Steadfast Group Limited (Steadfast, the Group, ASX: SDF) is the largest general insurance broker network in Australia. The Group operates insurance broking and agency networks across Australia, New Zealand, Singapore and the United Stares. The Group provides products and services to support the broking and agency networks businesses that it owns or co-owns through its equity interests in these businesses. Steadfast is also a licensed Lloyd’s of London broker.
A consolidator of insurance brokerages
Steadfast Group is a consolidator of insurance brokerages through a co-ownership business model via equity interests in 418 brokers that generate $13 billion of Gross Written Premium annually. Steadfast also co-owns and consolidates underwriting agencies which generate $2.3 billion in annual premiums. In addition, the Group owns other complementary businesses such as an Insurance Premium Funding business. This business provides short term finance that enables borrowers to manage payments for insurance policies by way of instalments. Most borrowers are businesses and loans are for up to 12 months and are secured by un-earned premium of the underlying policies financed.
Steadfast has developed market-leading in-house proprietary technology for use by its extensive broker network that streamlines transaction processing and compliance matters for brokers and underwriters. The technology also enables insurance brokers to access exclusive products and services backed by the size and scale of the Steadfast Group. This effectively allows independent smaller brokers to achieve the operating scale benefits of the much larger Steadfast Network, while maintaining their autonomy and independence.
Steadfast’s aggregation business model solves the problem of succession planning for retiring insurance brokers who wish to exit the industry at retirement or wind down in their lead up to retirement. The aggregation model preserves the value of the retiring partner’s
insurance brokerage business right up to the exit point and provides certainty through the alignment of interests of the retiring broker and Steadfast.
A disciplined and structured approach to business growth
Steadfast is targeting $300 million of acquisitions in FY25, comprising about 50 individual insurance brokerages. These currently planned acquisitions are at the due diligence stage or where term sheets are either being prepared or have been signed. The planned acquisitions are independent insurance brokers who see the advantage of being part of a large network or partners of brokerages who are looking for a succession plan to exit their insurance practice and retire or scale down their business commitments. Acquisitions valued at $458 million for 48 brokerages were debt funded in FY24.
Importantly, these planned acquisitions do not require shareholders to contribute dilutive equity capital. Steadfast maintains a conservatively geared balance sheet with a gearing ratio of 20.2 percent at 30 June 2024. The Group operates under a self-imposed 30 percent maximum gearing ratio limit which is significantly below the Group’s bank lending covenants. At this gearing level, Steadfast can borrow an additional $366 million and still maintain significant headroom in its debt covenants.
The planned $300 million of FY25 acquisitions bring an estimated annualised EBITA of $40 million to the Group.
The other source of business growth other than acquiring new insurance brokerage businesses is to acquire a higher percentage of the equity held in existing brokerages within the Steadfast Network. This is a source of long-term embedded growth because the capital to be acquired is ‘trapped’ within the Steadfast Network in that insurance brokerage owners who are part of the Steadfast Network are obligated to sell their remaining equity to the Steadfast Group at pre-determined multiples. Based on current estimates there exists the potential for Steadfast to acquire around $440 million of existing EBITA embedded within the Australasian Network. This current estimate assumes that EBITA is about 6 percent of Gross Written Premium.
Since its IPO in 2013, Steadfast has successfully implemented this dual aggregation strategy of expanding the Network of individual insurance brokerages, as well as increasing its equity stake in the Networks.
This growth through the acquisition pipeline of new agencies, and the embedded growth from increasing equity in the existing Networks, provides a high degree of certainty around forecast Gross Written Premium and the resultant long-term underlying earnings.
FY2025 Guidance
Based on the existing $300 million acquisition pipeline and estimated insurance premium increases of 7 to 9 percent, FY25 Underlying Net Profit After Tax is estimated to be within the range of $290 to $300 million. This compares to Underlying Net Profit After Tax in FY24 of $252 million.
Looking beyond 2025, Steadfast Group’s share of growing Network Gross Written Premium and consistently increasing the size of the Steadfast Network and equity ownership within the Network, should see ongoing share value accretion over the long-term.
