, which it expects to close later this year. The expected consideration, to be paid in cash at closing, is 325 million Canadian dollars ($243.17 million), subject to certain adjustments.
In 2022, the company also made significant progress toward the launch of Sagicor Bank Barbados, the first fully digitally-enabled bank in the Caribbean. This initiative is the first of a wave of digital transformation Sagicor intends to pursue to modernize banking in the region.
Conclusion
Sagicor is an under-the-radar financial company that is well capitalized and generates strong return on equity. As of the first quarter, the company has adopted the new IFRS 17 standard for accounting for insurance companies, which caused distortions in its book value as part of the total equity or book value has been seperated into a new line item on the liability side called contractual service margin. While the metric does not show up in many databases, it represents an estimate of unearned future profits.
The accounting change can be clearly seen in the balance sheet diagram below. The liability side of the equation has increased in the latest quarter and equity side decreased as compared to the previous quarter. It is possible that many non-professional investors have not understood the accounting change and sold off the stock in a panic.
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By my estimate, the company should be selling for twice or more its current price and I expect the price to catch up with value eventually as its continuing good performance sinks into investor consciousness. In addition, Sagicor pays a solid dividend yield of 6.44%, so it is paying us to wait. The GuruFocus valuation panel agrees with this assessment.
The two analysts who follow the company have a buy rating and a consensus price target of $9 on the stock.
