Is PSC Insurance Group Ltd a promising growth share?

Should you buy shares in the fast-growing PSC Insurance Group Ltd (ASX:PSI)?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

PSC Insurance Group Ltd (ASX: PSI) is a business you may not have heard much about, as it only listed on the ASX in December 2015. Yet this insurance broker has been growing at a cracking rate and already boasts a market capitalisation of $670 million – a price to earnings (P/E) ratio of 34 times last year's net profit after tax.

Could PSC Insurance be an opportunity today?

The company has a solid financial position, with around $37 million in net cash. Management aims to use this to acquire more insurance brokers both here and in the UK, in a kind of roll-up strategy that has been leading to greater scale and wider profit margins. It is a strategy that has worked so far, and proof is in the pudding with the business growing considerably over the last few years.

source: Company presentation

It is a little hard to tell from the chart, but if you look closely you can see that the company has been growing its earnings before interest, tax, depreciation, and amortisation (EBITDA) faster than revenue, a clear sign that overall profitability is improving as the business has grown.

PSC is well-funded and has an opportunity to grow significantly over the next few years by continuing its acquisition strategy.

The company's potential is definitely being priced in by the market, at 34x earnings, but for a business earning a return on equity of around 25% this could prove cheap over a 10 year time frame.

A key risk I would want to investigate is the sustainability of the insurance brokerage business, particularly if it is cyclical and/or if there is a risk of insurance companies taking the brokerage function (especially of the reinsurance business) in-house. Even so, PSC looks interesting and is worthy of further investigation, in my opinion.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »