ipet: Fast-Growing Japanese Pet Insurer at Attractive Valuation

Jiro Yasu and Patrick Rial of Varecs Partners Fund presented their investment thesis on ipet Holdings (Japan: 7339) at Asian Investing Summit 2021.

Thesis summary:

ipet is the second-largest pet insurer in Japan. The company has been growing revenues at a 22% CAGR over the last five years as penetration of pet insurance has gradually increased. With only 10% penetration currently, there is still a long runway of at least ten years of growth, in Jiro and Patrick’s view.

ipet and Anicom (Japan: 8715) dominate the market because they allow payment settlement at animal hospitals, rather than upfront payments followed by tedious mail-in reimbursement used by other insurers. ipet has been adding more contracts than Anicom for the last three years and is gaining market share.

Still, on a per-contract basis, ipet trades at less than half the value of Anicom and 10% of the value of US-based Trupanion. Jiro and Patrick believe the discount is due to factors such as low liquidity, as parent Dream Incubator (Japan: 4310) still owns 56% of the stock, and an IR strategy that fails to adequately convey the growing value of the business.

Jiro and Patrick are encouraging ipet to emphasize the subscription aspects of their business model, where upfront spending to acquire new pets depresses near-term profit, but pays off down the road. Once a higher valuation is achieved, Dream Incubator is likely to reduce their stake, leading to increased liquidity and a further rerating.

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About the instructors:

Jiro Yasu has more than 15 years of investment experience in the Japanese equity markets including at Varecs Partners, First Eagle Investment Management and Daiwa Securities America. As the Representative Director of Varecs Partners, Jiro spearheads the investment firm’s efforts to identify mid-sized listed Japanese companies where corporate value can be realized for all stakeholders by working together with management. Jiro holds a BA in economics with a specialty in econometrics from Keio University.

Patrick Rial joined VARECS Partners in 2015 as Senior Analyst. He joined from J.P. Morgan Securities Japan where he worked in equity strategy and small cap research. Prior to J.P. Morgan, he was a product manager at Morgan Stanley MUFG Securities. Mr. Rial began his career as a financial journalist covering Japanese equity markets. He has been a CFA charterholder since 2011. He holds a BA in economics and history from Georgetown University.