Reined in

Reined in

Euphoria has given way to anxiety as Steadfast and AUB Group count the cost of the pandemic

By Bernice Han

In the blink of an eye, an invisible but deadly pathogen has punctured the upbeat mood of Steadfast and AUB Group.

The two titans of Australian broking had been brimming with confidence, buoyed by stellar first-half results for the six months to December 31. But that was in late February, when they informed investors of their results, before the coronavirus pandemic arrived in March and crippled the Australian economy in a matter of days.

Withdrawing guidance: Steadfast chief Robert Kelly

Since then the business outlook has soured significantly, forcing Steadfast and AUB to withdraw their initial confident earnings guidance for this financial year. AUB also put on hold its planned $140 million acquisition of Adelaide-based MGA Whittles.

Steadfast had been on track to perform at the top end of its earnings forecast, with projected underlying net profit after tax of $100-110 million and underlying earnings before interest, tax and amortisation (EBITA) of $215-225 million.

The business now expects to provide a revised update and the impact of the still unfolding COVID-19 fallout “when practical”.

“Given the events that have unfolded during the month of March 2020 and the implications for numerous businesses and employees, the board of Steadfast considers it prudent to withdraw its guidance,” Steadfast says in a statement.

“In making this decision, the board notes that the general insurance sector will continue to provide the necessary insurance products that allow businesses to continue to trade and the community to protect their assets and that Steadfast Group as the largest insurance broker network in Australasia will continue to play a major role.”

In the December half Steadfast achieved a 39.1% rise in underlying net profit after tax to $53.2 million from a year earlier. The results were driven partly by the addition of Insurance Brokers Network Australia (IBNA) member companies and other purchases. Underlying EBITA improved 27.5% to $108.9 million.

Acquisitions contributed $16.3 million to underlying EBITA including $4.3 million from IBNA, which joined the Steadfast Group in the second-half of last year. The IBNA transaction is about $72.7 million post-tax and will add another $1.25 billion in annual gross written premium to the Steadfast business.

Every shareholder in the independently owned group voted in favour of the Steadfast takeover. Subsequently underlying EBITA contribution from IBNA this financial year has been raised to $8.3 million from $4.8 million, which was made based on an 80% acceptance rate.

Like Steadfast, AUB has been forced to reassess its business outlook for the year. The business had almost doubled its earnings targets after a strong first-half, raising its adjusted net profit growth estimates to 16-18% from 8-10%. It will also defer payment of the interim dividend.

“No one can predict what the next six months will look like and given that, you become conservative,” Chief Executive Mike Emmett told insuranceNEWS. com.au, the online publication of Insurance News.

Cautious approach: AUB’s Mike Emmett

The suspension of the deal and the decision to defer until September 3 the interim dividend of 14.5 cents per share, totalling $10.7 million, reflects precautionary measures to conserve liquidity, he says.

AUB presently has a 49.9% stake in MGA, and the acquisition, announced in February, would have seen the business acquire the remaining 50.1% as well as 100% of strata specialist Whittles.

In the December half, AUB Group had achieved a 25.3% rise in adjusted net profit to $21.3 million. The Australian broking arm, its largest division, enjoyed a 6.2% increase in commercial premiums.