PSC Insurance Earnings: Growth To Continue Even as Rate Tailwinds Eventually Subside

We increase our PSC Insurance fair value estimate by 6% to AUD 5.20, with shares around 5% undervalued against our revised valuation. Most of the increase reflects higher medium-term earnings estimates. In addition to faster insurance price increases than we originally expected, continued margin improvement in the agency business surprised. We had forecast margins to trend lower as the insurance cycle turns, but now expect flat margins as acquisitions and new product launches leverage the existing cost base. We assume only a modest margin decline over the next five years. PSC’s insurance agency EBITDA margin of 55% betters Steadfast at 50% and AUB at 38%.