Brasada Capital Management: CCC Intelligent Solutions ($CCCS) Investment Case – Q2 2024
Investment Highlight: CCC Intelligent Solutions (CCCS)
Brasada Capital Management provides an in-depth analysis of $CCCS, a recent addition to their Friedberg Focused Equity and GCI Select Equity strategies.
Business Overview
- $CCCS is central to the automotive insurance ecosystem, connecting autobody repair shops with parts suppliers and insurance carriers.
- Its software systems streamline the claims settlement process, getting cars off the lot and back to owners more quickly and efficiently.
- This efficiency is valuable to insurers (reduced rental days) and repair shops (improved labor hour throughput).
Market Position
- Dominant position with ~80%+ of all US Auto Claims running on the $CCCS platform.
- Installed base includes all but 3 of the top 30 insurance carriers in the U.S.
- Serves approximately 30,000 out of 35,000 autobody repair shops.
Competitive Advantages
- Network Effects: Direct Repair Program (DRP) connects insurers and repair shops, creating a virtuous cycle.
- Switching Costs: High barrier to switching due to widespread adoption by both insurers and repair shops.
- Scale and Data Advantage:
- Larger R&D budget than competitors.
- $1 trillion of granular, real-time crash data to train models.
- Customer Satisfaction: High Net Promoter Scores, top percentile for Software benchmarks.
Growth Runway
Management targets 7-10% organic topline growth, with potential for 13-15% through new initiatives:
- Automotive Repair Side:
- Upselling existing customers to higher-tier packages (e.g., adding workflow tools).
- Expanding diagnostics product as scanning rates increase.
- Insurance Side:
- Adoption of Straight Through Processing (STP) for automated claims processing.
- Expansion into casualty claims (bodily injury in car crashes).
- Parts Marketplace:
- Potential to integrate with STP for automated parts procurement.
Market Dynamics and Opportunities
- Increasing complexity in the auto industry (e.g., vehicle parts proliferation, advanced technologies, electrification) drives demand for $CCCS’s solutions.
- Insurance industry facing challenges with combined loss ratios over 100%, creating need for efficiency improvements.
- Digitization is key to managing increasing complexity and costs in the claims process.
Valuation and Expected Returns
- At current valuation, Brasada expects double-digit returns with low risk of permanent business value impairment.
- They believe the economics are fairly locked in for the next few years, with upside potential from successful execution of growth initiatives.
Other Key Points from Brasada’s Q2 2024 Commentary
- Market Reflections: Discussion of the “Magnificent 1” (Nvidia) and its outsized impact on market returns.
- Historical Perspective: Caution against overvaluing current market leaders based on past trends.
- Investment Philosophy: Focus on fundamental analysis, long-term business value, and concentrated portfolios of well-understood companies.
- Market Outlook: Optimism about opportunities for active stock picking, particularly in businesses not caught up in the current AI hype cycle.
Click here for the full pro investor letter.
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