Transcript VRSK
Recommendation: Buy Verisk Analytics (VRSK)
Secular risk trends Exposure in risk transactions are increasing Number of participants is large and asymmetry of information among participants is substantial Failure to understand risk can lead to large and rapid declines in financial performance
Verisk is the leading provider of risk management solutions and analytics to the insurance, mortgage, and healthcare industries.
Helps customers understand, evaluate, and weigh the consequences of risk Segments of VRSK’s business Risk Assessment Decision Analytics
Risk Assessment Revenue were $140.5M in 2Q11, grew revenue 4.6% Y/Y, 43% of VRSK Provides statistical, actuarial, and underwriting data for the US Property & Casualty (P&C) insurance industry Very stable, slower growing 84% of business is subscription and long term agreement based Decision Analytics Revenue were $186.8M in 2Q11, grew revenue 26.7% Y/Y (12.5% organic), 57% of VRSK Provides analytic solutions by combining algorithms and analytic methods, which incorporate VRSK’s proprietary data to help customers in Insurance, Mortgage, Healthcare, and Supply chain Very dynamic, fast growing, increasing acquisitions & international exposure 58% of revenue is subscription based
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Customers who also use the solutions created by VRSK’s data Agreements with data contributors in which the particular uses of data are specified “Mining” data found inside transactions supported by VRSK’s solutions Source data from public sources including Federal, State, and Local governments Physically gathering data at the request of property insurers Purchasing data from data aggregators under contract Historically, VRSK’s costs to source data are < 2% of revenues
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No competitor can rival the breadth and depth of data Data is key, because the more data, the easier it is to draw conclusions from valid and precise trends Verisk is embedded into the insurance company's structure, software, systems
US Customers All of the top 100 P&C insurance providers 4 of the 10 largest Blue Cross Blue Shield plans 4 of the 6 leading mortgage insurers 14 of the top 20 mortgage lenders The 10 largest global reinsurers
VRSK Investment Information
6 Month Price Graph (StockCharts)
SWOT Analysis
SWOT analysis, and how each point impacts company EPS/valuation multiple Strengths
Highly scalable, leverageable model Services critical to clients’ workflows Embedded solutions support pricing power Subscription revenue model = recurring, profitable revenue High rates of customer retention Veteran C - level management
Opportunities
Secular trends, “Mastery of risk” Deeper penetration of existing verticals with high growth potential Organic growth: New Products Acquisitions Decision Analytics: Key to international markets Share buybacks
Weaknesses
Significant exposure to US P&C Industry Depend on new verticals, acquisitions for growth Only 5% exposure to international markets
Threats
Weak P&C Insurance cycle continuing Acquisition integration risk in Decision Analytics business Selling shareholders trimming business relationships with VRSK Potential loss of access to key data
Investment Thesis
•We should own Verisk Analytics now because of it’s profitable subscription based revenue streams, strong pricing power, rapid Analytics expansion, and the secular trends today of increasing risk based management and analytics in the P&C Insurance, Mortgage, Healthcare, and Supply-chain industries.
•Potential catalysts are acquisitions, organic growth in both Risk Assessment and Decision Analytics, and share buybacks.
Portfolio Placement / Recommendation
Sector : Financials Industry Group: Insurance Current Holdings: XLF, GE, ASPS Target Sector Allocation: 10.47%, $47,989 Current Sector Allocation: 6.80%, $31,168 Remaining Allocation: 3.67%, $16,821
BUY 200 shares of VRSK at a Limit Price of $33 ($6600, 1.44% of portfolio), Set another limit order for 200 shares at $31
2012 year end target price: $45.00