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AUB lifts earnings guidance after strong first-half results

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AUB Group has again lifted its earnings forecast for this financial year as the business turned in a strong first-half performance, with underlying net profit after-tax of $30.7 million for the six months to December 31.

The results represent a 44.2% increase from the corresponding period of 2019 and are driven by a stellar showing from its Australian Broking division, the listed broker network announced today. Reported net profit surged 44.5% to $24 million.

AUB’s revised outlook projects underlying net profit after-tax of $63-65 million, which if achieved, would mean a rise of 17.9-21.7% from a year earlier. Last November the listed broker network raised its guidance to $60-62 million from $58.5-61 million after the business reported “strong momentum” in the first quarter.

The momentum experienced since the start of 2020/21 financial year is expected to continue, CEO and MD Mike Emmett told analysts this morning in an earnings call.

“The reality is this is a cracker of a result,” he said. “We’re really pleased with it.”

He says the first-half result “was important” to the group as it proved the strategy to grow the business was working.

These include actions taken in recent months such as the acquisition in December of 360 Underwriting Solutions and investment of a majority stake in August in Experien Insurance Services, a brokerage that specialises in general and life insurance products for the medical profession.

The decision to invest $132 million for a 40% stake in online distribution platform BizCover in February last year is also paying off.

“Our acquisition approach is delivering strong benefits to the group, adding not only profits but also enhancing our capabilities,” Mr Emmett said. “We are pleased with this result and specifically with the performance across our Australian broking businesses together with exceptional revenue and profit growth in BizCover since acquisition.

“Our investment in BizCover was an important strategic step for AUB.”

In the December half, the Australian Broking unit grew its underlying pre-tax net profit by 60.1% to $39.3 million as revenue surged 24.2% to $233.4 million. The increase was underpinned by strong organic and acquisition-related growth.

Average premium increases of 7.4% in commercial and cost reduction measures supported organic growth while contributions from investments such as the ones made last year in Experien and BizCover gave added support.

Mr Emmett says anticipated rate increases of 5-6% will contribute about $2.9 million to second-half underlying net profit after-tax. The estimated profit contribution from acquisitions of $3.4 million is primarily from 360 Underwriting and Experien.

He says starting in August the business will report the results of BizCover and other related investments as a separate division. The move is an acknowledgement of the “strategic importance” of these new earnings drivers, he says.

Going forward the acquisition of 360 Underwriting is expected to play a key role in turning around the fortunes of the Australian Agencies division. The division suffered a 4.8% decline in underlying pre-tax profit to $5.3 million, dragged down in part by the economic fallout from COVID-19.

“At the AGM we foreshadowed that several of our underwriting agencies are performing poorly,” Mr Emmett said. "Our acquisition of 360 Underwriting together with synergy-related benefits will reverse this trend.

“We are making good progress although we do recognise our agencies division is subscale.”