Transcript Insurance
KWESI ACQUAY - WILLIAM KURINSKAS - CHRISTELLE KHOURI - ALEXANDRA RHEINHARDT
WHY AUTO INSURANCE?
AGENDA
INDUSTRY STRUCTURE
INDUSTRY OVERVIEW
INDUSTRY ORGANIZATION
COMPETITIVE LANDSCAPE
MAJOR PLAYERS
ADVERTISING STRATEGIES
RECOMMENDATIONS
INDUSTRY STRUCTURE
INDUSTRY OVERVIEW
Top 10 Brand Advertisers on TV (2011)
$1,100
AT&T
$702
Verizon…
$415
$336
$326
$316
$283
$278
$266
$240
Geico
State Farm
DirecTV
Wal-mart
Comcast
Home…
Dish
Allstate
$0
$200
$400
$600
$800
TV advertising expenditures ($mm)
$1,000
$1,200
AD/SALES RATIO:
1.2
AD GROWTH:
4.7%
SALES GROWTH:
5.4%
RECOVERY of AUTO
INDUSTRY
EXPECTED
GROWTH
INCREASE IN CONSUMER
DEMAND
HIGHER PREMIUMS
UNDERWRITING
SOFTWARE
LOW PRODUCTION
COSTS
INDUSTRY ORGANIZATION
INSURANCE CARRIER
UNDERWRITING SOFTWARE
BROKERS or AGENTS
COMPETITIVE LANDSCAPE
Other
33%
State Farm
18%
All State
10%
American
Family
2%
Travelers
2%
NationWide
USAA Liberty
4%
4%
5%
HHI
1170
Geico
9%
Farmers
6%
Progressive
8%
Source: IBISWorld
MAJOR PLAYERS
18.4% MARKET
SHARE
$33 billion REVENUE
ABSENT FROM
STOCK MARKET
CROSS PROMOTION
9.5% MARKET
SHARE
$17 billion REVENUE
70% of PROPERTY
& PREMIUMS
PRODUCT BUNDLING
8.6% MARKET
SHARE
$15 million REVENUE
LOW PRICES
Until 1973: FEDERALEMPLOYEE-ONLY
INSURER
ADVERTISING STRATEGIES
GEICO AD
Percentage of Times Correctly Identified
Brand/Character Recognition
100%
90%
80%
70%
60%
50%
40%
Amount of
Correct
Identifications
30%
20%
10%
0%
Allstate's
Mayhem
State Farm's
Aaron
Rodgers
Farmer's
Professor
Allstate's
Dennis
Progressive's
Flo
Firm and Ad Character
Geico's
Gecko
N=73
ALL STATE
Aaron Rodgers
GEICO CELEBRITY
Chris Paul
UNIVERSITY OF FARMERS
Facebook response rates to insurance ads
Nationwide Insurance
76.9%
Progressive
76.5%
State Farm
73.1%
Allstate
57.9%
Geico
56.1%
Liberty Mutual
51.7%
American Family Insurance
50.0%
Farmers
46.4%
0%
10%
20%
30%
40%
50%
60%
70%
Response rate (number of FB posts that received a response/ total)
80%
90%
RECOMMENDATIONS
Industry recommendations:
Continue to promote online and adjust to
evolving trends in social media
Have more balance in commercials
between building brand and selling product
Emphasize more features in coverage or
service attributes for better product
differentiation
Ensure commercial characters have
stronger tie to actual product of insurance
Allstate (ALL) key statistic s
Previous closing price
Market cap
Enterprise Value/EBITDA
$49.01
$23.4B
6.9 x
P/E
10.5 x
EPS
$4.68
Dividend yield
Investment Thesis:
Strong recent market performance
Superior margins compared to competitors
Solid growth prospects (premium increases have been successful to
compensate for low interest rates)
Dividend increase despite Sandy $1.1B hit shows strength
2.0%
ALL
PGR
Industry
Market Cap:
23.40B
15.05B
2.78B
Employees:
38,000
25,889
2.10K
0.04
0.09
0.02
33.32B
17.38B
2.46B
0.23
0.09
0.23
3.90B
1.62B
351.20M
0.11
0.09
0.07
2.31B 953.30M
N/A
Qtrly Rev Growth (yoy):
Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
Operating Margin (ttm):
Net Income (ttm):
EPS (ttm):
4.68
1.57
1.75
P/E (ttm):
10.47
15.9
12.72
1.24
1.89
1.4
0.7
0.86
0.87
PEG (5 yr expected):
P/S (ttm):
Free cash flows ($mm)
Projections
2012A
2013E
2014E
2015E
2016E
2017E
Terminal
$27,027
$27,653
$28,387
$28,128
$28,386
$28,954
$29,533
2.3%
2.7%
(0.9%)
0.9%
2.0%
2.0%
2,458
2,765
2,850
3,324
3,354
3,421
3,490
9.1%
10.0%
10.0%
11.8%
11.8%
11.8%
11.8%
(968)
(997)
(1,163)
(1,174)
(1,197)
(1,221)
245
245
245
245
245
245
0
0
0
0
0
0
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
0.0%
0
0.0%
Unlevered free cash flow for discounting
$2,042
$2,097
$2,405
$2,425
$2,468
$2,513
Discount period
Discount factor
Discounted free cash flows
0.875
92.7%
$1,894
1.875
85.1%
$1,784
2.250
82.4%
$1,981
3.250
75.6%
$1,832
4.250
69.3%
$1,711
4.250
69.3%
$24,889
Revenue
% growth
EBIT
% margin
Less: taxes at 35.0%
Plus: D&A
Less: capex
% revenue
Less: increases in NWC
% revenue
Present value of explicit cash flows
Present value of perpetual cash flows
Enterprise value
Plus: cash
Less: debt
Less: non controlling interest and other
Plus: unconsolidated investments
Equity value
Divided by shares outstanding
Price per share
$9,203
24,889
$34,092
4
(6,012)
0
0
$28,084
477.4
$58.81
Implied share price
Discount
rate
10.0%
9.5%
9.0%
8.5%
8.0%
1.0%
$46.44
$49.02
$51.89
$55.13
$58.80
Terminal growth rate
1.5%
2.0%
2.5%
$49.00 $51.87
$55.12
$51.88 $55.12
$58.83
$55.12 $58.81
$63.07
$58.80 $63.04
$67.99
$63.02 $67.95
$73.77
3.0%
$58.85
$63.10
$68.04
$73.84
$80.75
DCF range: $51.88- $67.99
Valuation represents a 6% -39% premium over Monday’s closing price
of $49.01