AUB bullish after first-half earnings jump

AUB Group today adjusted upwards its earnings guidance for this financial year, buoyed by a sharp first-half showing from its Australia broking and agencies businesses as well as contributions from BizCover, an online platform in which it owns a minority stake.

Group-wide underlying net profit after tax surged 16.7% to $30.6 million in the six months to December from a year earlier and reported net profit after-tax increased 27.7% to $29.7 million.

AUB’s revised projection has underlying net profit after-tax at $72-74 million, up from $70-73 million previously.

The business says the new guidance is based on a number of assumptions including rate rises of 7-9% in Australia.

Australian Broking improved its underlying pre-tax profit by 9.5% to $38.3 million, the Agencies division 82.9% to $8.9 million and BizCover 13.6% to $4.9 million.

New Zealand Broking is the only division to return weaker earnings, with underlying pre-tax profit down 20.6% to $3.5 million.

AUB says a mixture of strong organic growth and contributions from investments made in the last few years such as the acquisition of 360 Underwriting Solutions drove up first-half earnings.

“[The first-half] was an important period for the group,” CEO Mike Emmett said. “We have started to realise the benefits of our investment and focus on the Agencies division, supported by ongoing margin expansion across Australian Broking & New Zealand operations, and a continuation of the growth in both top-line and profitability of Bizcover.”

He told an earnings call this morning that 360 “has exceeded our expectations which is very pleasing” and called the move to invest in the agency in 2020 an “excellent acquisition”.

Mr Emmett says the group continues to maintain its ongoing focus on mergers and acquisitions, with its Finsura business acquiring Vaughan & Monaghan, SRG buying GibbsCorp plus an investment in software business iaAnyware.

AUB also launched two new agencies, Bloodstock Insurance Australia within Specialty and 360 Landlords within General Commercial.

“We see acquisitions as a marriage for life,” Mr Emmett said in the earnings call. “We’ve got a long list of roughly 300 potential targets and at any point in time, we’re in discussions with probably two dozen of those.

“What’s probably more relevant… is we do have a portfolio of acquisition potential that we are working through.”

The Australian Broking division achieved a 10.1% rise in commission and fee income to $194.3 million.

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.

For the Agencies division, commission and fee income advanced 47% to $41.3 million and BizCover increased its underlying revenue 19.2% to $33.3 million.

Mr Emmett says for the rest of this financial year, AUB has five key priorities that include reinvigorating its insurance agencies and pressing on with optimising its broking networks.

He says AUB is working to grow premium by acquiring or establishing new agencies and enhancing margin by further consolidating into three pillars of General Commercial, Specialty and Strata.

AUB is also focusing on its Austplacements and AustRe propositions to assist brokers and agencies to place more complex risks into the local, international and Lloyd’s markets.

While AUB is upbeat on its outlook, Mr Emmett cautions there are “many macroeconomic” factors that may affect the industry such as some climate-related events.

He also expects inflation to tick up due to the ongoing supply chain challenges and on the financial lines front, he worries cyber is “becoming a class that is uninsurable because the rates can’t carry on spiralling like they are”.