The company's business model is unique. Most insurance companies do not serve the low-end demographic because the policy premium is not worth the cost to acquire it. But Clientele has thrived in this area.
Clientele manages its costs of acquiring policies by outsourcing the work to francisees, called Independent Field Advisors (IFA), who themselves buy the company's products. The company does a lot of its advertising using late night informercials. In this way the company has kept the cost of acquisition at just below 50% the cost of the policies.
Clientele started its business only 23 years ago by the Enthoven family. The low-profile Enthoven family built its wealth in South Africa specializing in the insurance sector. The family owns 80% of the company through a holding company and they also own the Hollard Group of insurance companies. The Hollard Group in turn owns 9% of Clientele through a subsidiary. So, the Enthoven family has indirect control of almost 90% of Clientele.
Clientele has had phenomenal growth, as the chart below shows. While the company has grown steadily through the years, it has done so without losing underwriting discipline. The company's loss ratio — the money paid out in claims to the total premiums — has actually been falling. The loss ratio for the years 2017 to 2020 has been 23%, 22%, 20% and 20% respectively.
| CLI | |
|---|---|
| Price | R 9.49 |
| Earnings TTM | R 329.00 M |
| Marketcap | R 3182.00 (US$212 M) |
| ROE (%) | 32.50 |
| PE | 9.67 |
| PTBV | 3.27 |
| Div Yield (%) | 10.01 |
For the last several years I have held a strong belief that the US markets are overvalued. I believe this more than ever now. I believe we may be at an inflection point for the emerging markets. The value of the Rand as shown in the previous chart may be a good proxy for this. Note how it rose for pretty much the last ten years but it has handily recovered from the all time lows of the COVID crisis. There is no more room for the US stockmarket to grow, and emerging markets is where the stock growth will come from in the coming decade. Clientele could be a very good illistration of this.
We shall see.
I think your comments on the stocks correlation to USDSAR is internally inconsistent.
ReplyDeleteIn any case if anything, over most of the period in your chart it looks like SAR has been depreciating relative to USD and CLI has climbed nonetheless. More recently, CLI is losing value while USDSAR is kinda marking time.
Yes, you have a point....... I guess my observation is less of an observation and more of what I'd expect.
ReplyDeleteThank you for this 2021 write-up on Clientèle Ltd.
ReplyDeleteI originally discovered the idea through your blog and bought the stock shortly afterwards, in April 2021. My goal was not to find the “trade of the century”, but to diversify into South Africa through a simple, cash-generative insurer serving a niche market.
Almost five years later, with the proposed delisting/offer and the dividends received along the way, the position has delivered a total return of roughly +120% in EUR. Not bad at all for a small, overlooked South African insurance company.
So thank you again for sharing the idea and the reasoning behind it. This was a good reminder that value can still be found in quiet, illiquid corners of the market.