Valuation Summary
To determine a fair value for General Accident, two methodologies were utilized, a Justified Price to Book (PB) and a Dividend Discount Model (DDM). We used these methodologies on a projected EPS and BVPS of $0.53 and $3.08, respectively, for the end of the financial year 2021. To determine these estimates, we assumed a normalization of costs associated with the operations of the new additions in Trinidad and Barbados for the remainder of the year and a subsequent improvement in underwriting profitability.
We applied the Justified P/B multiple of 2.04x to the projected 2021 book value per share of $3.08 to reach a fair value estimate of $6.45.
For the dividend discount model, we determined a dividend pay-out of approximately $0.29 per share for the upcoming financial year (expected pay-out 2022). We then utilized a long-run sustainable growth rate of 7.0%. This rate was determined using average adjusted ROE of 18.90%. We expect the company to continue to deliver on these returns in the future as they enter and expand on their strategic property insurance sector in new regional markets aided by strong parent company connections in the Musson Group. This ROE was then coupled with the Group’s estimated average retention ratio of 56.6%. Based on our DDM model, we arrived at a fair value of $6.69. We then used a simple average of the two estimates to arrive at our target price of $6.57.
Based on the October 29, 2021, close price of $5.43, this implies an upside of 20.8%. We believe the Group is a strong player in the domestic market, particularly in the property insurance segment, and has also shown robust growth in the domestic motor insurance market. This is indicated by gross premium growth that is stronger than the market growth rate. Given the group’s already dominant position in the domestic market, they have thus chosen to pursue expansion regional as they have already captured a significant portion of the Jamaican market in the past 10-years. Given the Company’s demonstrated ability to grow and capture market share over the last several year, we expect this to continue in Jamaica as well as in the new regional markets. Consequently, we issue an OVERWEIGHT recommendation on the Company’s stock.
| Stock | GA |
| Close Price | $5.44 |
| Estimated Fair Value | $6.57 |
| Year to Date Return | -12.12% |
| Dividend Yield | 3.98% |
| Total Return | 24.8% |
| Trailing P/E | 17.55x |
| Potential Upside | 20.8% |
| Recommendation | OVERWEIGHT |
As at November 1, 2021
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