Hallmark Financial

Ticker
$HALL
Industry
Insurance
Type
Beaten Up
Rating
Not Rated
Category
Option
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Small cap insurance company with specialty and standard lines of insurance. Prepping to IPO the specialty segment which compares favorably to other highly valued specialty insurers such as Kinsale ($KNSL).

Notes

June 2021 Update — potential IPO of the specialty business

Another comparison could be the 2017 acquisition of State National Companies ($SNC) by Markel ($MKL) at $919m for $1.3bn in gross written premiums -- a 0.7x multiple.

Trailing gross written premiums for specialty segment as of 1Q21 were $500m -- the same multiple of 0.7x would value that business at $350m. As a check figure, $KNSL trades at 6x GWP and $ARGO trades at 0.58x GWP but is in the midst of their own turnaround.

Because this is an IPO and not a spin-off, it's not as clean an analysis. Hallmark will own shares in the post-IPO specialty business but shareholders won't hold shares in both companies... an indirect benefit. How to play this situation becomes highly dependent on the pricing of the specialty IPO... if overvalued, then I'd rather own shares of Hallmark, but if undervalued, I'd likely pick up some shares on the IPO.

How to value the IPO situation?

Let's say the IPO is done at a valuation of 0.6-0.7x GWP or $300-350m. If $HALL retains 50% ownership that would leave $150-175m in stock at the "RemainCo."

Segment performance FY21 — Personal Segment generating pre-tax losses of $10m per year; why retain this segment??
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Financial performance — 2004 to 2021
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Changing trends in cash vs. investments — investment balances have plummeted and cash levels have risen (coincides with big drop in investment income to P&L)
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Financials & Valuation

Resources

Research

Hallmark Financial ($HALL) — 3Q21 Update
Hallmark Financial ($HALL) — Initiation (6/30/21)