The Steadfast Group Ltd (ASX: SDF) share price is in a trading halt today.
It comes after the insurance broker announced its acquisition of Insurance Brand Australia and a solid set of results for FY22 this morning.
There's a lot to unpack here, so let's dive into the latest developments on Steadfast.
What did the company report?
Steadfast reported a string of highlights for FY22. Here are the key results:
- Revenue rose 21.3% to $911.4 million compared to FY21
- Underlying earnings before interest, taxation and amortisation (EBITA) increased 29.5% to $340.4 million
- Net profit after tax (NPAT) lifted 20% to $171.6 million
- Declared a fully franked final dividend of 7.8 cents per share, up 11.4% from FY21
- Total full-year dividend of 13 cents per share, up 14% from FY21
Steadfast said EBITA growth was driven by a 16.2% contribution from acquisitions and organic growth of 13.1%. Organic growth was primarily due to increases in premiums and some volume uplift.
Across FY22, Steadfast completed $552 million of earnings per share (EPS) accretive acquisitions, based on its latest annual report.
The company's increased dividend for FY22 represents a dividend payout ratio of 75% of underlying NPAT. It will be paid on 9 September.
Acquisition of Insurance Brands Australia
Steadfast has also announced it will acquire Insurance Brands Australia (IBA) and its subsidiary companies.
IBA is one of Australia's largest privately owned insurance distribution businesses with a strong focus on the small to medium enterprises segment.
The total consideration for the acquisition is $301 million. This is comprised of an initial payment of $276 million and an earn-out payment of $25 million.
The initial payment is made up of both cash and scrip dividends.
The cash will be sourced from Steadfast's corporate debt facilities. Certain IBA management and employee shareholders will have the choice of opting for shares instead of cash dividends (scrip dividends). However, this is limited to a value of $56.1 million.
The earn-out payment is subject to achieving performance criteria in FY23 and any additional payment will be made in the first half of FY24.
Management expects this acquisition to be EPS accretive in the first full year.
The acquisition is expected to be completed by 23 August.
Further acquisitions ahead
Steadfast management continues to flex its roll-up strategy, identifying further Trapped Capital acquisition opportunities worth around $400 million.
The average EBITA multiple for these purchases is estimated at around 10 times.
Management expects to complete around $220 million of these acquisitions in FY23.
What did management say?
Steadfast Managing Director and CEO Robert Kelly said:
Our enduring business model, the skills and stability of our executive team, our prudent approach to acquisitions and the strong performance of our equity owned businesses resulted in a 26.2% increase in commission and fee revenue for FY22, improved margins and a 29.3% increase in underlying NPAT to $169.0 million for FY22.
More growth ahead for Steadfast
Management is guiding the following key financial targets for FY23.
- Underlying EBITA of between $400 million and $420 million
- Underlying NPAT of between $190 million and $202 million
- Underlying diluted EPS growth of 5% to 11%
Steadfast foresees price increases by strategic partners across the market to continue in FY3.
Steadfast share price snapshot
The Steadfast share price has performed quite well compared to the broader market recently.
In the last year, the Steadfast share price has risen 10% and 13% across the last six months.
The S&P/ASX 200 Index (ASX: XJO) has fallen by 5.6% in the past year and dropped 2.80% across the last half year.
Steadfast shares will remain in a trading halt at $5.39 apiece until market open on Friday 19 August or when the company's announcement is released to the market, whichever is earlier.
Foolish takeaway
I'd like to highlight Kelly's comment about management's prudent approach to acquisitions.
Future growth lies in Steadfast's ability to become a dominant player in the insurance broking industry. Steadfast is looking to devour its smaller competitors.
However, Steadfast appears to remain disciplined and selective in what it acquires. In such roll-up strategies, I believe an investor needs to focus on management's acquisition track record.
This requires a lot of groundwork as it involves understanding the value contributed by past acquired companies.
