Steadfast Group Limited

SDF Details

Initial Substantial Holder: Steadfast Group Limited (ASX:SDF) is engaged in the provisioning of services to Steadfast Network brokers, the distribution of insurance policies via insurance brokerages and underwriting agencies, and related services. On 10 December 2021, AustralianSuper Pty Ltd has become a substantial holder in the company with a voting power of 5.20%.

New Debt Facility: In the month of November 2021, SDF entered a new Syndicated Facility Agreement for $660 million. The said new debt facility provides the company unutilized debt capacity of $315 million. SDF would use the funds from the facility together with free cash for financing the previously announced Trapped Capital Project pipeline and other acquisitions in FY22.

Decent Start of FY22:  

• During Q1FY22, the company posted a growth of 13.6% in EBITDA as compared to Q1FY21.
• During the quarter, the company has invested $468 million in EPS accretive acquisitions, which includes the acquisition of Coverforce, acquisitions from Trapped Capital Project and other acquisitions.

FY21 Financial Highlights:

• For the year ended 30 June 2021, the company recorded revenue amounting to $899.9 million as compared to $826.3 million in FY20.
• EBITA for the year rose by 17.6% to $262.7 million in FY21 against $223.5 million in FY20. This was mainly supported by strong organic growth from insurance broking and underwriting agencies.

Revenue & EBITA (Source: Analysis by Kalkine Group)

Key Risks: The company’s financial and operational performance could be impacted by the changing technology and consumer demands. In addition, SDF is also exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company expects to report underlying EBITA in the range of $320 million and $330 million and underlying NPAT of between $159 million and $166 million. In addition, underlying diluted eps (NPAT) growth expects in the vicinity of 10% to 15%.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of SDF is trading around its 52-week high level of $5.440. The stock has provided returns of ~7.80% and ~22.09% in the past three and six months, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the growing earnings and a decent start to FY22. For the purpose of valuation, peers such as NIB Holdings Ltd (ASX: NHF), AUB Group Ltd (ASX: AUB), Medibank Private Ltd (ASX: MPL), and others have been considered. Considering the expected correction in stock prices as indicated by the valuation, current trading levels, solid rally in the past few months, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $5.340, as on 07 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SDF Daily Technical Chart, Data Source: REFINITIV 

Note: The purple line reflects the RSI (14-day period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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