market folly

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Jeff Osher of No Street Capital who pitched short Trupanion (TRUP).


Jeff Osher's Sohn San Francisco Presentation: Short Trupanion (TRUP)

Company

•    Short Trupanion (TRUP), a pet health insurance company
•    An insurance company that is looking for a SAAS-like multiple by using software nomenclature and getting coverage by software analysts

Thesis

•    Believes that TRUP is an insurance company masquerading as a subscription software business by using software nomenclature and getting coverage by software analysts
•    Gross margins of 17% are nowhere near SAAS companies
•    Looks more like standard insurance company with policyholders than a subscription company with subscribers. Company drivers are net premiums earned and losses incurred just like other insurance companies
•    Company pays potentially illegal commissions through “rewards program” for veternarians based on referrals/sales and may be under regulatory investigation (although nothing disclosed) - Offering paid trips to vets and money to money to hospitals for policy activations = commissions
•    Believe they could have an adverse selection problem as they are distributing/selling primarily through vet hospitals and healthy pets do not visit the vet hospitals
•    Believes they are in an Inevitable Rate spiral which will result in a death spiral - Premiums have to be increased to offset higher claims and thus healthier pets unlikely to be signed up
•    Valuation: Trades at a 9x P/B – way higher than best in class insurance peers like Progressive which trades at 3.6x P/B; Believes intrinsic value is $7.05-10.60 representing 65% to 77% downside



Be sure to check out the rest of the Sohn San Francisco 2018 presentations.