We Ran A Stock Scan For Earnings Growth And Tower (NZSE:TWR) Passed With Ease

In the quest for undervalued opportunities with strong growth potential, we recently conducted a stock scan focusing on earnings growth. Among the companies that caught our attention was Tower Limited (NZSE:TWR), a New Zealand-based insurance provider with a compelling track record and promising prospects. This article delves into the factors that contribute to Tower's impressive earnings growth and its competitive position within the Asia-Pacific insurance industry.
Tower's earnings growth rate of 20% per annum and return on equity forecast of 19.3% in 3 years outpace the Asia-Pacific insurance industry's average earnings growth of 7.4%. Its net margin of 7.6% is also higher than the industry average of 5.5%. Tower's strong earnings growth and profitability position it favorably among its peers in the region.
Tower's strategic focus on digital transformation has significantly contributed to its earnings growth. The company's My Tower platform, operational across all markets, has strengthened sales via digital channels, contributing 65% towards overall GWP growth in FY23. Digital technology investments have enabled Tower to move workflows to its operational hub in Suva, reducing telephony and service costs. This disciplined cost control and improved efficiencies have further enhanced Tower's earnings growth.
Tower Limited has implemented several strategic initiatives to drive its earnings growth and maintain a competitive edge in the insurance industry. One key strategy has been the acquisition of insurance businesses, such as the portfolio of insurance business from TSB Bank Limited and the sale of its Papua New Guinea subsidiary. These acquisitions have allowed Tower to expand its customer base and product offerings, contributing to its earnings growth. Additionally, Tower has focused on digital transformation, investing in digital technology to improve operational efficiency and enhance the customer experience. This has been evident in the launch of the My Tower digital platform, which has contributed to 65% of overall GWP growth in FY23. Tower's disciplined cost control and targeted rating actions have also helped improve its earnings, with the management expense ratio (MER) improving to 32.2% in FY22. Furthermore, Tower's focus on efficient claims settlement has enabled it to complete approximately 84% of claims for the Auckland and Upper North Island weather event and Cyclone Gabrielle, and 88% of claims for Cyclones Judy and Kevin in Vanuatu. These strategic initiatives have contributed to Tower's competitive advantage by enhancing its customer experience, improving operational efficiency, and driving earnings growth.
Tower's earnings growth has been impacted by various external factors, including catastrophic weather events, inflation, and an increasing frequency of motor claims. In 2023, the company reported an underlying profit of $7.8m, down from $27.3m in 2022, primarily due to large events costs of $55.6m compared to $19m in the previous year. Despite these challenges, Tower has demonstrated resilience and strategic delivery, positioning itself for long-term sustainable growth. The company has focused on targeted growth and efficiency, with gross written premiums (GWP) in New Zealand rising 19% year-on-year, driven by strong rating actions and organic growth. Tower has also expanded its digital channels, contributing 65% towards overall GWP growth in FY23. The company's focus on efficient claims settlement and targeted rating and underwriting actions has helped it navigate these challenges, while its successful renewal of reinsurance programs provides important protection from the volatility of large events in FY24.
In conclusion, Tower Limited (NZSE:TWR) has demonstrated strong earnings growth and a competitive position within the Asia-Pacific insurance industry. Its strategic focus on digital transformation, acquisitions, and cost control has driven its earnings growth and positioned it for long-term success. Despite external challenges, Tower has shown resilience and adaptability, making it an attractive investment opportunity for those seeking undervalued growth stocks.