Having withdrawn guidance in March,
-Contraction in SME turnover highlights insurable risk from economic dislocation
-May need to support member brokers if premium deferrals have a large impact
-Significant uncertainty from looming recession
Yet, the update has revealed revenue for the nine months to
Citi retains forecasts but now suspects it, too, is being conservative, although considers the fourth quarter is particularly unclear this year as the risk is that lower sums will be insured. The broker's FY20 forecasts for earnings of
Credit Suisse points out
Concerns Linger
Still there are some concerns around the outlook for the next six months. There is a contraction in small-medium enterprise (SME) turnover and, therefore, insurable risk from economic dislocation caused by the pandemic.
SMEs represent the largest part of the company's client base and there could be a sharp reduction in premiums, as some businesses choose to reduce cover temporarily, although fees for brokers may not drop off that March and the underwriting agency may suffer more than the broker.
Insurers have all agreed to delay premiums for businesses that need assistance and this could, in turn, delay the payment of commissions. There are also some clients that may not survive the dislocation.
Steadfast had been confident premium rates would continue to increase, particularly after large catastrophe losses, but Citi suspects that may be now more difficult to achieve for the SME segment in
The broker allows for a modest increase in gross written premium of 5% in FY21-22. Steadfast may also need to support its member brokers if premium deferrals start to have a large impact, the broker adds. Furthermore, it remains unclear whether the Steadfast's premium funding business will suffer credit losses or volume reductions in a tougher credit and lower interest-rate environment.
Citi expects the recession will create significant uncertainty but FY20 earnings should be relatively protected because of the lag between business failures and insurance cancellations.
The decline in the share price has been overdone, in Credit Suisse's view, and while the business is not completely immune there is a potential for acquisitions, as more dire scenarios imply cash strain for independent brokers.
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