Steadfast Group Ltd (ASX: SDF) shares have risen 76% over the past 5 years, handily beating the S&P/ASX 200 Index (ASX: XJO), which is up 42% over the same timeframe.
Steadfast is Australia's largest general insurance broker and underwriting agency network. It focuses on small to medium enterprise (SME) businesses, which require the expertise of insurance brokers and agencies to assess and manage their commercial risks.
The ASX 200 insurance broker operates in a large and growing market. According to Grand View Research, the global insurance brokerage market was valued at US$287 billion in 2023. The North American market accounted for around 30% of this total.
The global market is projected to grow at a compound annual growth rate of 9.2% between 2024 and 2030 to reach US$524 billion. This is likely to be driven by rising demand for insurance products as businesses face more frequent and severe catastrophic events.
Steadfast has a track record of expansion through strategic acquisitions. In 2024, it acquired 48 brokerage and underwriting agency businesses. This included ISU Group, a major network of independent agencies in the US, and Sure Insurance, a specialised underwriting agency.
The insurance brokerage sector is highly fragmented. Its major competitor in Australia is AUB Group Ltd (ASX: AUB). In the US, it competes with the likes of Brown & Brown (NYSE: BRO) and Arthur J. Gallagher & Co (NYSE: AJG), which enjoy premium valuation multiples.
Evidently, Steadfast has a lot going for it that could make it a much bigger business in the future.
But is it a good investment today?
Let's see what one broker had to say.
Macquarie tips Steadfast to outperform
In a 3 July research note, broker Macquarie Group (ASX: MQG) reiterated its outperform rating on Steadfast shares.
The broker has assigned a price target of $7.00 to the company. On Friday, Steadfast shares finished the trading session at $6.00. This suggests more than 20% upside from here, including both capital gains and dividends (Steadfast currently offers a dividend yield of 3.03%).
When issuing this recommendation, the broker said:
Outperform. The ability to maximise returns on a US roll-out is key to SDF's long-term value. At current valuations, we retain our Outperform recommendation.
On the subject of valuation, Macquarie said Steadfast shares were currently very attractively valued relative to its international peers:
2-year forward PE multiple relative to international brokers: SDF is trading at a ~20.8% discount (vs a 2.3% long-term premium) to international brokers.
On the home front, the broker noted that it was trading at a premium relative to AUB, however, the gap had significantly narrowed from its historical levels:
2-year forward PE Rel SDF vs AUB: SDF is trading at a ~4.8% premium to AUB (compared with the ~11.6% long-term premium).
Foolish Takeaway
At a time when the ASX 200 is just below its all-time high, it may be challenging for investors to find quality businesses at attractive prices. Macquarie considers Steadfast shares to have an especially compelling valuation today.
Steadfast will release its full-year results for FY25 on 21 August. Stay tuned.
