Insurance business Steadfast Group Ltd (ASX: SDF) went into a trading halt as it released its FY19 report to investors.
Steadfast was established in 1996, it’s now the largest general insurance broker network and group of underwriting agencies in Australasia. It provides products and services to 398 insurance broker businesses in Australia, New Zealand and Asia. It co-owns and is consolidating other broker businesses with its equity interests, underwriting agencies and other complementary businesses. Steadfast also has a stake in unisonSteadfast, a global general insurance broker network with over 260 brokers in 135 countries.
Steadfast FY19 Result
Steadfast revealed underlying revenue growth of 21.4% to $688.3 million, with the Underwriting Agencies segment having a “very strong” year with the niche expertise combined with moderate premium price rises driving an increase in market share.
The Steadfast Network generated record gross written premium (GWP) of $6.1 billion, an increase of 16%. This was helped by moderate price increases by insurers, an increase in volumes and new brokerages joining the Network. The Australian small and medium enterprise (SME) portfolio achieved organic growth of 6%.
Underlying EBITDA grew by 17.8% to $193.3 million (click here to learn what EBITDA means). Underlying net profit after tax (NPAT) increased by 19% to $89.2 million.
Statutory net profit jumped by 36.9% to $103.8 million, it was higher than underlying profit due to net non-trading gains.
The Steadfast Board declared a final dividend of 5.3 cents per share. The full year dividend was 8.5 cents per share, up 13% and equating to a dividend payout ratio of 76% of underlying net profit.
Steadfast Trading Halt And Capital Raising
Steadfast went into a trading halt to launch a $100 million capital raising to fund insurance brokerage and underwriting agency acquisitions, with a floor price of $3.28, being a 6.5% discount to the dividend adjusted last closing price.
A share purchase plan from regular investors will also raise up to $20 million.
Steadfast is already in the process of taking over IBNA, an Australian general insurance broker network with 79 brokerages, generating $1.25 billion of gross written premiums (GWP).
It has also announced it is seeking expressions of interest from Steadfast Network brokerages to receive Steadfast shares or cash in exchange for renouncing their rights to professional service fee rebates.
Is Steadfast A Buy?
Steadfast has provided guidance of underlying EBITDA of between $215 million and $225 million. The guidance of underlying net profit is for $100 million to $110 million.
This means Steadfast is predicting growth of more than 10% in FY20, which is a solid increase. It’s not the type of business I’d go for in my portfolio, but I can see why investors have wanted a piece of it in 2019.
But I’d rather buy shares of the reliable and growing businesses in the free report below for my portfolio instead.
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