Ever since Intact Financial Corp. announced at the end of May that it will buy AXA Canada from AXA Group for $2.6-billion, the shares of the property and casualty insurer have risen nearly 9 per cent. However, Mario Mendonca, an analyst at Canaccord Genuity, believes that the big gains are still to come.
He raised his target price on Intact to $63 from $53 - a significant 19 per cent bump - and also raised his recommendation on the stock to "buy" from "hold." Part of his enthusiasm comes from his belief that bigger is better in the P&C sector.
"We believe the strategic and financial merits of the transaction are almost indisputable," he said in a note. "IFC, already the largest P&C company in Canada, will become the largest by a factor of two times the next competitor, Aviva, giving the combined company significant pricing, claims, expense and distribution advantages."
The combined companies should drive Intact's 2012 earnings up 12 per cent from Mr. Mendonca's estimates for the pre-merged Intact. For 2013, the merger should drive earnings 16 per cent higher. Additionally, he has raised his book value estimates for Intact by 8 to 9 per cent.
David Berman