And more below, parts in bold are particularly relevant to ENA;AUB Group (ASX: AUB)
Mike Younger (BUY): AUB group is a buy for us. Volumes are incredibly resilient and we need no further example than the recent COVID shutdowns to highlight that one of the last things businesses will turn off is their insurance. At the same time, the premium rate cycle is very strong, but it also seems like it is elongating as climate change creates more frequent weather events and that's pushing up the cost of insurance, which AUB will pass through or take a clip of those premiums that it sells to its clients. Trading at just a mild premium to the market, we think it's a buy.
Chris Conway: Katie, the share price has risen about 13% over the last 12 months. For you, is it a buy, hold or a sale?
Katie Hudson (BUY): It's a buy, but we also recognise it is a market darling. It is very well owned by small-cap managers and I think the benefits, as Mike described, of the insurance broking network are well understood by investors. So that premium means the inefficiency is not as strong as it might be for other companies. But I do agree with Mike. It is a fantastic part of the market. If you think about the value chain for insurance, the insurance broker has the low capital-intensive part.
They have the benefit of the premium increase, but they don't have the claims inflation that the poor old insurers are bearing. So it's definitely the attractive part of the value chain in insurance. And as Mike highlighted, they're benefiting from that climate trend as well. I think the Tysers [UK insurance broker] acquisition they made is de-risking pretty quickly and they also have the opportunity to buy more of their existing businesses where they own less than 100%, and that tends to be pretty low risk and certainly very high returning.
