Discusses the investor letter submitted to management and an update from KINS most recent Q2 result
Management of casualty insurance firm Kingstone Companies Inc (NASDAQ:KINS) came under fire last week as unhappy shareholder Gregory Fortunoff submitted a letter to management during the filing of a 13D to the SEC.
Gregory Fortunoff Slams Kingstone’s Management
The filing saw Mr Fortunoff report a holding of 379,826 KINS shares or 3.56% ownership of the share class.
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Fortunoff began his letter by pointing to March of 2022 when KINS management initially hired a new “banker” for the company, expecting the banker would be used for assisting with refinancing or to help with a potential company transaction. Unfortunately no further update was ever provided on the banker after the initial announcement.
Gregory then noted that since Kingstone received a “non-binding” offer from a potential suitor in May, management have destroyed shareholder value by granting an extended period of exclusivity which stopped discussions from occurring with other potential parties that could maximise shareholder value.
He believes the “exclusive arrangement should have a deadline and this type of offer should not keep the company from speaking with other suitors”
KINS share price spiked and reached a high point of $3.50 during May after receiving the “non-binding” bid, but has since lost -50% of its value in the months preceding to current levels below $2.70.
What Mr. Fortunoff and other investors aren't understanding why management can’t decide whether the offer creates value for its shareholders or if it does not!
In addition to this lack of decision towards the offer, Fortunoff also highlighted that management knew that there was a $37 million bond that was up for replacement at the end of 2022 and did not make an effort to refinance at a lower rate before bond futures spiked over the year.
To make matters worse, the company has continued to pay a dividend of 4 cents per quarter, equating to an annual dividend yield of 6% while the companies net loss and operating performance continues to weaken.
Fortunoff ended his letter by highlighting that the recent proxy statement showed over 30% of votes casted had withheld their votes from the Board, which he believes proved shareholders distrust with current management.
Kingstone most recently announced second quarter results to investors on the 12th of August which saw the company's revenue decline -26.8% over the year to $28.97 million. The revenue figure was dragged down with net losses on investments of -$4.5 million compared to net gains on investments of $2.3 million in the prior year.
Direct premiums written in the second quarter grew 11.6% over the year to $49.8 million, however net premiums written fell -19.5% to $30 million, which resulted in net earned premiums falling -21.3% to $27.9 million.
The firm's net loss ratio widened 8.3 points to 66.9% and the net combined ratio rose 2.9 points to 103.3%.
KINS ended the quarter at 30 June 2022 with $193.8 million in cash and investment holdings which was a decline of -17.2% over the year.
Analyst Paul Newsome from Piper Sandler & Co decreased his target price for the stock from $5.40 to $5.00 post second quarter results but retained his ‘overweight’ recommendation on the company.
Newsome believes the most recent quarter for the company was disappointing but he pointed out signs of improvement coming from lowered expense levels. He believes the pending potential acquisition from the “non-binding” offer will be a key driver for KINS share price in the short term.
The chart provided below from Fintel’s financial metrics and ratios page shows KINS sales and profitability trends against the share price over the medium term:
Article by Ben Ward, Fintel