AUB (ASX:AUB) share price sinks 7% despite 50% growth in profit

AUB shares are on the way down despite a robust FY21 performance.

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The AUB Group Ltd (ASX: AUB) share price is on the move down during Thursday’s session as the insurance company reported its FY21 earnings.

AUB shares are now changing hands at $23.70 apiece, an approximate 7% drop from the market open.

Let’s comb over AUB’s results in a bit finer detail.

AUB share price slides despite strong net profit and earnings growth in FY21

  • Underlying net profit after tax (NPAT) of $67.1 million, up 25.7% from the year prior
  • Underlying earnings per share of 87.93 cents, a growth of 22% on the year
  • Reported NPAT of $70.6 million, a year on year increase of 50.3%
  • Fully franked final dividend of 39 cents, which is an increase of 9.9% from FY20
  • FY22 guidance: NPAT guidance of $70 million to $73 million

What happened in FY21 for AUB Group?

In a positive for the AUB Group share price, the company grew its reported NPAT 50% year on year to $70.6 million. This came through to give shareholders an earnings per share (EPS) of 87.93 cents, signifying a 22% growth from the year prior.

The company also recognised a 23% increase in underlying NPAT. AUB explained that the growth in NPAT on an underlying and reported basis was due to “strong underlying organic growth, primarily in the Australian broking division”. Profits were also underscored by the “divestment of Altius”, as per the release.

By division, AUB saw strengths in its Australian broking business, where underlying NPAT grew 22% year on year to $72 million. This was underlined by a “strong contribution” from the Experien investment on 1 August 2020.

In its BizCover segment, profit before income tax (PBIT) increased by 190% on the year, due to organic profit “assisted by operating leverage”.

Conversely, in its New Zealand operations, the company’s PBIT actually decreased by 13% to just over $10 million. AUB explained this was due to a change in the accounting treatment of its Software as a Service (SaaS) costs.

AUB’s Australian agencies PBIT gained 14% from FY20 and reached about $15 million, and gained about 1% in EBIT margin to 31.9%.

Finally, the company declared a fully franked dividend of 39 cents per share, a 10% increase from this time last year. This brings the total dividend to 50 cents per share, on par with FY20.

What did management say?

Speaking on the announcement, AUB Group CEO Michael Emmet said:

“FY21 was a year of extraordinary ups and downs. Our clients and our teams continued, as they do today, to face significant personal and commercial stresses given the range of COVID-19 consequences and interventions. I am very proud of the way in which the AUB family has dealt with this. The business continues to demonstrate a remarkable resilience although one we do not take for granted.

Touching on operations, Emmet added:

The transformation of AUB Group has continued at pace during FY21. Our exit from Health and
Rehabilitation Services is complete, the performance improvement in Austbrokers has accelerated,
BizCover continues to grow both revenue and profit at an impressive rate while the remediation of
Agencies is starting to deliver results with both margin and profit improvement during the period. We
are however far from done. Our New Zealand operations are still in the early stages of transformation,
running until FY23.

What’s next for AUB Group?

In another potential positive for the AUB Group share price, it has provided NPAT guidance in the range of $70 million to $73 million. This calls for a 15.7% – 20.7% growth from FY21.

It assumes that premium rates will increase in the range of 5% to 6%, and that “continued small bolt-on acquisitions” are included in the guidance outlook.

In addition, AUB would “provide updated guidance” if “major acquisitions” were to occur, as current forecasts exclude these.

The AUB Group share price has posted a year to date return of 47%, which has outpaced the S&P/ASX 200 index (ASX: XJO)’s climb of about 14% since January 1.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Austbrokers Holdings Limited. 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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