It’s a tough economy out there. Prices are going up. And the steady swing of the Reserve Bank’s scythe hopes to bring them under control.

An awkward system, but it’s the best we’ve got to clean up after the scam-party of Covid money printing.

Following the OCR rise last week, I’ve been casting my eye over NZX holdings.

There’s one defensive business that appears to be moving upwards against the tide.

People always need insurance. You can stop buying smoked salmon. Or eating out. But you can’t stop things like home insurance.

Your mostly likely option is increasing your excess — which also reduces the insurance company’s exposure.


Why has Tower’s [NZX:TWR] share price risen?


Tower is a smaller insurer in the competitive and largely commoditised New Zealand insurance market.

Over the past few years, it has invested into technology to bring the cost of insurance more closely in line with the risk. Their online systems, for example, allowed me to discover that it is much cheaper to insure the same car in Devonport, as compared to Herne Bay.

Further comparing premiums against other insurers, I find Tower’s model to be competitive.

Technology investment seems to be paying off. And Tower is growing customers, especially through its direct digital business.

The share price notched up to a new level following FY22 results last week:

  • Gross written premium (GWP) $457 million, up 13% on FY21.
  • Customer numbers increased 5% to 319,000.
  • Underlying net profit after tax (NPAT) excluding large events $41 million vs $30.8 million in FY21.
  • Underlying NPAT including large events $27.3 million vs $20.8 million in FY21.
  • Final dividend of 4 cents per share.
  • Brings total dividends for FY22 to 6.5 cents per share, compared to 5 cents in FY21.


Where could Tower go from here?


I’ve held Tower for a long time and it’s gone nowhere.

Yet with a projected gross dividend yield of over 7% and a track record of steady — if not stellar growth — it does seem somewhat underrated in the New Zealand market.

That said, compared to global options, it’s not especially cheap. The current P/E is around 14.6.

The Company is continuing to hum along nicely. It appears ripe for another buyback or takeover attempt. Though the latter has been knocked back before by the Commerce Commission when Vero sought to take over the business at a premium in 2017.

For now, Tower’s income and steady growth is attractive.

But I’d like to see further innovative strategy now that the technology investment is paying off.

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Simon Angelo

Editor, Wealth Morning

(This article is general in nature and should not be construed as any financial or investment advice.)