Search This Blog

Wednesday, October 7, 2009

VRSK... oh so interesting

I really really like the name... Even at 28. IMO, anyone selling is very short sighted.

Everyone and their mother can read the basic description, so I am not going to regurgitate the obvious, and only mention key points.

Aspects of the biz model that I like:

1. Profitable

2. Subscription base - provides a great positive cash flow from pretty much every major insurer in the country.

3. Transactional base - a growing (and contributing around 28% of revenue since June 2009) aspect of the biz that will keep growing very nicely, IMO. This aspect includes:

a. fraud detection for individual mortgage application (huge prospects)
b. property specific rating and underwriting info on commercial building

Observations via the numbers going back the last 8 quarters:

1. Current (US based) Risk Assessment revenues looks to be flat-lined.

2. Decision Analytics, at worst increasing in a nice strong consistent linear fashion, and at best looks to be starting a slight parabolic move upward.

3. Because Decision Analytics is about 49% of revenue, it is the driver in revenue growth.

4. The growth in the expenses is very choppy, although the trend is clearly up. For now management seems to be doing a good job in maintaining them.

Growth Opportunities:

1. International market - they highlighted Germany as an example.

2. Mortgages - lenders are obvious customers, and they indicated 950 banks already are. Now imagine for a second that investors of MBS' actually did their own homework (or the lenders themselves did the homework) to see which applicant is a default risk via their analytics. (Remember this aspect is transactional base.) The investors would no longer rely on Credit Rating Agencies on the pooled security because they would know exactly what level of risk is involved, AT THE INDIVIDUAL LEVEL, of the MBS. (bye-bye rating agencies) Using Verisk allows the level of transparency needed within the securitization market.


I like the name. It has a steady consistent nature, but the potential to be a disruptor to the securitization business (on the lender and investor side) is what can really drive the stock exponentially. But that aspect is a 'wait and see'. Remember, I am no fan of the Rating Agencies, and there is a very real push by institutional investors to get away from using them.

No comments:

Post a Comment