In morning trade the Freedom Insurance Group Ltd (ASX: FIG) share price has rocketed 10% to 96 cents following the release of an impressive full-year result.
Key highlights include:
- Net revenue increased 81% on the prior year to $53.5 million.
- Pro-forma earnings before interest, tax, depreciation, and amortisation (EBITDA) increased 195% to $22.3 million.
- New business premium rose 82% to $64.4 million.
- Total in force premium at 30 June 2017 up 66% to $109.3 million.
- Statutory net profit after tax increased 356% to $14.1 million, representing basic earnings per share of 6.7 cents.
- Customer numbers grew 66% to 289,000 in the 12 months to 30 June 2017.
According to today's release, management has put the strong performance down to expanded lead acquisition, effective marketing, good sales conversion rates, and higher adviser numbers.
Perhaps most impressive was that new business premium increased 82%, but lead costs only increased by a few percent. The reduced lead prices allowed Freedom to acquire and convert more leads into policies for the same spend.
This and the scale economies available in many parts of its business led to operating costs increasing by just 42% against net revenue growth of 81%.
Ultimately this has led to the company beating the upgraded guidance it provided in May. Full-year guidance at that point was for new business premium between $59 million and $64 million, and EBITDA between $18 million and $21 million.
The company finished the year with a 10.7% market share of direct life insurance sales in Australia. This was a big increase on the 5.1% share it had a year earlier and puts its third on the list behind CommInsure by Commonwealth Bank of Australia (ASX: CBA) and TAL Life with their 12.1% and 25.8% share, respectively.
Looking ahead management appears to be positive on FY 2018. The first-half is expected to reflect increased sales and marketing activity from September and October 2017 as new product pilots conclude.
The second-half is then expected to benefit from the first full six months of its new product ramp-up.
I believe these launches and its strong business performance should go some way to helping the company achieve its medium-term goal of becoming the second biggest direct life insurance seller in the country.
Should you invest?
Overall I believe this strong result justifies the incredible rise of its share price since listing on the ASX at the end of last year at 35 cents per share.
Furthermore, based on today's result, Freedom's shares are changing hands at just 14x full-year earnings. I believe this is remarkably cheap and makes it one of the best small-cap options on the market today.
