Steadfast Group Ltd (ASX: SDF) shares could be great value at current levels.
That's the view of analysts at Macquarie Group Ltd (ASX: MQG), which are bullish on the ASX 200 insurance stock.
What is Macquarie saying about this ASX 200 stock?
Macquarie highlights that Steadfast has been focusing on growing its international operations. It said:
SDF currently holds assets internationally in New Zealand, Asia, London (HWS), Europe (UnisonSteadfast), and the US (ISU Steadfast). These offshore investments contribute ~7.5% to the Group's earnings. We expect SDF to provide separate financial disclosures for these interests as the contribution approaches ~15% of Group earnings.
The reason this is important is that this ASX 200 stock is trading at a significant discount to international peers. It adds:
SDF trades at a ~24.6% discount to international peers on a 2-year forward PE basis (compared with the ~2.4% long-term premium) hence our Outperform recommendation.
The peer that Steadfast is most comparable to is TWFG according to Macquarie. And its shares are trading at a massive premium. The broker explains:
Who is the right peer? 8 insurance brokers are listed outside Australia but TWFG is the only "network" with a pathway to M&A and corporate integration. TWFG currently trades on a 40.4x 2-year forward PE, a ~135% premium to SDF.
In light of this, the broker appears to believe that Steadfast shares are undervalued at current levels and offer meaningful upside over the next 12 months.
According to the note, the broker has reaffirmed its outperform rating and $6.80 price target on its shares. Based on its current share price of $5.96, this implies potential upside of 14% for investors between now and this time next year.
Commenting on its outperform rating, Macquarie said:
The ability to maximise returns on a US roll-out is key to SDF's long-term value, and we believe management can thread the needle. At current valuations, we retain our Outperform recommendation.
But the returns won't stop there. This ASX 200 stock is a reliable dividend payer and Macquarie expects this to remain the case in the future.
It is forecasting fully franked dividends of 20 cents per share in FY 2025, 21 cents per share in FY 2026, and then 22 cents per share in FY 2027. Based on its current share price, this represents dividend yields of 3.35%, 3.5%, and 3.7%, respectively.
This means that the total potential 12-month return would be over 17% for investors if Macquarie is on the money with its recommendation.
