Enterprise value can be calculated in the normal way ( market cap + net debt), but it is arguably unhelpful if the market cap doesn't reflect the unit economics kit the business. At best you send up with an 'enterprise price' not the enterprise value. I think you are asking how to go about a SOTP analysis to calculate intrinsic value. This too is tricky because privately held businesses are not fully broken or in the consolidated numbers. You also have the J-curve to deal with on
they have negative EPS and a pretty high price/book...
I understand that it's wise to pay a good price for a great company, but there must be some price that reflects pretty optimistic view of future performance.
about the extended warranty business: it really reminds me of pure insurance business. you take the premium before the insurance event occurs, thus having a negative cost of capital.
best case - you never have to return the deposit or the interest
worse case (assuming you know how to hedge) - you return the deposit and keep the interest.
i guess in warranty business you still need people to do stuff, not just backoffice guys writing checks if something bad happens.
This is a business that looks entirely different today than it did in the past. It started as an insurance company, morphed into a merchant bank and then pivoted into search funds.
Now it should be considered a different company. The management and the operating model have changed. The ony thing that remained the same was the name - and that ought to change because it is no longer in the business of financial services.
As such, assessing this company looking in the rear view mirror is folly.
You need to look at the road ahead.
At the end of 2024 adjusted EBITDA was ~$10.4m. By the second quarter of 2025 it was over $22m (including two new acquisitions). Next month we get the FY25 numbers and adjusted EBITDA is likely to be at least $25m. By FY26 $30-$35m is reasonable to expect. This is a company with a market cap of ~$380m. It implies a forward earnings multiple of close to 10x. Where else can you find a company of this quality, with the ability to scale rapidly, with this caliber of management and with the benefit of a zero tax rate for the next 5-10 years, at this kind of valuation?
How would you structure the calculation for Kingsway's Real Total Enterprise Value? One could justify adding several specific, liquid assets to the cash balance, assuming a potential acquirer could monetize them.
This also raises an adjacent question regarding capital allocation and asset maximization. Is it likely that Kingsway is positioning the Extended Warranty business for a complete or partial divestiture to extract value before the net operating losses expire?
Enterprise value is calculated in the normal way, market cap + net debt. But that's not useful when the market cap doesn't reflect the unit economics of the business. You end up with an 'Enterprise Price' not an 'enterprise value'.
I think you are looking instead to conduct a SOTP valuation, but that too is difficult for a host of reasons. The economics of the privately held businesses is not broken out in consolidated accounts of Kingsway. You also have the j-curve challenge on more recently acquired subsidiaries to deal with.
Then you have the accrual accounting issue with the warranty business which depresses earnings (costs and revenues are not recognized concurrently), so the matching principle kind of breaks down.
In recognition of this, Kingsway publishes its adjusted EBITDA which accounts for all of these things. For FY25, that number was ~$22m. FY24 was ~$10.7m. The business is growing at a very rapid rate organically, plus there is the ongoing acquisitive growth.
In the next 2 years this number could quite easily be $40m+. Now discount that back on an NPV basis to give you a value today and multiply it by the kind of multiple a fast growing programmatic acquirer deserves. I think you will find that the value you arrive at is far in excess of where the stock trades today.
Then that brings me on to the second part of your quesiton. The answer is yes, there are four warranty businesses within Kingsway. I anticipate that will eventually be one. There will be divestments prior to the expiry of the NOLs in 2029 as the capital gains can be shielded from tax, and the business is seeking to be a pure play search fund incubator. The warranty business likely to remain will be PWI, which actually fits in the search fund incubator model and is anticipated to grow.
Enterprise value can be calculated in the normal way ( market cap + net debt), but it is arguably unhelpful if the market cap doesn't reflect the unit economics kit the business. At best you send up with an 'enterprise price' not the enterprise value. I think you are asking how to go about a SOTP analysis to calculate intrinsic value. This too is tricky because privately held businesses are not fully broken or in the consolidated numbers. You also have the J-curve to deal with on
aren't you worried about the price?
they have negative EPS and a pretty high price/book...
I understand that it's wise to pay a good price for a great company, but there must be some price that reflects pretty optimistic view of future performance.
about the extended warranty business: it really reminds me of pure insurance business. you take the premium before the insurance event occurs, thus having a negative cost of capital.
best case - you never have to return the deposit or the interest
worse case (assuming you know how to hedge) - you return the deposit and keep the interest.
i guess in warranty business you still need people to do stuff, not just backoffice guys writing checks if something bad happens.
This is a business that looks entirely different today than it did in the past. It started as an insurance company, morphed into a merchant bank and then pivoted into search funds.
Now it should be considered a different company. The management and the operating model have changed. The ony thing that remained the same was the name - and that ought to change because it is no longer in the business of financial services.
As such, assessing this company looking in the rear view mirror is folly.
You need to look at the road ahead.
At the end of 2024 adjusted EBITDA was ~$10.4m. By the second quarter of 2025 it was over $22m (including two new acquisitions). Next month we get the FY25 numbers and adjusted EBITDA is likely to be at least $25m. By FY26 $30-$35m is reasonable to expect. This is a company with a market cap of ~$380m. It implies a forward earnings multiple of close to 10x. Where else can you find a company of this quality, with the ability to scale rapidly, with this caliber of management and with the benefit of a zero tax rate for the next 5-10 years, at this kind of valuation?
I break down the financials and valuation in my deep dive https://rockandturner.substack.com/p/kingsway-financial-services-a-hidden
I would encourage you to read that to better understand the unit economics as they are today.
How would you structure the calculation for Kingsway's Real Total Enterprise Value? One could justify adding several specific, liquid assets to the cash balance, assuming a potential acquirer could monetize them.
This also raises an adjacent question regarding capital allocation and asset maximization. Is it likely that Kingsway is positioning the Extended Warranty business for a complete or partial divestiture to extract value before the net operating losses expire?
Enterprise value is calculated in the normal way, market cap + net debt. But that's not useful when the market cap doesn't reflect the unit economics of the business. You end up with an 'Enterprise Price' not an 'enterprise value'.
I think you are looking instead to conduct a SOTP valuation, but that too is difficult for a host of reasons. The economics of the privately held businesses is not broken out in consolidated accounts of Kingsway. You also have the j-curve challenge on more recently acquired subsidiaries to deal with.
Then you have the accrual accounting issue with the warranty business which depresses earnings (costs and revenues are not recognized concurrently), so the matching principle kind of breaks down.
In recognition of this, Kingsway publishes its adjusted EBITDA which accounts for all of these things. For FY25, that number was ~$22m. FY24 was ~$10.7m. The business is growing at a very rapid rate organically, plus there is the ongoing acquisitive growth.
In the next 2 years this number could quite easily be $40m+. Now discount that back on an NPV basis to give you a value today and multiply it by the kind of multiple a fast growing programmatic acquirer deserves. I think you will find that the value you arrive at is far in excess of where the stock trades today.
Then that brings me on to the second part of your quesiton. The answer is yes, there are four warranty businesses within Kingsway. I anticipate that will eventually be one. There will be divestments prior to the expiry of the NOLs in 2029 as the capital gains can be shielded from tax, and the business is seeking to be a pure play search fund incubator. The warranty business likely to remain will be PWI, which actually fits in the search fund incubator model and is anticipated to grow.
I hope this helps.
Present Value Of NOLs Estimates: Conservative = $20.4 million | Expected = $44.6 million | Best Case = $82.5 million
TEV Estimate Working With Gemini: https://gemini.google.com/share/a300cdd33c5c