AUB Group LimitedTeam Veye | 24 Sep 2020 ASX - AUB
AUB Group Limited (ASX: AUB), formerly Austbrokers Holdings Limited, is an Australia-based company, which is an equity-based risk management, advice and solutions provider in Australasia. The Company is principally engaged in the provision of insurance broking services, distribution of ancillary products, risk services and conducting underwriting agency businesses. The Company operates in two segments: Insurance Intermediaries and Risk Services. The Company's Insurance Intermediaries segment has equity investments in businesses, which provides insurance and risk related services to clients. The Company's Risk Services segment also has equity investments in businesses, which provide specialist risk solutions primarily in the people and workplace risk areas, and also the provision of ancillary risk assessment and related solutions in the Australian market. Risk Services are provided to insurance companies and to commercial and government clients either directly or through insurance brokers (Profile source: Reuters)
From the Company Reports
FY20 Performance Overview
Strong result and momentum positioning AUB Group for sustained growth
AUB Group Limited (ASX: AUB) has reported a 15.2% increase in Underlying Net Profit After Tax (Underlying NPAT), to $53.4mn (FY19: $46.4mn). On an Underlying basis, earnings per share has increased to 72.45 cents per share, up 8.7% over the prior comparative period.
(Chart source: TradingView)
- Underlying NPAT1 $53.4mn (FY19: $46.4mn) up 15.2%.
- Underlying earnings per share 72.45 cents up 8.7%.
- A strong FY20 result that exceeded guidance, strongest YoY growth since FY13.
- Reported Net Profit After Tax $47.3mn (FY19: $48.4mn), down 2.3%.
- Fully franked final dividend of 35.5 cents per share (FY19: 32.5 cps), an increase of 9.2%, taking FY20 total dividend to 50.0 cents per share, an increase of 4 cents per share (8.7%) vs FY19. Dividend Reinvestment Plan (DRP) remains activated.
- Resilient business performance in light of COVID-19, increasing premium retention and income yields vs prior year, underpinned by a diversified client portfolio.
- Strong progress against FY20 Execution Priorities, including launch of ExpressCover and enhanced insurer arrangements, improving the Group’s long-term earnings potential.
- Continued focus to deliver on upgraded growth ambitions – FY21 Underlying NPAT guidance of $58.5mn - $61.0mn, representing 9.5%-14.2% growth on FY20.
Consolidated Net Profit After Tax (Reported NPAT) decreased 2.3% to $47.3mn in FY20 (FY19: $48.4mn) due to non-cash accounting adjustments and acquisition costs.
(Graphic Source – Company Reports)
Highlights by operating division
- 14.6% increase in pre-tax profit contribution from Australian Broking to $62.1mn (FY19: $54.2mn).
- Profit improvement and organic growth was assisted by an increase in Commercial Lines Insurance premiums averaging 6.3% and higher average premium per policy from new business.
- Included in FY20 were $1.4mn of redundancy costs, an increased lapse provision $1.3mn, as well as the combined impact of reduced interest rates and lease accounting changes of $2.2mn.
- EBIT margin 29.2% up 130bps from FY19.
- 40% share of BizCover acquired effective 1 February 2020.
- 31.9% increase in pre-tax profit contribution from New Zealand to $12.1mn (FY19: $9.2mn).
- FY20 also benefited from the full year impact of the acquisition of an additional 50% of BWRS effective 1 January 2019.
- Flattening premium rate growth and reduced interest income observed towards the end of FY20.
- NZbrokers continues to perform well with growth in members and an improved membership proposition including enhanced technology.
- 12.2% decrease in pre-tax profit contribution from Australian Agencies to $13.6mn (FY19: $15.5mn).
- This was partially due to the impact of COVID-19 on our clients in the hospitality industry as well as an ongoing process and pricing challenges in strata. The latter is being remediated by the implementation of the new agency system, cost reductions, and amended contracts with insurers.
Health & Rehabilitation
- 330.3% increase in pre-tax profit from Health and Rehabilitation to $4.2mn (FY19: $1.0mn).
- The improved performance was the result of improved utilisation, reduced costs and a more diverse set of services in Altius Group.
- On 1 April 2020, AUB Group sold its entire ownership interest in the Allied Health business.
(Graphic Source – Company Reports)
- Look through gearing has increased to 34% (FY19: 22%), due to the acquisition of BizCover.
- The parent entity had cash and undrawn committed facilities of $94.0mn and generated $50.6mn of operating cash.
- The AUB Corporate debt facility increased by $100mn to $250mn during the year.
Execution Priorities Update
The Group outlined a number of Execution Priorities for FY20 and were pleased to report substantial progress against all areas of focus, laying the foundation for long-term sustainable growth and profitability for the business.
Execute on strategically aligned acquisitions
- EPS accretive acquisition of 40% of BizCover;
- Expanded market share and scale through multiple bolt-ons across the network.
Deliver market leading technology capabilities
- Launched ExpressCover with >25 brokerages now processing policies online;
- Sentinel agency system launched in 3 agencies;
- Multiple Core Broking System enhancements delivered.
Reduce costs and streamline head-office
- Programs that deliver full year savings of ~$2.8mn (after tax);
- Restructured operating model to simplify management layers and improve focus.
(Graphic Source – Company Reports)
Optimise our portfolio
- Merged multiple strategically aligned businesses and portfolios; target to reduce from 94 to 75 businesses by the end of FY21;
- Launched a number of specialist broking capabilities.
Redefine Risk Services strategy
- Successfully exited Allied Health;
- Transformed Altius and re-aligned Procare into Australian Broking to support core Claims proposition.
Enhance partner proposition (product, capacity, services)
- 6 new ExpressCover insurer agreements;
- 2 refreshed Austbrokers major insurer agreements;
- Renewed AMS mandate;
- Enhanced analytics support for the network.
|AUB Group Limited (ASX: AUB)|
|Risk||Low to Medium|
|Market Cap||$1.2 billion|
|Share Volume||74.28 million|
|Yearly Dividend Yield||3.09%|
|Target Price (s)||T1 $19.70 T2 $22.60|
|52 weeks High||$16.740|
|52 weeks Low||$9.010|
|Managing Director||Mr Michael Emmett|
|Non Executive Directors||Mr Raymond Carless
Mr Paul Lahiff
AUB Group reported its FY20 results, the strongest year on year growth results for the Group in 7 years. Despite a challenging external market environment with significant headwinds for its clients and insurance partners, AUB Groups’ portfolio has proved to be resilient and defensive, delivering a strong result while maintaining a consistent focus on its FY20 Execution Priorities that enhance its underlying growth drivers. FY20 was also a year of significant change for the business and evoked a good response from the partnership and its underwriting partners. The AUB Group expects to deliver FY21 Underlying NPAT of $58.5mn - $61.0mn, representing growth of 9.5% - 14.2% over FY20. AUB has high quality earnings. Its earnings have grown by 5.1% per year over the past 5 years. AUB’s short term assets ($312.6m) exceed its short term liabilities ($267.6m). AUB’s short term assets ($312.6m) exceed its long term liabilities ($262.3m). AUB’s debt is well covered by operating cash flow (39.6%). AUB’s interest payments on its debt are well covered by EBIT (9.3x coverage). On the long term chart, The chart completed an inverse head & shoulder pattern and has also crossed its neckline. It is also trading above all MAs and has multiple supports right up to $14.80. It can have the potential of giving very good returns in the short to medium term. Veye recommends a "Buy" on “AUB Group Limited” at the current price of $16.24
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