Half-time score: broking networks steam ahead

Australia’s three leading listed broking networks – Steadfast Group, AUB Group and PSC Insurance Group – are riding a wave of confidence as they revise upwards their guidance for this financial year, buoyed by how their businesses have performed in the December half.

Their confidence stems in part from the current price cycle, in which they believe there’s still further upside growth, albeit at a slower pace than the double-digit increases seen in the last few years.

Also fuelling their optimism is the returns they are getting from recent acquisitions and improved organic growth.

Steadfast, the largest of the three broking networks, posted a 26.4% rise in first-half underlying net profit to $76.3 million. It now projects full-year underlying net profit of $163-170 million, compared to the original range of $159-166 million.

AUB Group’s revised forecast has underlying net profit of $72-74 million, up from $70-73 million previously. Its first-half underlying net profit went up 16.7% to $30.6 million.

Melbourne-based PSC’s new full-year guidance has underlying earnings before interest, tax, depreciation and amortisation (EBITDA) at $87-92 million, up from $84-89 million previously. The business recorded a 42% rise in first-half underlying EBITDA to $40.7 million from a year earlier.

“They’re very well placed,” Macquarie Group Insurance Analyst Andrew Buncombe told insuranceNEWS.com.au. “The premium rate cycle is very, very strong… so it’s an excellent point in the cycle for an insurance broker.”

Steadfast is expecting premium rate rises of 5-7%, AUB 7-9% and PSC says it is pleased with the execution of its multi-region business model in the key markets of Australia, the UK, New Zealand and Hong Kong.

Mr Buncombe says Steadfast “continues to do extremely well in getting more business onto their platforms”.

“That is having considerable benefits for network members, whether they’re equity-owned or not,” he said.

Morningstar Analyst Nathan Zaia says in a briefing note the earnings outlook for Steadfast is positive, citing further rate rises over the medium term as one of the factors behind its assessment.

Mr Buncombe says PSC’s UK business was a “standout” and the same goes for the Australian broking business for Austbrokers.

AUB’s Australian Broking improved its underlying pre-tax profit by 9.5% to $38.3 million in the December half and CFO Mark Shanahan says Austbrokers’ general insurance commissions are 12.4% higher from a year earlier with approximately 8.1% resulting from premium rate increases.

At PSC, MD Tony Robinson says “it’s been a very good six months” and believes the UK business has “got lots of room to continue to grow”. Based on the first-half figures, the UK business accounts for 52% of underlying revenue.