Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Underlying EBITA rose by 22.7%, showcasing strong financial performance.
- Underlying NPAT increased by 21.8%, reflecting robust profitability.
- Bank and underwriting agency growth was up 19.6%, indicating successful expansion.
- Diluted EPS driven by both organic growth and acquisitions, highlighting effective growth strategies.
- Final dividend increased by 15%, demonstrating strong shareholder returns.
Negative Points
- Acquisition costs were high at $457.8 million, which could strain financial resources.
- The Sure acquisition faced challenges due to natural disasters, impacting its profitability.
- Increased regulatory requirements (e.g., CPS 230) may impose additional compliance costs.
- Interest rate increases have raised the cost of funding, affecting overall profitability.
- Potential risks associated with the integration of new acquisitions and maintaining operational efficiency.
Q & A Highlights
Q: Just pointing to slide 16, on the guidance, specifically on the organic growth, 9% to 13%, what are the drivers of that range, and is it related to the premium rate increases that could eventuate in FY25? What could pull you to the bottom end of that organic growth range?
A: Yes, price rises will always influence top-line revenue and EBITA growth. Our guidance is made up of 100 different businesses, all of which can win or lose business daily. Constraints on expenses and operational efficiency also contribute significantly to organic growth. When the hard market pricing starts to wane, sales organizations like insurance brokers can increase volume dramatically due to gaps in the insurance distribution networks.
Q: On the margins for both broking and agency into FY25, should we see margin improvement despite the investment in agency? When does that investment come off?
A: We saw good growth despite forward investment in FY24, and we expect that to continue. Margins for agencies should hold or improve next year. Overall, we are seeking roughly a 50 basis points improvement in the margin across all businesses.
Q: The $300 million expected payment for Trapped Capital in FY25, is that a gross or net number of the sell-downs?
A: That is a gross figure. The $300 million relates to new acquisitions, and we have separately shown some sell-downs in the 1% where we sell equity stakes to co-owners.
Q: On the implied multiples from the Trapped Capital number, why is there a difference between short-term and long-term multiples?
A: The multiples can vary depending on whether we are buying larger versus smaller businesses or higher growth versus more stable businesses. The general trends of acquisition multiples haven't shifted much over the last couple of years; it's more about the size and growth dynamics.
Q: Can you remind us of the mix of small versus medium versus larger corporate businesses within your clients?
A: 85% of our business is in corporate. For micro or policy size below $650 in premium, it's 1%. SME size ($650 to $5,000) is 24%. Small to medium enterprise ($5,000 to $50,000) is 40%. Medium enterprise ($50,000 to $250,000) is 15%. Corporate (over $250,000 in premium) is 6%. Retail is 14%.
Q: Can you explain the potential lower earn-out for Sure and its performance in FY24?
A: When we bought Sure, we wanted protection against cyclones affecting their profit share. Under accounting rules, we had to book the full potential earn-out. With recent cyclones, we now believe it's unlikely to gain the full uplift in FY25 profit. However, Sure's core business model remains strong, and we expect FY25 profits to be higher than FY24.
Q: What are the next steps for Steadfast in the US space in FY25?
A: Our focus areas include developing carrier relationships, growing network membership, agency perpetuation, and technology solutions. We aim to place business into strategic partners, grow network numbers, lock agencies into the network, and introduce our technology platforms to the US.
Q: Have you had discussions on M&A of smaller agencies that might struggle under CPS 230, and is any of that included in the $300 million Trapped Capital?
A: None of the $300 million is from that point of view. There is a rationalization going on with insurers, and some smaller underwriting agencies may present opportunities. However, we must be careful to ensure that any acquisitions align with our operating structure and do not negatively impact our current operations.
Q: How are you thinking about M&A in a potentially declining interest rate environment?
A: We evaluate every aspect of an acquisition, including interest rates. While the market has remained competitive, we hope it stabilizes. Our borrowing is more than covered by our investments, so a drop in interest rates would benefit our borrowings.
Q: Are there any US acquisitions in the pipeline of $296.6 million opportunities, and can you confirm what acquisitions are included in the FY25 guidance?
A: There are zero US acquisitions factored into the $296.6 million opportunities or the FY25 guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
