Broker consolidation ‘far from exhausted’

Broker consolidation ‘far from exhausted’ | Insurance Business

Broker consolidation ‘far from exhausted’

Brokerage consolidation shows no sign of slowing down in Australia, according to an investment expert who has recommended plunging your money into a certain listed broking giant…

Roger Montgomery, an analyst at Montgomery Investment Management, posted a piece on lauding the advances of Austbrokers, who he claimed have “harnessed the SME insurance market and is going for growth, with 13 acquisitions so far this year, and all funded from cash flow.”

“Austbrokers is one of those rare small-cap companies that tick higher each year with admirable consistency, and is a remarkable entrepreneurial story in its own right,” said Montgomery.

“Austbrokers’ strategy, business model and vision seems as valid today as it was in 2005 [when it first listed]. The opportunity to consolidate a fragmented market of insurance brokers that mostly service small and medium-size enterprises is far from exhausted. The strategy was simple and powerful, and the execution superb.”

Montgomery said Austbrokers has been a “frustrating stock for value investors” as it always looks dear, and yet it keeps rising.

“Austbrokers has consistently traded well above my intrinsic valuation since 2006. After sharp gains this year, Austbrokers (at $8.19) is 27% overvalued, and well above its current intrinsic value of $5.94, which rises to $6.46 in mid-2013 and $7.14 a year later.”

Montgomery added that Austbrokers’ other attraction is long-term earnings consistency, where it has reported net profit has grown by double-digit rates each year since 2007, as have earnings per share.

You can read Montgomery full piece on Austbrokers here.