RBC Capital Analyst Upgrades Kinsway Shares' Rating

When it comes to the beating that shares in Kingsway Financial Services Inc. (KFS) have taken this past year, RBC Capital associate analyst Dennis Westfall says enough is enough, and upgraded his rating on the stock from "underperform" to "outperform."

In a note to clients the associate analyst said:

The upgrade reflects our belief that the market has more-than-adequately revalued Kingsway's shares following seven consecutive weeks of adverse reserve development.

 

Mr. Westfall, who had lead coverage of the Canadian P&C Insurance industry transferred to him recently, argued that Kingsway's current share price trades a rock bottom 0.55 times its book value, which is well below its 12-month average of 1.54 times and that of its U.S. peers, who trade at an average of 1.58 times over the same period.

He wrote:

We believe that to argue for a lower P/B multiple one would have to entertain the possibility of insolvency – a scenario to which we do not give much credence at this time, given the company's adequate capital levels.

 

Still, Mr. Westfall said he does remain concerned about the visibility of Kingsway's reserves and the company's track record of below average return on equity and underwriting performance.

And as a result of those concerns, he maintained a low target multiple of 0.70 to determine his C$11 price target.