Why this broker is keenly awaiting AUB Group’s first-half report next week

Insurance and underwriting ASX200 stock AUB Group (ASX: AUB) is set to release its first-half report next week, and Goldman Sachs is keeping its eyes out. 

AUB upgraded its FY23 profit guidance back in November, shortly after acquiring London-based Lloyd's wholesale insurer broker, Tysers.

The investment bank rated AUB Group a BUY on Friday. 

Quick Bite: 

• Goldman Sachs has given AUB a price target of $28.70. 

• Based on a price of $25.99, this reflects a total return of 10.4%. 

• As at 1325AEST Friday 17 Feb 2023, the price is trading at $26.04 (10.2%).

• Rated BUY 

Underlying profit boost 

Goldman Sachs first and foremost highlights its expectations Underlying Net Profits After Tax (UNPAT) will beat the previous guidance range. 

GS analysts Julian Braganza (FIAA) and Brian Kim highlighted expectations the company will pull in $46.7m in underlying profits for 1H23. 

This is up from previous guidance estimating underlying profit of $41.5-$44.5m. 

Using the midpoint of that original range, the UNPAT upgrade reflects an 8.5% increase. 

“We note that a majority of the FY23 upgraded guidance reflects higher 1H23 earnings (vs previous guidance) with some small improvements expected in 2H23 driven by higher 2H growth,” the analysts wrote. 

Full year implications 

The full 2023 financial year guidance has also been upgraded by AUB itself to  $112.9m-$121.4m.

This is upgraded from a previous guidance range of $107.5m-$115m. 

Using the mid point of the pre and new guidance, that’s an increase of 5%. 

“At the midpoint of guidance, FY23 was upgraded by about $5.9m with 1H23 now expected to be $3.7m higher compared with the mid point of previous 1H23 guidance, suggesting the balance of the upgrade to be driven from2H23,” Braganza and Kim wrote on Friday. 

But what is driving this increase in profits? 

Goldman Sachs sees five key factors at play: 

• AUB is set to be a beneficiary of inflation as insurance premiums rise (something currently assisting a range of insurance players on the ASX according to GS counterparts Macquarie and Citi respectively) 

• “Moderate but accelerating rate rises in NZ” 

• Successful management by AUB’s C-Suite of strategic growth plans 

• London-based Tysers insurance, now owned by AUB, continues to outperform original expectations 

• AUB has cited its own confidence 1H CY23 conditions will continue to remain strong (read: insurance will still be more expensive than it used to be). 

“We think the strong rate increases being applied in Commercial SME continues to be a tailwind for the brokers AUB,” GS analysts wrote.

With all of that said, however, the investment bank notes that the proof of the pudding will be in next week’s 1HFY23 result. 

AUB Group's one year chart