Shares have yet to price in robust earnings outlook for 2024:
We raise our FY24e and FY25e earnings for Türkiye Sigorta by 58% and 72%, respectively, given:
1) a faster shift away from loss-making traffic policies;
2) favourable regulatory changes; and
3) higher returns on the investment portfolio.
Our FY24e earnings of TRY13bn correspond to 106% YoY growth and are 25% above BBG consensus.
Moreover, they imply a 2024e PE of 3.8x, which is close to the bottom of the last three-year trading range, notwithstanding the stock’s c225% appreciation in 2023.
Owing to strong earnings momentum, potential for consensus earnings upgrades and an attractive valuation, we raise our TP by 75% to TRY59.50 (from TRY34.00) and reiterate our Buy rating. We expect the stock to come on to the radar of foreign investors in 2024, with more frequent company attendance at investor events abroad.
Decisive reduction in MTPL market share is helping operational profitability:
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We expect the combined ratio to stay at 100% in FY24, with risks to the positive side as:
1) the company gradually substitutes loss making MTPL (motor third-party liability) business with profitable MOD (motor own damage);
2) slower growth in MTPL could release some unexpired risks reserves;
3) recent increase in the regulatory price cap for MTPL policies should alleviate losses in the segment;
4) real appreciation of the currency could help with claims inflation in the motor segment, where spare parts are mostly imported; and
5) the regulator may increase the discount rate (currently 28%) used in actuarial calculations, which could result in provision releases. Note that Türkiye Sigorta’s combined ratio is below 100% in all segments except for MTPL.
Investment income boost amid high interest rates:
As of 3Q23, Türkiye Sigorta’s investment portfolio was generating TRY1bn income per month. Allowing for higher interest rates, compounding of the portfolio and further growth from new business underwriting, FY24e investment income should be ahead of TRY12bn. Moreover, our 100% combined ratio projection (ie, breakeven at the operational level) means that investment income will trickle down to the bottom line. As such, we expect Türkiye Sigorta to report TRY13bn earnings in FY24e, 106% above last year.
Shares look undervalued despite re-rating:
Türkiye Sigorta’s share price more than tripled last year, but its 12m forward PE multiple is still a very undemanding 3.8x for its robust earnings growth. Türkiye Sigorta’s valuation hasn’t fallen below 6.0x on a sustainable basis since 2020.
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