Macquarie sees further upside in Steadfast’s shares

According to a report on the Australian Financial Review’s website, Macquarie Group’s (ASX: MQG) research department has initiated coverage of recently listed insurance broker Steadfast Group (ASX: SDF) with a buy rating.

Macquarie has set a price target on Steadfast of $1.60 while stating that it sees further upside from the potential for back office synergies and for continued growth via acquisitions, which is backed by a solid balance sheet.

Steadfast, which is chaired by former QBE Insurance (ASX: QBE) CEO Mr Frank O’Halloran, recently reaffirmed its financial year 2014 outlook for pro-forma revenue of $152 million and pro-forma earnings before interest, tax and amortisation of $60.6 million, which excludes any future acquisitions and potential back office cost synergies.

Investors in the initial public offering price (IPO) would be very pleased, with the share price up nearly 30% against the $1.15 IPO price. Likewise, since first trading in early August the share price has gained 4.6% to $1.49 while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained 2.3% and listed peer Austbrokers (ASX: AUB) has fallen 0.6%.

Foolish takeaway

With a solid balance sheet and plenty of opportunities to further consolidate a fragmented industry, Steadfast’s future earnings growth could well turn out to be above average.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance and Macquarie Group.

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