International General Insurance Holdings Ltd.

IGIC Details

International General Insurance Holdings Ltd. (NASDAQ: IGIC) is an international specialty risk commercial insurer and reinsurer, with a worldwide portfolio of specialty risks including energy, property, construction & engineering, ports & terminals, general aviation, political violence, casualty, financial institutions, marine and treaty insurance in over 200 countries and territories. IGIC was listed on the NASDAQ on March 18, 2020. As of May 21, 2021, the company’s market capitalization stood at USD 438.29 million.

Specialty Business – Balanced Premium Mix (Source: Investor Presentation, May 2021)

Q1FY21 Results: The company reported a 1.41% increase in gross written premiums (GWP) to USD 100.6 million in Q1FY21 (ending March 31, 2021) as compared to USD 99.2 million in Q1FY20. Net income for Q1FY21 was USD 14.5 million, compared to a net loss of USD 0.9 million in Q1FY20. However, the combined ratio (i.e., the sum of claims and claims expense ratio, and expense ratio) for Q1FY21 was 84.6%, compared to 81.3% for Q1FY20.

Peer Comparison (Source: Investor Presentation, May 2021)

Key Risks: The insurance and reinsurance industries are highly competitive, which may result in fewer policies underwritten, lower premium rates, increased expense for customer acquisition and retention, and less favorable policy terms and conditions. Also, there has been a surge in merger and acquisition activity in the insurance and reinsurance sector in recent years which may continue, resulting in larger entities having enhanced market power. This increased competition could adversely impact the company’s ability to generate profits.

Outlook: In its Q1FY21 Report, IGIC stated that its recently announced entry into the contingency market experienced significant disruption globally as a result of the COVID-19 pandemic. However, the company is positive that it will be able to grow this segment in the future. IGIC also stated that it is close to completing the process of establishing a European platform in Malta, and expects to start the underwriting business inside the European Union soon.

IGIC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: IGIC stock is currently around the mid-point of the 52-week range of USD 5.49 to USD 11.05. Considering the stable dividend yield, expected entry into the European Union market, strong financial performance, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 8.71, down by 3.11% as of May 21, 2021. The target price of USD 9.72 represents a Price/Book Value multiple of 1.06x on FY21E book value per share of USD 9.17. On the technical chart, the next support level is USD 7.88.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

Performance Shipping Inc.

PSHG Details

Performance Shipping Inc. (NASDAQ: PSHG) is a global provider of shipping transportation services and owns five Aframax tankers. The company’s current fleet of tankers operates primarily in the spot market under voyage charters, short-term time charters of less than 12 months, and medium-term charters of less than 36 months, with leading energy companies and traders. As of May 21, 2021, the company’s market capitalization stood at USD 25.06 million.

Fleet & Employment Profile (Source: Investor Presentation, April 2021)

Q1FY21 Results: The company reported a sharp decline of 37.82% in total revenues to USD 8.40 million in Q1FY21 (ending March 31, 2021) as compared to USD 13.50 million in Q1FY20, primarily due to the decreased time-charter equivalent (TCE) rates as a result of depressed market conditions (Average TCE rate of USD 7,691 in Q1FY21 vs USD 21,386 in Q1FY20). Net loss for Q1FY21 was USD 2.9 million, compared to net income of USD 1.30 million in Q1FY20.

Key Risks: The tanker vessel industry is cyclical and volatile, which may lead to reductions and volatility in the charter rates, vessel values, and resulting in a negative impact on the company's earnings and available cash flow. In addition, the process of obtaining new medium-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Failure to charter its vessel may adversely affect PSHG’s business. Further, an extension of pandemic-related curbs and travel bans can weigh on the oil demand, thus affecting volumes and rates and hence, the company’s profitability and cash flows.

Outlook: In its Q1FY21 Report, the company stated that it expects spot charter rates, which continue to be at very low levels, to gradually recover over the successive quarters of 2021 as the COVID-19 pandemic recedes and demand for crude oil and refined petroleum products recovers. There is a considerable likelihood of a pickup in growth in oil demand in the short-to-intermediate term due to the global rollout of vaccines and subsequent curtailment of travel curbs and lockdowns. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PSHG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: PSHG has declined 32.12% in the past three months and is currently leaning towards the lower end of the 52-week range of USD 3.98 to USD 8.80. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 5.55. On the technical chart, the next support level is USD 3.98. Considering the correction in the stock price in the past three months, expected growth in the demand for crude oil, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 4.67, down by 5.27% as of May 21, 2021.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.