Friday, May 9, 2014

ITIC Q1 Earnings Fall

Price (May 7)$ 66.00
Market Cap $ 134 M
P/E TTM10.9 x
Div yield1.6 %
ROE9.6 %
Investors Title Insurance Company (ITIC) recently reported Q1 2014 results. Revenue was $28.5 M versus $26.8 M the previous year. The company earned $1.0 M versus $3.4 M the previous year. To me, the results were decent overall. The company's revenues fell by a million yoy in the previous quarter and this quarter made up for it. So revenue was flat the last six months versus a year ago. The quarterly decrease in income was solely due to an almost $3 M increase in reserves expense. These things happen, but it doesn't materially affect the soundness of the results. The paid-out claims are a tiny fraction of premiums. What matters is the revenue and SG&A. So I am encouraged that the company can still generate flat revenues with the low interest rates causing less refinancing activity.


  1. Hi,
    As previously mentioned, I followed you into ITIC after your initial post on them following their Q3 results last year.
    My basis for investment was their strong uplift in metrics that, if sustained, would have delivered a great result for the year (ie-they would have been severely undervalued at the price at the time - $77)

    Unfortunately, things did not work out like that as Q4 was poor, so the result for the year was ordinary and they guided lower for 2014.

    Based on those results they were still at a 22% discount to the EPV valuation that I use.

    However, as I have come to understand the company a bit more, I now consider them as a low risk investment fund with a profitable operating business sitting on top, adding to BV as time goes by.

    Trading at around BV, this gradual accretion is ignored and therefore a source of margin of safety.

    Like you, I am relaxed about the Q1 results. The main thing I don't like is the increasing % of sales by agents. The massive commission rates mean it has a material effect on the bottom line. The management don't seem to have much to say on the subject. Since they were spending so much on software I was hoping they were going to launch an online subsidiary to cut out the middleman.
    The current business model relies on buyer apathy, as the insurance is a small cost amidst the stress of a large transaction.

    So at $66 I an sitting on a tidy loss but I still like the company on a 10 or 20 year view for the boring part of my portfolio.

  2. Hi Soicowboy,

    thanks for responding, I get a lot of hits but not a lot of comments.

    Why do you say $66? The last quoted price is $70, which would be at most a 15% loss for you.

    My mistake was jumping into this stock too hard at the beginning at $82. I bought a bit more at $73 and was going to buy more under $65. I wish I could have bought more slowly and hence gotten in at lower prices.

    I basically agree with all that you are saying. But I am not worried about them operationally. You have to trust that the company is in good hands with such long-term management. I am watching interest rates like a hawk though. I have the contrarian view that interest rates are not going up. Which bodes well for ITIC's bond portfolio.