Operational Adjustments Will Expand Market Opportunities In Australia And Ireland

AN
AnalystConsensusTarget
Consensus Narrative from 4 Analysts
Published
20 Apr 25
Updated
31 Jul 25
AnalystConsensusTarget's Fair Value
R81.22
7.3% undervalued intrinsic discount
31 Jul
R75.32
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1Y
62.0%
7D
-1.7%

Author's Valuation

R81.2

7.3% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Increased 10%

Key Takeaways

  • Operational efficiency improvements and strategic resource reallocation could enhance profitability by reducing costs and optimizing the business portfolio.
  • Growth initiatives in Australia and Ireland are expected to expand market share, driving significant revenue and profit growth.
  • Rising repair costs and strategic challenges could increase claims and expenses, affecting OUTsurance’s net margins and earnings volatility.

Catalysts

About OUTsurance Group
    A financial services company, provides insurance and investment products in South Africa, Australia, and Ireland.
What are the underlying business or industry changes driving this perspective?
  • OUTsurance Group's focus on simplifying and enhancing its core business operations appears to be improving efficiency, which could lead to better net margins as operational costs are reduced through back-office and operational area improvements.
  • The strategic review of the Youi broker channel suggests a potential reallocation of resources to stronger performing areas, such as the direct business, which may enhance overall profitability and boost earnings by optimizing the business portfolio.
  • With major market share opportunities still available in countries like Australia and the nascent presence in Ireland, OUTsurance's growth initiatives in these markets could significantly boost revenue as they capitalize on these organic growth opportunities.
  • OUTsurance is benefiting from strategic operational expansions, such as its alignment of product and distribution channels in OUTsurance Life, translating to an 83% increase in the value of new business and improvement in VNB margins, potentially enhancing earnings in the future.
  • As OUTsurance Ireland continues its strategic ramp-up and approaches breakeven in the next five years, these investments, although initially weighing on earnings, are expected to eventually convert into substantial revenue and profit growth, broadening OUTsurance's geographic revenue base.

OUTsurance Group Earnings and Revenue Growth

OUTsurance Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming OUTsurance Group's revenue will decrease by 6.6% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 11.6% today to 20.8% in 3 years time.
  • Analysts expect earnings to reach ZAR 6.2 billion (and earnings per share of ZAR 3.71) by about July 2028, up from ZAR 4.2 billion today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.7x on those 2028 earnings, up from 28.2x today. This future PE is greater than the current PE for the ZA Insurance industry at 9.5x.
  • Analysts expect the number of shares outstanding to grow by 0.58% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 16.45%, as per the Simply Wall St company report.

OUTsurance Group Future Earnings Per Share Growth

OUTsurance Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Rising repair costs from new vehicle technologies and home features like solar panels could lead to higher claims inflation, potentially impacting premium inflation and squeezing net margins.
  • The aftermath of Cyclone Alfred in Australia, a significant event in one of the company's major markets, could slow claims inflation moderation and temporarily depress earnings.
  • Strategic challenges and loss reserves related to OUTsurance Ireland may increase financial strain and affect operating profit in the near to medium term.
  • The transition from the ESOP scheme to the CSP may create a temporary increase in expenses, reducing net margins until the transition is completed in September.
  • Changes in both the reinsurance market and the incidence of natural peril claims could increase volatility in the company's earnings, leading to fluctuations in revenue and net profit.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of ZAR81.215 for OUTsurance Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR29.6 billion, earnings will come to ZAR6.2 billion, and it would be trading on a PE ratio of 32.7x, assuming you use a discount rate of 16.4%.
  • Given the current share price of ZAR76.65, the analyst price target of ZAR81.22 is 5.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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