AUB Group’s (ASX: AUB) first-half fiscal 2026 underlying NPAT increased 14% to $90 million. On 7% revenue growth, margins expanded 190 basis points, driven by cost discipline and recent acquisitions. Guidance is for trends continuing, with 10%-15% NPAT growth for the full year. Shares dived on the result.

Why it matters: The result and guidance are largely as expected, with our forecasts broadly upheld at the bottom end of the guidance range. Highlighting earnings resiliency, mid-single-digit premium rate increases, plus higher fee income, drove an 8% increase in income per client for Australian brokers.

  • BizCover’s profit increased 23% as it taps more of the micro market not well served by brokers. We see a strong runway for market share gains by winning customers who are still going direct to insurers. There could be additional upside if its new artificial intelligence app resonates with customers.
  • While some insurance lines, such as strata, are seeing premium rates fall after years of material increases, AUB’s diversification across insurance lines smooths earnings volatility. Insurers’ low-single-digit premium increases are expected over the medium term to cover claims.

The bottom line: We maintain our fair value estimate for narrow-moat-rated AUB Group of AUD 39 per share. Shares are undervalued, with the market perhaps seeing premium increases as unlikely, a takeover offer being pulled, and fears of AI disruption.

  • We assume only low-single-digit premium growth in our forecasts and modest margin improvement, underpinning 5% earnings per share CAGR over the next five years. On a fiscal 2026 P/E of 13 times, we think earnings risks are overstated.
  • Investment in broker support, software, and additional marketing is likely to restrict group margin expansion. If AI tools can reduce costs to serve, competition is likely to result in the benefits being shared with customers and insurers.

AUB Group primed for modest growth as disruption fears grip the market

AUB Group operates the second-largest general insurance broker network in Australia and New Zealand. AUB brokers derive revenue from commissions paid by insurers, based on gross written premiums, plus fees. AUB owns or has equity stakes in each broking business within the network. Around half of group profit is delivered by the Australian and New Zealand broker network, around 30% from Tysers in the United Kingdom, and the remainder from underwriting agencies.

A key value proposition over smaller brokers is AUB’s ability to negotiate more favorable policy wording and pricing. Scale also provides the capacity to spend more on technology, which helps facilitate greater analytical and processing capabilities, and marketing to help attract and retain customers. Other services such as claims support and premium funding support the value proposition.

AUB Group’s underwriting agencies distribute insurance products but take no underwriting risk. Underwriting agencies act on behalf of insurers to design, develop, and provide specialized insurance products and services.

The earnings outlook is positive. We expect further insurance price rises over the medium term, albeit not at double-digit levels recently experienced, as insurers seek to cover claims inflation.

We expect insurance brokers to make modest market share gains of the general insurance market. Technology should allow a greater number of policies per client—for example, adding personal motor/home on top of a business client’s insurance needs. AUB’s investment in BizCover, a self-service insurance platform targeting small SMEs should see AUB take share of the small SME end of the market. This share will most likely come from the direct channel.

The acquisition of Tysers was material for AUB Group. We are optimistic that cost and revenue synergy benefits, as well as insurers lifting prices, will lead to solid earnings growth for the business over the long-term. The proposed acquisition of Prestige, a more retail broking-focused business in the UK, could accelerate growth in the UK.

Bulls say

  • AUB’s scale and expertise in insurance products and services leave it well placed to benefit from the essential nature of insurance.
  • Ownership in BizCover leaves AUB placed to take share in the smaller end of the SME market.
  • The firm’s acquisition strategy, of both new investments and increased equity stakes, likely boosts EPS growth.

Bears say

  • Insurance volumes and prices are closely tied to the insurance cycle and general economic conditions. Downside risk could increase in a recession.
  • The insurance pricing cycle could weaken if excess capacity and competition in the global reinsurance market increases.
  • Acquisitions in the UK could fail to deliver earnings growth over the medium term and prove a distraction of company resources.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.