(By Balaseshan) CIBC World Markets Inc. analyst Paul Holden upgraded rating of Intact Financial Corp. (TSE:IFC) to "Sector Outperformer" from "Sector Performer" and raised price target to $71 from $67.
Holden said he is resuming coverage of Intact with the closing of its acquisition of Jevco. Intact paid $530 million in cash for Jevco, equal to 1.3 times book value. The transaction was financed by: $225 million net proceeds from equity issue; $200 million of debt; and $105 million of cash (excess capital).
The analyst said Jevco is the largest underwriter of non-standard auto and motorcycle insurance. It also provides insurance for recreational vehicles, such as ATVs and snowmobiles. These are new product lines for Intact. Commercial lines include surety and property and liability for small businesses - a nice fit.
Holden estimates the transaction will be 3%-5% accretive to EPS and roughly 3% accretive to book value. Intact warned that severe weather in Q3 will impact EPS by an estimated $0.85-$1.00. His Q3 EPS estimate is $0.52. This may be a short-term headwind, but doesn't change his long-term outlook.
The brokerage lowered its 2012 EPS estimate to $4.48 from $5.44, while increasing its 2013 estimate to $6.20 from $5.86.
The analyst is increasing his price target based on his new estimates. He thinks this is a good time to accumulate shares of Intact given the pullback in the shares and the benefits of the Jevco transaction.
IFC is trading down 0.41% at $60.00 on Thursday.