With the stock market becoming increasingly volatile, the Reserve Bank of Australia in no hurry to raise rates and many companies struggling to produce even single-digit earnings growth, identifying a company with defensive characteristics and the ability to grow earnings is practically the Holy Grail.
One stock which investors might like to consider is insurance broker Steadfast Group Ltd (ASX: SDF). Although already trading close to its 52-week high, the stock could be headed even higher.
With 747 offices across Australia, New Zealand and Singapore and gross written premiums of $4.1 billion, Steadfast is the largest general insurance intermediary in Australia with its closest listed peer being Austbrokers Holdings Limited (ASX: AUB).
Despite already being a large player, the insurance broking industry is still fragmented which means there are still plenty of opportunities for consolidation. Steadfast isn't just a growth by acquisition story and there are a number of ways in which management is focussing its business strategy to grow shareholder value, these include:
- Building and developing strategic relationships with insurers and other parties
- Delivering on synergies from acquisitions made to date
- Growing via acquisitions
- Cross-selling existing and new products and services within the Steadfast Network
The great thing about Steadfast is that it appears the group has a number of growth levers to pull. Insurance is a non-discretionary essential product, and clients do not really have the option to forego it, even during tough economic times.
Importantly, as the insurance policies are often complex, this creates a strong relationship between Steadfast and its clients which leads to repeat business.
The group recently acquired the Australian Agency Business from QBE Insurance Group Ltd (ASX) and also acquired insurer Calliden – these two acquisitions will both help drive revenue and earnings growth.
While the stock might appear expensive based on historic earnings, guidance from the company suggests an expected growth rate for earnings of between 22% and 25% for the full year which makes the stock look reasonably priced when taking a two-year forward view.
