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Steadfast races ahead of earnings guidance

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Steadfast Group has again raised its earnings guidance for this financial year as the business continues to perform ahead of expectations.

Underlying earnings before interest, tax and amortisation (EBITA) is now projected at $259-266 million, up from $245-255 million previously while underlying net profit after tax is forecast at $127-132 million from $120-127 million.

The previous guidance, made at last year’s AGM, represented an upward revision after the business made a strong start to this financial year, with underlying EBITA surging 20.7% in the September quarter.

The broking network announced the revised forecasts last week in an investor update to the Australian Securities Exchange.

Steadfast says the business did well in the nine-month period to March 31, with revenue up 7.2% while underlying EBITA jumped 20.5%.

“Based on this strong trading performance to date and accretive acquisitions made, Steadfast has uplifted its [FY2020/21] guidance range,” the investor update says.

Steadfast says the revised 2020/21 guidance excludes the mark-to-market movements from the revaluation of its listed investment in Johns Lyng Group, an insurance-focused building and restoration services provider.

Morningstar Equity Analyst Nathan Zaia, who covers the company, says the earnings upgrade “isn’t totally unexpected”.

“We felt the original guidance was on the conservative side,” he told insuranceNEWS.com.au.

He says the hard market conditions have been a plus for the broking sector.

“It has been pretty clear that insurers have had to put up premiums given the earnings headwinds they have faced, and brokers like Steadfast are benefactors of that,” Mr Zaia said.

“It’s reassuring that good revenue growth is flowing through to the bottom line too. Steadfast continues to invest in their technology and offering to make the brokers more efficient, but also help capture lower commission margins.

“And while that has held back margin expansion somewhat, we think it sets the group up for strong growth in the future, and helps solidify the broker network's competitive advantages.”