Shares in this ASX 200 insurer shaky despite half year profit surge

The Steadfast Group Ltd (ASX: SDF) share price has dipped 3.31% in early trade, despite the ASX 200 insurer reporting a surge in half-year profits this morning.

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The Steadfast Group Ltd (ASX: SDF) share price has dipped 3.31% in early trade, despite the ASX 200 insurer reporting a surge in half-year profits this morning.

What did Steadfast Group announce?

Steadfast reported underlying earnings before interest, tax and amortisation (EBITA) up 27.5% on the prior corresponding period (pcp) to $108.9 million. The group’s net profit after tax (NPAT) jumped 39.1% on pcp to $53.2 million as diluted earnings per share (EPS) climbed 29.7% to 6.26 cents per share.

The group’s interim dividend jumped 12.5% on pcp to 3.6 cents, despite weak statutory results. Steadfast recorded a $71.9 million statutory loss, largely driven by significant expenses for its Insurance Brokers Network Australia (IBNA) acquisition ($72.7 million) and Professional Services Fees rebate ($60.2 million).

It wasn’t all bad news though, as the Steadfast Network’s gross written premium (GWP) jumped 32% on pcp to $3.9 billion. New IBNA members and continued growth from its authorised representatives network boosted premiums higher.

Steadfast’s GWP is now 88% from commercial lines with the remaining 12% from retail. The network of brokers grew by 75 to 473 during the half with 410 brokers now in Australia. The ASX 200 insurer’s underlying revenue surged 13.7% to $265.4 million on the back of the record GWP result.

Steadfast recorded $287 million in GWP through its Steadfast client trading platform during the half, which was a 51% jump on pcp. Shareholders are sure to be watching the group’s strong organic growth, driven by favourable pricing and volume during the period.

On top of the strong earnings, Steadfast managed to strengthen its balance sheet despite the IBNA and IQumulate acquisition. Net assets climbed 10.87% during the half to $1,214 million albeit with $963 million in goodwill.

Steadfast’s FY 2020 guidance

Steadfast increased its dividend to 3.6 cents per share with an FY 2020 target guidance payout ratio of 65% to 85% of underlying NPAT. The group announced a dividend reinvestment plan for the interim dividend with no discount.

The ASX 200 insurer reconfirmed that it expects to hit the top-end of its underlying EBITA and NPAT guidance. Excluding the mark-to market adjustments for its Johns Lyng investment, Steadfast expects underlying EBITA to land between $215 million and $225 million for the full year. Underlying NPAT guidance is $100 million to $110 million, with underlying diluted EPS growth of 10% to 15%.

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Motley Fool contributor Kenneth 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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