In the past ITIC showed three key valuation advantages: (1) cash and securities far beyond competitors' holdings; (2) income more resistant to industry down cycles (specifically, higher margins so less critically dependent on the refi "gravy" business); (3) consistent 14% average annual income growth for decades now.
How does this year stack up so far? We've been in a down cycle for refi, so it's a good time to check.
Cash & Investments (000s) 94,000 ... Sept 30, 2004 ($36 per diluted share) 85,000 ... Dec 31, 2003 ($32.60 per diluted share) (Increased by 9 million, or about $3.45 per diluted share)
Revenue comparison (000s): 60,600 ... First nine months of 2004 (down 17.4%) 71,500 ... First nine months of 2003
Net Income comparison: 8,030 ... First nine months of 2004 (down 7.3%) 8,660 ... First nine months of 2003
Net margin comparison: 13.3% ... First nine months of 2004 12.1% ... First nine months of 2003
So an improvement in net margins has softened the revenue hit. Still lower revenues and earnings are very possible in the near term.
But given cash and security holdings that exceed the share price, the earnings are free.
As I mentioned I'm in the business. I am puzzled that revenues were down $5 million, but salesmen's commissions were down $4 million so the profit remained stable. The commissions generally run about 30% of the premiums??
More than that. Commissions paid by ITIC to agents have averaged about 43% of net premiums since 1998. Further the fraction has gone up in easier times and down in tougher times. So the commission rate dropped from 47% in Q3 2003 to 40% this past quarter: