Starting to execute on large client wins

JDC Group 30 May 2022 Update
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JDC Group

Starting to execute on large client wins

Diversified financials

Spotlight - Update

30 May 2022

Price

€18.4

Market cap

€252m

Share price graph

Share details

Code

A8AX

Listing

Deutsche Börse Scale

Shares in issue

13.7m

Last reported net debt at end FY21

€2.4m

Business description

JDC Group is a leading German insurance platform, providing advice and financial services for professional intermediaries, banks but also directly for end-customers. JDC’s digital platform, for end-clients and for the administration and processing of insurance products, is also provided as a white label product.

Bull

Strong position to support digital investment.

New client wins.

Profitable consolidation opportunities.

Bear

Capital market weakness from China/ Ukraine/COVID-19-related uncertainty affecting investment results in advisory.

Low real interest rates and regulatory uncertainty affect the insurance industry.

Transfer of contracts to JDC platform could stall.

Analyst

Edwin De Jong

+44 (0)20 3077 5700

JDC Group is a research client of Edison Investment Research Limited

Bancassurance advisory and service platform JDC Group (JDC) reported strong Q1 results. After large client wins in the last few years, most notably Provinzial and Versicherungskammer Bayern (VKB), JDC is now slowly getting into the execution phase of these large contracts. Nevertheless, the number of transfers of insurance contracts to its platform and hence the contribution in terms of revenues from these clients will be limited this year. Based on 2023e consensus EV/sales and EV/EBITDA, the valuation does not seem demanding compared to platform peers.

A strong start to the year

JDC reported strong Q122 results. Revenues increased 20.2% year-on-year to €43.2m, driven by the Advisortech division, but with a strong contribution from the Advisory division. Q1 usually gives the best picture of the underlying activities as Q2/Q3 are usually weaker and Q4 much stronger. JDC reiterated its FY22 outlook for revenues of €165–175m (+16% growth at the midpoint) and EBITDA of >€11m compared to €8.4m in FY21. This might be conservative given the strong Q1.

Large contracts getting into execution

In the last years, JDC has won several very large contracts with German savings bank-related insurers Provinzial and VKB and is running a pilot with R+V, the cooperative banks’ insurance company. These contracts could add more than €300m in annual turnover once they are fully onboarded. At Provinzial, the onboarding process of JDC’s Advisortech platform has started and at VKB it is planned for later in the year. As such, the revenue contribution from these contracts this year will be limited, with a more significant contribution next year. If the trial with R+V translates into a contract, the onboarding process will be much easier than with the savings banks. With the savings banks, many offices have to be onboarded separately, while with R+V the number is limited.

Valuation: FY23e EV/EBITDA of 13.5x

JDC trades at an FY23e P/E of 33.2x and EV/EBITDA of 13.5x. We compare JDC to a group of financial brokers and platform peers. Platform peers trade at an average FY23e EV/EBITDA of 17.7x and financial broker peers at 104x. however, it should be noted that JDC’s platform business is much larger and growing faster than its advisory business. Compared to Germany-listed Hypoport, which also offers an independent advisory platform service but for mortgages, JDC trades at an 17% discount on FY23e EV/EBITDA. However, Hypoport is much more mature, with a large market share in the German mortgage market.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA
(€m)

EPS
(€)

DPS
(€)

EV/EBITDA
(x)

P/E
(x)

12/20

122.8

5.1

(0.09)

0.0

18.7

N/A

12/21

146.8

8.4

0.07

0.0

40.8

262.9

12/22e

169.0

11.9

0.29

0.0

20.0

63.4

12/23e

205.0

17.0

0.56

0.0

13.5

32.8

Source: JDC (historical figures), Refinitiv consensus (estimates) at 27 May 2022

EBITDA 31.5% higher in Q1

JDC reported revenue growth of 20.2% to €43.2m in Q122, driven by its Advisortech activities, which achieved a 21.1% y-o-y increase in revenues to €37.1m.

Within Advisortech, the independent financial advisory (IFA) insurance platform business reported strong revenue growth. The large insurance platform contracts won in 2020 and 2021 from the German savings banks-related insurance businesses Provinzial and VKB are starting to build up and expected to start generating significant revenues next year. Compared to German competitor Hypoport, which reported 10% organic growth (on total revenue growth of 23%), JDC’s growth was positive.

JDC’s Advisory business also had a strong start of the year, with reasonable 10.2% revenue growth to €9.1m.

Gross profit margin was 280bp higher at 30.3% in Q122, primarily driven by higher margins in Advisory. EBITDA rose 31.6% 3y-o-y to €3.7m and net profit 51.9% to €1.8m. JDC is starting to benefit from operating leverage as it has a relatively stable cost base and is generating increasing commissions from its insurance platform.

JDC reiterated its outlook for revenues of €165–175m and EBITDA of more than €11m, compared to €8.4m in FY21.

Exhibit 1: Q122 results highlights (P&L)

€’000s

FY20

FY21

y-o-y change

Q121

Q122

y-o-y change

Total revenue

122,834

146,808

19.52%

35.967

43.224

20.18%

-Advisortech

102,579

121,023

17.98%

30.601

37.050

21.07%

-Advisory

30,859

35,696

15.67%

8.253

9.095

10.20%

-Holding

(10,604)

(9,911)

-6.54%

(2.887)

(2.921)

1.18%

Initial commission

85,547

100,155

17.08%

 

 

 

-Insurance products

64,125

77,255

20.48%

 

 

 

-Investment funds

16,028

15,944

-0.52%

 

 

 

-Shares/Closed-end funds

5,394

6,956

28.96%

 

 

 

Follow-up commission

21,242

25,962

22.22%

 

 

 

Overrides

6,451

6,849

6.17%

 

 

 

Services

3,478

4,371

25.68%

 

 

 

Fee-based advisory

2,757

3,139

13.86%

 

 

 

Other income

3,359

6,332

88.51%

 

 

 

Capitalised services

1091

1196

9.62%

 

 

 

Other operating income

339

682

101.18%

 

 

 

Commission expenses

(90,542)

(106,996)

18.17%

 

 

 

Commission expense as % of revenues

73.71%

72.88%

-1.13%

 

 

 

Personnel expenses

(18,737)

(22,287)

18.95%

 

 

 

Other operating expenses

(9,860)

(11,024)

11.81%

 

 

 

EBITDA

5,125

8,379

63.49%

2.837

3.732

31.55%

D&A

(4,628)

(5,397)

16.62%

(1.148)

(1.455)

26.74%

EBIT

497

2,982

500.00%

1.689

2.277

34.81%

Pre-tax profit

(1,031)

1,406

-236.37%

1.320

1.907

44.47%

Net income

(1,163)

904

-177.73%

1.215

1.846

51.93%

EPS (€)

(0.09)

0.07

-177.78%

0.09

0.14

51.93%

Source: JDC Group financial accounts

Executing on platform growth

JDC’s key asset is its Advisortech insurance platform, which enables private clients to manage their insurance portfolios. Through the platform private individuals/intermediaries can select and add insurance policies from almost all insurers active on the German market, in a simple app that also provides a comprehensive overview of an individual’s insurance portfolio. The platform is also available as a white label solution, for example insurance companies or banks.

The earnings model is adding clients to this platform and generating commissions through closing and transferring insurance policies.

After larger deals with Albatros (Lufthansa), Boehringer Ingelheim and Nürnberger Versicherung among others, signed between 2018 and 2019, JDC signed transformative contracts with German savings bank insurers Provinzial in 2020 and VKB in 2021. The deal with Provinzial could add more than €100m in annual revenues over the contract term. The main difference with the contract with Provinzial is that VKB also took an equity stake in JDC of 6.0%. There are a few more savings bank insurers in Germany and as they all use the same S-Versicherungsmanager application, JDC is well positioned to also sign these companies.

It is now key to execute on these projects. The first savings banks with Provinzial are onboarded to the platform and are starting to transfer contracts. The pace will accelerate in H2. VKB is moving more slowly and will probably start onboarding later this year, which will lead to significant revenues from 2024. All in all, commission income from onboarded contacts from savings bank customers will be in the single digit million euros this year.

The company is also running a pilot project with cooperative bank insurer R+V, which is very important for JDC. If the pilot with R+V, which has c 30m clients, translates into a deal, JDC will have platform deals with customers with direct access to the vast majority of German households. In contrast with the savings banks, this is just one group of banks, so no separate contracts will have to be closed, making the process much easier.

The start of the transferral process, together with the economic impact of the war in Ukraine and uncertain economic situation in China, explains JDC’s guidance of revenues of €165–175m or +16% at the midpoint versus 2021. This seems conservative given the 20% increase in Q1. JDC expects growth to accelerate to more than 20% as of 2023. The expected transfer of contracts to JDC’s platform based on recent new client wins justifies its longer-term outlook of a doubling in revenues to €246m by 2025 and a multifold increase in EBITDA compared to the 2020 numbers.

Valuation

We compare JDC to a group of financial brokers and platform peers. The much larger financial broker Aon and aggregators in the UK like Moneysupermarket.com can be seen as relevant comparisons for the advisory part of the business, although they lack a platform, which is what makes JDC stand out. Compared to these companies, JDC trades at a premium on EV/EBITDA but at a steep discount on EV/sales due to its higher profitability.

JDC’s Advisortech activities are more like a platform business. This part of the business is best comparable to Hypoport, which also offers an independent advisory platform service but for mortgages. Compared to Hypoport, JDC trades at a small premium on 2022e EV/EBITDA estimates, but at a discount on 2023e multiples. On EV/sales there is still a significant discount on both 2022 and 2023 multiples. Hypoport is much more mature with a large share of the German mortgage market. US-listed Goosehead operates a more B2B-oriented insurance platform in the United States and trades at a premium compared to JDC on both metrics.

Although we realise that a peer comparison for JDC is not easy given its diversified profile, we note that the company trades at a 68% discount on FY23e consensus EV/sales compared to platform peers and 57% compared to financial brokers.

After cyber security risk, data integrity risk is the most important risk factor. Negative capital market returns would also put pressure on JDC’s results, as part of the earned commissions are dependent on assets under management.

Exhibit 2: Peer table valuation

Market cap (local currency, m)

FY22e EV/Sales

FY23e EV/Sales

FY22e EV/EBITDA

FY23e EV/EBITDA

Aon

59824.3

1.5

1.2

21.0

14.2

Moneysupermarket.com

970.0

5.4

5.2

17.0

15.9

Netfonds

104.1

2.6

2.3

9.5

7.8

Average financial brokers

 

0.5

0.4

10.0

7.4

Goosehead

1124.1

2.8

2.6

12.2

10.4

Hypoport

1607.9

5.8

4.2

31.5

19.1

Average platforms

 

3.3

2.8

19.7

16.3

JDC Group

256.0

4.6

3.5

25.6

17.7

Premium/(discount) financial brokers

 

1.4

1.1

20.0

13.5

Premium/(discount) to platform

 

-50%

-57%

64%

30%

Source: Refinitiv, priced at 27 May 2022

General disclaimer and copyright

This report has been commissioned by JDC Group and prepared and issued by Edison, in consideration of a fee payable by JDC Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by JDC Group and prepared and issued by Edison, in consideration of a fee payable by JDC Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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