Solid FY22 results: PSI reported a solid FY22 EBITDA of A$93m, which was ~3% ahead of market expectations (A$90.5m) and above the top-end of the guidance range (A$87-92m). PSI experienced strong organic growth (+13%) with its agencies division reporting a 26% increase in top-line growth and a >60% uplift in its EBITDA.
Throughout FY22, PSI completed 12 acquisitions, such as Alliance and AWIB, demonstrating its strong non-organic growth. An overall EBITDA growth of 37% shows PSI’s continued growth within the market.
FY23 Guidance: PSI has indicated an EBITDA of $105-110m for FY23 compared to its FY22 EBITDA of $93m. It is expected that the FY23 EBITDA uplift will be mainly driven by its annualised returns of FY22 acquisitions (+A$2.6m), a A$4-5m contribution from the proposed Tysers Retail JV, and $5-9m of organic growth. The market has upgraded its forecasted earnings for FY23 EBITDA by 5%.
However, PSI management is expecting a slight decline in its growth profile for FY23 due to an expected increase in staff costs, travel and insurance expenses. As such, they have lowered their organic earnings growth guidance to 5-9% compared to their FY22 figure of 13%.
FY25 EBITA guidance of A$130-140m: Management has highlighted that with a mix of compounding organic growth and the continued deployment of capital, PSI is on a pathway to achieving an EBITDA of A$130-140m in FY25. This FY25 target implies a 3-year EBITDA CAGR of 12-15%. Market consensus for FY24 sitting at A$111m, this implies a continuation of strong double-digit earnings growth.
Strong operating environment: The domestic insurance market is well placed to deliver further premium rate rises. The current inflationary pressures and the increase in interest rates are having a favourable impact on insurance margins, which is expected to further increase the Groups profitability.
Investment view
In our view, PSI FY22 result which was consistent with its peer group demonstrates a healthy mix of organic and non-organic growth. The continued strength in the agencies division reinforces our view that insurance brokers remain the best exposure to the ongoing strength in premium rates.
We move our recommendation to Buy from Hold as PSI’s double-digit growth profile and high level of earnings certainty justifies a positive outlook for the near to medium term.
Risks To Investment View
Slower growth in the core broking and underwriting divisions would impact earnings. A change in insurance markets could lead to lower premiums.
Recommendation
We have upgraded our recommendation to Buy from Hold.
FIGURE 1: EARNINGS BRIDGE INTO FY23 – ORGANIC GROWTH LOOKS CONSERVATIVE GIVEN THE CURRENT INSURANCE MARKET
FIGURE 2: FY25 TARGET IMPLIES A 3YR EBITDA CAGR OF 12-15%
