Steadfast Lifts Guidance Modestly as Tailwinds From Higher Insurance Rates Accelerate

We increase our fiscal 2023 underlying NPATA forecast by 4% to AUD 262 million, which is now 4% ahead of upgraded guidance. Our more positive view owes to insurers in Australia and New Zealand putting through double-digit price increases in response to high claims inflation, rising reinsurance costs, and higher natural hazard costs. While Steadfast brokers may look to help customers by lowering commission rates, we still expect a net positive tailwind to earnings. Steadfast upgraded the midpoint of fiscal 2023 underlying NPATA guidance by 3%, with the top end in line with our previous AUD 252 million forecast.

In addition to higher fiscal 2023 premiums, we increase the expected growth for the general insurance market over the five years to fiscal 2027 to 4% per year as opposed to 3.5% previously, lifting our fair value estimate 3.5% to AUD 5.70 per share. Steadfast trades in line with our revised fair value estimate, on a forward P/E of 22.5 times and dividend yield of around 2.5%. We think this adequately captures the 9% per year EPS growth we forecast over the next five years.

The midpoint of fiscal 2023 guidance implies NPATA growth of 20%. Steadfast has a good track record of organic and acquired growth. The fiscal 2022 result illustrates how tailwinds from rising insurance prices, but also Steadfast’s acquisition strategy, can drive earnings, with Steadfast keeping more profit from a growing pie. EBITA increased 29.5% in the year, 13.3% organic growth and 16.2% from acquisitions. Steadfast usually acquires businesses already within the network, with relationships and insights into the business reducing the risk of overestimating the earnings outlook or cultural fit. The growth strategy reinforces the business’ competitive advantages and strengthens customer switching costs. Greater scale brings greater capacity to invest in the broking platform to keep brokers and customers satisfied while driving favourable terms with insurers.