The PSC Insurance Group Ltd (ASX: PSI) share price bounced 2.08% yesterday after the commercial insurance brokerage released a trading update, and has continued its gains in morning trade today, rising another 2.86% to $2.52 at the time of writing.
PSC Insurance revealed its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) performance to the end of May was up over 30% compared to the prior corresponding period.
PSC Insurance’s post-pandemic performance
The PSC share price has recovered a mere 20% from its March low of $2.10, trailing the broader market. The S&P/ASX 200 Index (ASX: XJO) by comparison, is up 32%. Despite this, PSC’s performance throughout the coronavirus pandemic has been in line with pre-pandemic expectations. The company has remained committed to its full year FY20 guidance of EBITDA of >$57 million.
Coronavirus prompted a review of costs by the broking business, which has undertaken several recent acquisitions. Where appropriate, PSC reports that costs have been tightened to reflect the uncertain economic environment. The benefit of these measures will largely flow into the FY21 year results.
Cash collections have remained strong throughout the pandemic. The insurer revealed that EBITDA during the month of May was approximately 100% over the prior comparative period. June revenue was in line with expectations with great results for the core broking and agency businesses, meaning full year guidance remains unchanged.
The latest update sees a continuation of PSC’s strong first half performance, which saw revenue increase 39%. Underlying profit rose 19% and the fully franked interim dividend increased by 13% to 3.5 cents per share. PSC has a track record of growth with revenue, profits and dividends increasing steadily since FY16.
What is the outlook for PSC?
The company has positive expectations for revenue and EBITDA growth for FY21. Results for FY21 will also have the benefit of the first full year of contributions from acquisitions in FY20. PSC expects to see strong organic growth in FY21, following the bedding down of acquisitions.
PSC focuses on servicing the detailed insurance needs of small and medium enterprises, and the insurance broking sector has not seen too many direct impacts from COVID-19. Although some clients will no doubt have suffered due to the pandemic, PSC benefits from a diversified business.
Its interests span commercial insurance broking in Australia and New Zealand, and life insurance broking and workers compensation consulting in Australia. PSC also provides underwriting services across the construction, healthcare, hospitality, and accommodation industries. In the UK, the company also operates wholesale insurance broking and underwriting.
The diversity of PSC’s insurance businesses should provide it with some insulation against a downturn that weighs on some sectors of the economy more than others. Full year results are due to be released shortly which will provide further insight into performance.