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Steadfast share prices falls 3.50% despite higher underlying NPAT and dividend boost

The Steadfast Group Ltd  (ASX: SDF) share price fell 3.60% to $2.95 per share after announcing its half-year earnings highlighted by a 17.6% increase in underlying net profit after tax (NPAT).

Unpacking the half-year earnings

Statutory NPAT was up 19.8% to $40.5 million while underlying earnings before interest, tax and amortisation (EBITA) increased 21.3% to $86.5 million in the half. This included organic underlying EBITA growth of $9.5 million, up 13.3% on prior corresponding period (pcp) driven by equity brokers and a strong performance by underwriting agencies.

The company recorded net investment of $94 million in 1H19 headlined by the acquisition of heavy motor vehicle specialist HMIA and Community Broker Network (CBN) during the year.

$1.9 billion (34%) of the Steadfast Network total gross written premium (GWP) came from equity brokers while Other Network brokers contributed $3.7 billion (66%) of total GWP. The underlying result was largely driven by price and volume increases combined with growth from authorised representatives throughout the half.

The company’s network is diversified across Australia (332 brokers), New Zealand (43 brokers) and Singapore (13 brokers) in a sign of further organic growth opportunities for the company.

The balance sheet remains in good shape with net assets broadly flat at $1.06 billion for the year while the company’s gearing ratio remains well within target at 24.1% for the half.

The company increased its interim dividend by 14% on pcp to 3.2 cents per share (fully-franked) with an FY19 target payout ratio of 65-85% of underlying NPAT. The company announced that the dividend reinvestment plan (DRP) was to apply to the interim FY19 dividend with no discount given and that shares would be acquired on market.

Foolish takeaway

The underlying result for Steadfast was actually quite strong but the share price still fell 3.60% in today’s trade. The company’s CEO, Robert Kelly, will remain until the end of 2022 as the company prepares to fight wholesale changes to the insurance industry in the wake of Kenneth Hayne’s Financial Services Royal Commission final report.

I think there’s plenty of volatility still to come for Steadfast and insurance broking in general with a big fight on their hands to keep commissions. In the meantime, Fools can check out these top growth shares that have been tipped as market beaters.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Steadfast Group Ltd. 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 Scott Phillips.

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