##{"id":61921,"date":"2013-05-30T14:02:50","date_gmt":"2013-05-30T04:02:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/05\/30\/austbrokers-growth-fueled-by-further-acquisitions\/"},"modified":"2013-05-30T14:02:50","modified_gmt":"2013-05-30T04:02:50","slug":"austbrokers-growth-fueled-by-further-acquisitions","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/05\/30\/austbrokers-growth-fueled-by-further-acquisitions\/","title":{"rendered":"Austbrokers’ Growth Fueled By Further Acquisitions"},"content":{"rendered":"

\n\t-Acquires two more agencies
\n\t-GWP<\/span> now set to be over $210m<\/span> annualised<\/span>
\n\t-Hardening of premiums most positive aspect<\/strong>
\n\t <\/p>\n

\n\tBy Eva Brocklehurst<\/span><\/p>\n

\n\tAustbrokers<\/span> ((AUB<\/span>)) has added another bunch of acquisitions to its stable of insurance broking<\/span> businesses, contributing to the scale of the company's Austagencies<\/span> division. Total gross written premium for the insurance underwriting agency business is now expected to be over $210 million on an annualised<\/span> basis.<\/p>\n

\n\tAustagencies<\/span> has acquired 90% of Lawsons<\/span> Underwriting Australasia and Guardian Underwriting Services for an aggregate purchase price of around $10 million. An initial 75% will be paid up front from cash and the remainder will be paid in May 2014, from cash and debt. After financing costs, the transactions are expected to be 2-3% accretive to earnings in FY14<\/span> and add around $30 million to gross written premium. These agencies operate in the specialist areas of complex contract and labour<\/span> hire (Lawsons<\/span>) and hospitality industry property and liability (Guardian). The agencies take on no underwriting risk. Austagencies<\/span> acts an umbrella management company, providing processing and claims management and back office support. Employees will hold the residual 10% of each agency, consistent with Austbrokers<\/span>' model.<\/p>\n

\n\tUBS maintains Austbrokers<\/span> has a healthy balance sheet, with gearing at 17% versus a target range of 30%. The current debt facility is locked to August 2013 but management has agreed terms for a new facility of $40 million over three years, which should be closed soon. UBS likes the growth outlook and, as the stock continues to trade above the long term median 1-year forward price earnings of 13.5 times, rates the stock a Buy. This is underpinned by the quality of management <\/strong><\/u>and the stable industry structure<\/u><\/strong>.<\/u><\/p>\n

\n\tGoldman Sachs likes the focus on niche industries in the underwriting sector. Earnings forecasts have been upgraded on the back of the acquisitions by 2% for FY14<\/span> and 1% for FY15<\/span>. This may be lower than the company's accretion guidance but the broker offsets it with dilution from recent option issues. There have been 14 acquisitions thus far in FY13<\/span> and these latest ones confirm the importance of acquisitions to the company's growth projections. Goldman estimates Austbrokers<\/span> has now spent more than $27 million on acquisitions in FY13<\/span>, the largest single year of such activity since the company listed in 2005.<\/p>\n

\n\tBA-Merrill Lynch likes the business and finds evidence of strong earnings momentum with relatively low risks. Austbrokers<\/span> has withstood competition, economic cycles and commoditisation<\/span> over the years. Merrills<\/span> is curious about the upcoming IPO of Steadfast. According to reports, that company intends to lodge a prospectus on June 28. Listing is likely in late July, early August. Steadfast expects about $30 million in earnings and to pay out 65-85% of net profit as fully franked dividends. The introduction of Steadfast to the ASX<\/span> should keep Austbrokers<\/span> on the radar for investors, in the broker's opinion.<\/p>\n

\n\tThe most positive aspect of the near term environment for Austbrokers<\/span> is a hardening of premiums, in Merrills<\/span>' view, despite a subdued small-medium enterprise sector. Premium rates are one of the key risks for the stock, along with increased failure rates of SMEs<\/span> and lower interest rates.<\/p>\n

\n\tThere are three Buy and one Hold ratings on the FNArena<\/span> database, but two out of the four stockbrokers have yet to update their view (Goldman Sachs is not part of FNArena's<\/span> daily monitoring). The consensus target price is $10.25, level pegging with the last share price. The dividend yield on consensus earnings forecasts for FY13<\/span> is 3.3% and for FY14<\/span> it's 3.6%.<\/p>\n

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