RenaissanceRe Holdings Ltd.

RNR Details

RenaissanceRe Holdings Ltd. (NYSE: RNR) is a provider of insurance and reinsurance solutions and services across the globe. The company’s product portfolio includes property, casualty, specialty reinsurance, and other insurance products distributed through its subsidiaries. RNR operates in various geographies such as Bermuda, Australia, Ireland, Singapore, Switzerland, the U.K, and the U.S. RNR derives its revenues primarily from two segments, namely 1) Property, which includes catastrophe, property reinsurance, and other insurances provided by its subsidiary companies. 2) Casualty and Specialty, which includes casualty and specialty reinsurance and insurances provided by the company’s subsidiaries, joint ventures, and managed funds. As of May 20, 2021, the company’s market capitalization stood at USD 7.91 billion.

Share Repurchase Program: On May 07, 2021, the company announced the renewal of its share repurchase program to increase the total buyback authorization up to USD 500 million. The company repurchased 330,000 shares of its outstanding common stock under open market transactions between March 31, 2021, and April 23, 2021. The shares were purchased at an average price of USD 167.62 for a total aggregate cost of approximately USD 55.30 million.

Q1FY21 Results: The company reported an increase of 30.93% in writing the total gross premium to USD 2.65 billion in Q1FY21 (ending March 31, 2021) compared to USD 2.02 billion in Q1FY20 (ending March 31, 2020). Net premium written increased by 43.65% to USD 1.82 billion in Q1FY21 compared to USD 1.26 billion in Q1FY20. The Property segment contributed 55.28%, while the Casualty and Specialty segment contributed 44.72% of the net premiums written in Q1FY21. The company reported a net loss of USD 330.49 million in Q1FY21 compared to the net profit earned of USD 25.17 million in Q1FY20, which is primarily driven by a 51.86% increase in net claims and claims expenses incurred in Q1FY21 to USD 867.05 million. The company’s total claims and claim expense reserves increased to USD 10.95 million as of Q1FY21 from USD 10.38 million as of Q4FY20.

Claims and Claim Expense reserves (Source: Quarterly report, Q1FY21)

Key Risks: The reinsurance industry has been facing consolidation over the last several years. The consolidated client and competitor businesses may try to use their greater market power to negotiate price reductions of products and services in which the company deals. If it happens, then the company’s future underwriting activities might be reduced, resulting in reduced premiums and decrement in future earnings. This could materially impact the company’s financial state of affairs.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

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

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

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

Stock Recommendation: RNR has declined by 10.67% in the past six months and is currently leaning towards the lower band of the 52-week range of USD 144.03 to USD 201.29. The stock is currently trading below the 200 DMA levels. We have valued the stock using the Price/Book Value based relative valuation methodology and arrived at a target price of USD 178.76. Considering the decline in the stock price in the past six months, robust track record, balance sheet strength, and growth potential, we recommend a “Buy” rating on the stock at the closing price of USD 157.55, down by 1.19% as of May 20, 2021.

New York Community Bancorp, Inc.

NYCB Details

New York Community Bancorp. Inc. (NYSE: NYCB) is the holding company of New York Community Bank holding company, a New York-based state-chartered savings bank. The bank operates 237 branches, out of which 19 operate directly under Community Bank, and the remaining 218 operate through eight divisional banks. The company provides loan and deposit products and other financial services to individuals and businesses. Most of the loans company originates are Multi-Family mortgage loans collateralized by non-luxury apartment buildings in New York City. The company also provides other mortgage loans such as Commercial Real Estate (CRE) loans, One-to-four family loans, Acquisition, Development and Construction (ADC) loans, and other loans like Commercial and Industrial (C&I) loans. As of May 20, 2021, the company’s market capitalization stood at USD 5.50 billion.

NYCB Asset & Liability Portfolio Mix (Source: Company presentation, May 03, 2021)

Acquisition of Flagstar Bancorp, Inc. (Flagstar): On April 26, 2021, the company announced that it had entered into a merger agreement to acquire Flagstar at a total stock transaction value of USD 2.6 billion on the closing prices of April 23, 2021. After completion of the transaction, NYCB shareholders are estimated to own 68% of the combined company, while Flagstar shareholders garner the remaining 32%. The new entity will have USD 87 billion in assets with 400 branches in nine states and 87 retail home lending offices across 28 states. The transaction is expected to complete in Q4FY21.

Q1FY21 Results: The company reported a slight decline of 4.06% in total interest income to USD 423.10 million in Q1FY21 (ending March 31, 2021) compared to USD 441.04 million in Q1FY20 (ending March 31, 2020). Interest income from loans and leases constituted 90.62% of the total interest income in Q1FY21, with the rest coming from interest income from securities. The company reported a 45.12% YoY increase in net income to USD 145.59 million during the quarter. Net Interest Margin (NIM) improved by 47bps YoY to 2.48%. In Q1FY21, the company’s total deposits increased by 5.42% to USD 34.19 billion from USD 32.43 billion in Q4FY20. Non-Performing Assets (NPAs) decreased by 10.41% to USD 41.30 million compared to USD 46.10 million as of Q4FY20.

NYCB Asset Quality vs. Peer Set (Source: Company presentation, May 03, 2021)

Key Risks: As of December 31, 2020, Multi-Family Mortgage Loans account for 75.30%, while Commercial Real Estate (CRE) loans consist of 16% of the total loans and leases held for an investment portfolio. If these loans, primarily secured by assets in New York City, get impaired due to any reason, it may severely impact the company’s financials.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

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

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

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

Stock Recommendation: NYCB stock price increased by 5.99% in the past three months and is currently leaning towards the higher band of the 52-week range of USD 7.72 to USD 13.23. We have valued the stock using the Price/Book Value based relative valuation methodology and arrived at a target price of USD 13.43. Considering the growth potential, decent dividend yield, balance sheet strength and good asset quality, we recommend a “Buy” rating on the stock at the closing price of USD 11.84, traded flat as of May 20, 2021.