Overview: Steadfast Group Ltd (“Steadfast”, “the Company”) is an Australian Company focused on insurance. Steadfast represents a network of over 343 insurance broking firms and 22 underwriting agencies throughout Australia and New Zealand; providing collective purchasing power, software, and support services. The Steadfast network has generated a gross written premium (“GWP”) of $4.4billion in 2015.
Catalysts: The consolidated group has witnessed double-digit GWP growth over the last five years, and is on course to generate its 3rd consecutive year of earnings per share growth. Steadfast has consistently expanded its broker and agency network, and recent acquisitions are starting to materialise. Further consolidation of the Steadfast broker network and exposure to premium trends stand as the primary share price drivers.
Hurdles: The company has witnessed two years of premium price contraction and there is no guarantee that the trend will reverse. The bulk of recent growth has arisen from acquisitions and there is no guarantee the company can continue to fund and execute transactions that deliver shareholder value.
Investment View: Steadfast offers profitable exposure to the insurance sector. GWP and earnings per share growth trends are attractive, while management has successfully integrated acquisitions to date. However, there is no guarantee that equity acquisitions will continue to yield economic benefits nor that premium price contraction won’t continue. The Company is well-positioned to take advantage of any cyclical recovery in domestic insurance markets. We are attracted to its market position and initiate coverage with a “buy” recommendation.
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