Topic: How To Invest

Two Canadian financial companies that profit from more cars on the road

Two Canadian financial companies that profit from more cars on the road

INTACT FINANCIAL CORP. (Toronto symbol IFC; is Canada’s largest provider of property and casualty insurance, based on premiums. Its brands include Intact Insurance, Canada BrokerLink, belairdirect and Grey Power.

In the three months ended September 30, 2013, Intact’s revenue rose 5.7%, to $1.9 billion from $1.8 billion a year earlier. The company earned $0.39 a share, down sharply from $0.90.

However, the latest results include a one-time loss of $1.52 a share related to the Lac-Mégantic rail tragedy and major rain and hail storms in Quebec, Ontario and Alberta. One-time losses amounted to $1.02 a share a year ago.

Intact’s personal auto insurance business reported improved results in the latest quarter, with a combined ratio, or claims paid out divided by premiums taken in (the lower, the better), of 93.0%, down from 94.9%.

However, the longer-term car insurance outlook is uncertain. Early in 2013, Ontario’s Liberal government agreed to an NDP demand for a 15% premium cut.

Personal auto insurance premiums account for 45% of Intact’s total. Ontario drivers supply 40% of those premiums.

Canadian stock market: Carfinco expands into U.S. with purchase of firm that also lends to less affluent consumers

CARFINCO FINANCIAL GROUP (Toronto symbol CFN; provides car loans to consumers who can’t meet the criteria of traditional lenders, like banks.

In September 2013, Carfinco expanded into the U.S. through its $9.5-million purchase of Persian Acceptance Corp., an automotive lender that also caters to less-affluent borrowers. The acquisition boosted Carfinco’s loans outstanding by about 22%.

In the three months ended September 30, 2013, Carfinco’s revenue rose 17.7%, to $21.4 million from $18.2 million a year earlier. The company loaned a record $46.5 million in the latest quarter, up 9.2% from $42.6 million.

Even so, earnings fell 22.5%, to $4.3 million, or $0.16 a share, from $5.6 million, or $0.23. However, the decline was mostly due to one-time costs related to the Persian Acceptance purchase. Cash flow per share rose 2.7%, to $0.38 from $0.37.

Carfinco is counting on its well-established dealer network and investments in Internet loan-approval technology to maintain its growth.

The company’s monthly dividend of $0.04 yields a high 4.0%.

In the latest edition of Stock Pickers Digest, we look at the long-term implications of the Ontario government’s cut in insurance premiums that Intact charges its customers. We also consider Carfinco’s prospects for increasing its market share in 2014. We conclude with our clear buy-hold-sell advice on these two stocks.

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Intact Financial is trying to overcome the impact of a government-mandated cut in premiums. Have you had a stock that ran into difficulty with a government ruling, or failure to gain official approval of a product or project? Did the stock ultimately do well for you despite these obstacles?


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