Company Reports

Reliable performer AUB Group’s double-digit pretax profit growth across all divisions is impressive. Higher insurance premiums are an industrywide tailwind, with bolt-on acquisitions and operating leverage boosting earnings growth. At a group level, revenue increased 36%, and EBIT margin expanded 120 basis points to 32.5%, resulting in pretax profit up 54%. Full-year underlying net profit after tax guidance is upgraded to AUD 161 million–AUD 171 million, from up to AUD 164 million previously. Our prior forecast of AUD 168 million viewed guidance as conservative, and after the first-half result, we modestly increased our forecast to AUD 172 million, up 33% on last year. Margins in New Zealand and agencies expanded faster than expected, also prompting a modest uptick in our medium-term forecasts. Acquisitions contributed roughly half the profit growth in the first half, but some are already in the second-half fiscal 2023 numbers, meaning growth rates will not be as big in the latter half of fiscal 2024.

AUB Group operates the second-largest general insurance broker network in Australia and New Zealand. AUB Group brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB Group owns or has equity stakes in each broking business within the network. Around half of group profit is delivered by the Australian and New Zealand broker network, around 30% from Tysers in the United Kingdom, and the remainder from underwriting agencies.

AUB Group operates the second-largest general insurance broker network in Australia and New Zealand. AUB Group brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB Group owns or has equity stakes in each broking business within the network. Around half of group profit is delivered by the Australian and New Zealand broker network, around 30% from Tysers in the United Kingdom, and the remainder from underwriting agencies.

Australia’s three largest independent insurance broker networks, Steadfast, AUB Group, and PSI Insurance have all guided to continued profit growth in fiscal 2024. Steadfast reaffirmed its outlook at the annual general meeting today. Taking the midpoint for profit growth guidance, AUB Group is the strongest at 23%, followed by Steadfast at 14%, and PSI Insurance at 7%. AUB Group is benefiting from earnings accretion from Tysers and other small acquisitions, and Steadfast is similarly acquiring growth with increased ownership of brokers already operating within its network. Our forecasts are at the top end of guidance.

We increase our AUB Group fair value estimate by 14% to AUD 33, with shares 12% undervalued against our revised valuation. Most of the increase reflects higher medium-term earnings estimates. In addition to insurance price increases expected to continue at a double-digit rate in fiscal 2024, compared with our prior mid-single-digit forecast, margin improvement across the firm in fiscal 2023 prompts us to raise our midcycle assumptions for each division. Our midcycle group EBITDA margin of 37% is up from 36%. This is a material step up from the 33% reported in fiscal 2023. The Australian broking and agency businesses continue to benefit from operating leverage on rate increases, New Zealand should enjoy reduced technology spending, and Tysers is expected to extract cost savings.