Why the Freedom Insurance Group Ltd share price stormed higher today

One of the best performers on the Australian share market on Wednesday has been the Freedom Insurance Group Ltd (ASX: FIG) share price. The life insurance company’s shares are up 9.5% to 46.5 cents in afternoon trade following the release of its half-year results this morning.

For the six months ended December 31, Freedom Insurance posted earnings before interest, tax, depreciation and amortisation (EBITDA) of $10.5 million on net revenues of $31.3 million. This was a 7% and 22% increase, respectively, on the prior corresponding period. The EBITDA figure includes profit on NobleOak share sale of $3.3 million before tax.

Although total sales, or new business premiums, declined 11% to $28.3 million, the total in force premium at the end of the period rose 33% on the prior corresponding period to $119.4 million. As has been reported previously, management has blamed lead quality and sales conversion issues for the drop in new business premiums.

This issue appears to have been fully resolved now, leading to a 5.4% increase in sales during December compared to the prior corresponding period. However, it did take a little more investment than initially planned to fix it, ultimately resulting in EBITDA falling a touch short of its guidance range.

Despite the higher than expected lead and sales costs, Freedom Insurance managed to achieve a strong result on the bottom line. Net profit after tax came in 26% higher at $7.6 million, or 3.2 cents per share.

No formal guidance was provided by management for the second-half, but it remains positive on its future and believes an underinsured Australian market is an attractive opportunity that it intends to penetrate with its simple, convenient, and good value insurance products.

Should you invest?

As we have seen over the last few months with the likes of Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE), the insurance sector can be a tricky place to invest. However, I do believe that life insurance is much less volatile and easier to predict than general insurance.

Furthermore, based on its current share price, Freedom Insurance’s shares are changing hands at a lowly 7x trailing earnings. I think this gives an investment in Freedom Insurance a compelling risk/reward, especially considering its improved sales performance in December.

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Motley Fool contributor James Mickleboro 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.

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