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I make no apologies for this, I have already tipped this on my Nifty Fifty website at an 45p offer price on December 16th. My best ideas go first to those who subscribe to Nifty Fifty and there is another absolutely stonking red hot share tip lined up to go live on that site tomorrow – you can get that idea first by going HERE. Having said that, Gable still offers great value at 48.75p to buy and my target price is 90p – hence you should buy the shares today.
Investment Case: AIM-listed European non-life insurance company, Gable Holdings (LSE:GAH) has delivered for its shareholders in 2012. But this is the sort of dull operation Bulletin Board investors ignore. That is their mistake. It is your opportunity. The shares started the year at just over 22p and currently trade at an offer price of 48.75p, capitalising the company at £54.5 million. However, this company has been creating a solid platform for growth over a number of years and its growth prospects look to only now be starting to be reflected in the share price – the shares were trading at 20p in April 2010. Even without a further re-rating the shares look to have the potential to double from their current levels within a couple of years on the basis of forecast earnings growth and thus – and following a recent material purchase of shares by the Chief Executive – you should be buying the stock today.
Operations: Gable underwrites a range of specialist commercial insurance policies in the UK and Europe, utilising its European-wide licensing to grow geographically whilst simultaneously exploiting a range of niche insurance segments. The company has consistently broadened its product portfolio and progressively launched into new markets in Europe as the table below demonstrates:
| Country | Product | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
| France | Property Liability | x | x | x | ||||
| UK | After The Event | X | x | x | X | |||
| Norway | Tenant Deposit Scheme | X | x | x | X | |||
| France | Building Defects | X | x | x | x | |||
| Spain | Property Construction Liability | x | X | x | x | X | ||
| Spain | Third Party Liability | X | X | x | x | x | ||
| France | Artisan Liability | x | X | x | x | X | ||
| UK | Construction Liability | x | x | x | X | x | x | x |
Management Incentive: The key man is Chief Executive William Dewsall. With vast insurance market experience, he joined Gable in 2005 as an acquisition was agreed between what was then an AIM-listed investment company and the insurance business he led. His remuneration for 2011 totalled £350,000 and he has 25,119,022 shares in the company – representing a 22.17% stake. Last week he acquired £49,800 of shares at 41.5p each.
Financials: Results for the first six months of calendar 2012 showed an underlying pre-tax profit of £3.70 million, generating a near 44% increase in earnings per share to 3.05p. This was achieved as net claims incurred declined slightly despite a more than 19% increase in revenue to £11.96 million as growth in written premiums (to £15.41 million) continued across all product classes in the UK and Europe. At the period end the balance sheet position was strong – with assets (excluding cash and intangibles) outweighing liabilities and £10.79 million of cash (net).
The company noted in the results statement that it is “particularly encouraged by the buoyant markets in which we operate and the increasingly positive reception that the Gable brand now receives in each market of operation. Gable has considerable scope to roll out its products into additional European countries, replicating the success we have already seen”. It has followed this by announcing since the half year end the launch of a first product into the German market (tenant deposit guarantee product), last month two new programmes of business projected to add in excess of £10 million in annualised gross written premium (a first product into the Danish market (property liability) and a major new ‘After The Event’ fund client in the UK) and earlier this month its “largest commercial agreement to date” (projected to result in a minimum of £14 million per annum in gross written premium) – this a 5 year partnership to provide exclusive capacity for a range of non-standard products to customers of one of the UK’s largest insurance brokers, Towergate.
Risks: Inherent risks of providing insurance are managed here by expert staff and careful monitoring. It does though take some time in each book of business to develop truly meaningful claims development information and Gable purchases reinsurance programmes to help it manage potential loss exposure. However, even this is not entirely risk-free; “the group recognises that its reinsurance arrangements do not relieve it of its ultimate liability to policyholders and as such the group is exposed to credit risk to the extent that any reinsurer is unable to meet obligations assumed under such reinsurance arrangements”. There is also regulatory risk (though the company has noted that under the present proposals for ‘Solvency II’ insurance capital, it does not currently believe it will require additional capital) and exchange rate risk (with the company reporting in Pound sterling but conducting business across Europe). A UK and Europe focus may be of concern to many but the company continues to consistently demonstrate that demand is there for the niche commercial insurance products it has shown it is able to create and provide.
Valuation: On the back of the recent Towergate deal announcement, Gable’s house broker, Panmure Gordon, commented “apart from the positive impact from the anticipated £70 million of premium income anticipated over the next 5 years, it is a huge vote of confidence in the Gable business model and its management team… in the last few months Gable has taken a number of steps in reinforcing its credibility amongst investors and its peers. A new and highly creditable Finance Director has been appointed and Ernst & Young has been appointed as auditor”. The broker increased its earnings per share forecasts by approaching 18% for 2013 (to 8.75p) and more than 13% for 2014 (to 11.2p). These are anticipated to be delivered on respective pre-tax profits of more than £11 million (on gross written premium in excess of £52 million) and £14.3 million (on gross written premium approaching £62 million)
For 2012, a pre-tax profit of just over £7 million remains forecast, generating earnings per share of 5.63p (from £4.68 million and 3.89p per share last year). Even if only the current 8x earnings multiple remains, a share price of approaching 90p is suggested on the 2014 forecast – and I agree with Panmure that as Gable’s size and reputation grows, interest in the company is likely to only increase. This should help the rating or, as Panmure notes, “the combination of a low valuation and strong growth is likely to see Gable increasingly as a takeover target”.
There is no dividend at this stage – with the board currently of the view that profit is best reinvested to expand the business, though it “retains the objective to declare an inaugural dividend”. However, with a 90p target price representing a near doubling from the current offer price, the capital growth potential is more than sufficient to make this a buy at up to 52p
Tom Winnifrith founded t1ps.com in 2000 and over 12 years he served up 241 share tips delivering an average gain per tip of 42.7% with an average holding period of c36 months. In the Autumn of this year he left t1ps to set up the Nifty Fifty website. Steve Moore, his right hand man at t1ps also quit the company on a matter of principle last October and now works with Tom on the Nifty Fifty. Together they serve up an average of one share tip a week and will be publishing a new hot tip tomorrow. To follow the men who made tips the success it once was join the Nifty Fifty ahead of that tip HERE
PS. Did you want a mining tip instead? Well have a butcher’s at this
I agree the figures and growth of this stock is very good. Any ideas on Servision SEV this looks interesting opportunity..
Regards,
Craig