(ACS) AI Claims Solutions

Ai Claims Solutions - No car crash Click for report
http://www.edisoninvestmentresearch.co.uk/researchreports/ACS011211update.pdf
Thu, Dec 1, 2011 at 4:55 PM

The slowdown in motor accident claims frequency means that revenues and profits for the current year will fall short of expectations. Previously management had hoped for some market recovery, but is now more pessimistic. The flexibility in the cost base (the fleet is hired not owned) gives some protection to profits from lower revenues, and there has also been further progress on debtor collections so year-end net debt should be lower than we had expected. We believe this industry should further consolidate around a smaller number of low-cost, scale providers, working co-operatively with the insurers and that ACS is well placed to be one of them.

Ai Claims Solutions (ACS) provides credit hire and credit repair as well as other accident management solutions nationally. It represents non-fault drivers and insurers of at-fault drivers.

Year
End Revenue
(£m) PBT
(£m) EPS
(p) DPS
(p) P/E
(x) Yield
(%)
06/10 91.9
2.7
3.3
0.7
6.1
3.5
06/11 117.6
3.8
4.3
0.8
4.7
4.0
06/12e 108.2
3.0
3.4
0.8
5.9
4.0
06/13e 119.9
4.0
4.5
0.8
4.4
4.0
Ai Claims Solutions is a research client of Edison Investment Research.

Good results overall and still cheap on 6 times actual earnings but growth slowed in H2 as referrals fell 15%-20%. Revenue was split £60m/£57m and profits were £1.7m/£2m. In the past profits have been split as much as 1/2 between the H1 and H2. Total debtors days also up from 103 to 114 resulting in £1.4m cash out flow. Growth is going to be harder to come by in the next 1-2 years.

24th August 2011


Analyst: Ross Jones
Email: ross.jones@gecr.co.uk
Tel: 020 7562 3350


Ai Claims Solutions: Initiate Coverage at 25p with a stance of buy and 43p target

Key Data
EPIC

ACS
Share Price

25p
Spread

24.5p - 25.5p
Shares in issue

60.94 million
Market Cap

£15.2 million
12 Month Range

20.75p - 30.25p
Market

AIM
Website

www.autoindemnity.co.uk
Sector

Insurance - Non-life
Contact

Peter Harrison
Group Finance Director
0844 571 3333


Ai Claims Solutions provides motor claims services to the insurance and automotive sectors through bespoke product offerings and a low cost business model. This allows the company to offer a cost controlled, value added, end to end service to its clients. With limited exposure to the personal injury claims industry, we believe a key competitive advantage that Ai holds over the peer group is that, unlike its principal competitors, Ai does not own, but rents its replacement car fleet allowing the company to operate with far more flexibility. Our view is that cost efficiency services will prove key within this market specifically, as structurally the industry itself is under pressure, highlighted by the guidance given by the company on 27th July 2011 in its pre-close trading update.

Despite the weak macroeconomic backdrop, the company announced solid top line and earnings growth (57% and 89% respectively) on 1st March 2011 when it reported its results for the six months ended 31st December 2010. But despite the robust growth we are conscious of the strong market headwinds. Our view is that in the short-term the industry is set to continue to be constrained by higher fuel prices and increased insurance premiums which are subsequently leading to fewer miles driven and fewer accidents, the net effect being lower claim volumes. We do however believe that the high levels of client retention will support Ai’s growth trajectory and that in the short-term the business will be able to successfully focus on widening its margins and increasing operational efficiencies through further leverage of the company’s service platform and IT systems. The company announced on the 27th July that trading profit was set to be in line with market expectations when the full year results are announced on 27th September 2011. But the lack of guidance in regard to turnover leaves our forecasts showing slightly lower revenue than the consensus.

Despite the potential near-term top line risk, our view over the medium to long-term is that Ai is the best placed operation within its peer group to take advantage of both the developing legal reform and potential structural changes within the industry. Insurers are exposed to higher internal claims administrative costs and increased capital requirements than Ai and therefore we view the full end to end, low cost, flexible model, as being a key differentiator compared with the competition’s less robust, fleet ownership structure. In light of this, in the medium to long term, we envisage Ai growing through increased market share, won from the less efficient, slower claims handlers. Furthermore, the recent agreement, announced within the Interims on 1st March, with a major partner to settle its account (£4.9 million) and pay faster moving forward suggests that future cash flow should track profit growth closer.
Despite the near-term risks we view Ai as fairly placed to continue to operate robustly with increased operational efficiencies driving earnings growth in the short term. Currently trading on 5.9 times our forecast full year 2011 underlying earnings, the shares also offer a 2011 yield of 2.9%, making Ai the only company within its peer group to offer both growth and income. In addition, its competitive advantage seems to be undervalued by the market. We therefore value Ai Claims on a blended 2011 EV/EBIT multiple of 12, and an adjusted 2011 price earnings multiple of 10, initiating our coverage at 25

Interesting article titled No Win No Fee No Winners in the Sunday Times business section yesterday about the claims industry and how it has driven up motor insurance premiums. There is a quote from Peter Harrison of Ai Claims.