AUB Group has hardly put a foot wrong under its new management, but the market has seemingly brushed aside the improvements made in the company.
AUB reported 1H22 net profit of $30.6 million, an increase of 16.7% on the same period last year. This was slightly above the pre-released $29.5-30.5 million range.
Growth was a good mix of organic growth (+10%) and a similar amount of non-organic growth. It was partly offset by a $1.6 million spend on rebuilding the New Zealand tech stack.
The Agencies business was the standout division with profit before tax lifting 83% to $8.9 million. The acquisition of 360 Underwriting Solutions from 1 December has increased scale in the business.
Since Mike Emmett took control of the business, EBIT margins in the broking business have improved by 610bp. The organic growth in broking included increased Commercial lines insurance premiums of 9%, on-going cost reductions partially offset by higher wages.
BizCover has been a singular success for AUB and is now being reported as a standalone operating business. Underlying pretax profit for BizCover increased 26.7% in 1H22 to $4.9 million (excluding a $0.4 million JobKeeper contribution in 1H21). EBIT margin increased 100bp here and there is more growth expected from New Zealand and recent expansions overseas.
Investment view
AUB is seeing momentum into 2H22f and has now upgraded its FY22f net profit guidance to $72-74 million (was $70-73 million). Premium rates are expected to increase by 7-9% in Australia and the company continues to add small bolt-on acquisitions across its network.
Management has executed an impressive recovery in group profitability in the last three years. Margins in 1H22 are 590bp ahead of FY19. There is a confidence that the group’s strategic initiatives will deliver further margin gains over the medium term.
Risks to investment view
Slower than expected growth in core broking and underwriting divisions or a deterioration across Australian insurance markets would affect earnings.
Recommendation
We have retained our Buy recommendation.
