tock of the Day – Cover-More Group (CVO)
CVO’s operating results surprised on the upside by 3% reiterating prospectus forecast guidance in June 2014. Given weak Australian travel bookings in 4Q14 impacted by the federal budget and soft consumer confidence 2H14 performance was better than expected and in line with prospectus guidance. CVO declared an ordinary dividend of 4.0cents per share plus a special dividend of 3.2 cents per share for the year given its strong position.
Company Highlights (Source – Company Reports)
CVO commented that there has been a recovery in the Australian travel insurance business so far in FY15 with solid volume growth post the weak run rate in 4Q14. Overall in FY15 we expect 2-4% net policy growth plus 3-4% increases across various distribution channels to lift the travel insurance margins and recover profitability. We now expect organic growth to be the primary growth in FY15 and indeed a bigger driver over the medium term a combination of pricing and volume.
Result Highlights (Source – Company Reports)
We do not expect any new distribution contracts to contribute materially to FY15 GWP growth. CVO has demonstrated its strong cash conversion and capital light attributes. Without external investment we expect surplus cash to accumulate at $10-$15m per annum. As mentioned previously we expect organic growth to be the primary driver of GWP growth in FY15 followed by growth from Asia and annualisation of new contracts signed in FY14.
CVO Daily Chart (Source – Thomson Reuters)
With regards to top line growth we expect a moderate improvement and stabilization of insurance margin via pricing and operating leverage to drive EBITDA growth over the next 3 years. Some of the key risks associated with CVO would be contract/concentration risk with key distribution partners (Flight Centre), foreign exchange volatility, pricing/margin risk from irrational competition and underwriting arrangement risk in the longer term upon renewal of current agreement with Munich RE in 2018. We believe the stock is fully priced at the current price and put the sell recommendation at the current price of $2.38.
Note - The following report was coveered in Kalkine Daily on 08/10/2014
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.