JDC Group — Accelerating again in FY24

JDC released FY23 results that were in line with its preliminary results reported on 8 March. Revenue was up 10.0% to €171.7m, but below the guided range of €175–190m and our estimate of €182.3m. Nevertheless, EBITDA was in line with the lower end of guidance at €11.7m, compared with guidance of €11.5–13m and our estimate of €12.2m. JDC had a very strong Q423, with a revenue increase of 21.2% to €48.8m and an EBITDA of €5.0m, which is by far the highest level JDC has reached in one quarter so far, driven by a strong gross margin improvement and modest cost development.

Advisortech, JDC’s platform business, saw revenue increase by 13.5% in FY23 (21.6% higher in Q4), while Advisory revenue was 4.3% lower (16.1% higher in Q4). The number of platform transfers more than doubled in 2023 to 498,393 and the annual net premium going through JDC’s platform is now comfortably >€1bn and will reach €1.2bn soon, according to the company. Key customers contributed a €7.5m increase in turnover for JDC in FY23 and accounted for 24.3% of Advisortech revenues. This will be the main driver for JDC’s revenues in the coming years. Nevertheless, independent financial advisers (IFAs) still account for the majority of Advisortech sales (73.8%) and also saw a robust increase in FY23 of €10.7m in revenues.

The commission expense, the amount of commission that JDC had to pass through to its platform members, was flat at 71.2% of total revenues, versus 71.3% in 2022, so the revenue increase was really driven by more contracts on JDC’s platform. Meanwhile cost control was strict with an increase in staff expense of 6%, which we find low for a growing organisation in Germany. Other operating expenses increased 6.3%. The combination of 10% revenue growth with a lower increase in costs resulted in an EBITDA increase of 30.6% to €11.7m. Net income improved to €3.8m from €0.9m in 2021 and 2022.

After the strong Q423, FY24 is off to a strong start as well, driven by new business activity and portfolio transfers to JDC’s Insurtech platform. Nevertheless, Q1 is usually the weakest growth quarter and Q4 the strongest, which is also expected this year. For FY24, JDC expects a return of real estate and financing business as well as more activity in the investing segment, which is mostly the result of the acquisition of Top Ten Group. This results in FY24 guidance of revenues of €205–220m (17% growth at the midpoint) and an EBITDA of €14.5–16.0m (7.2% margin).

Given a guided 17% growth at midpoint this year, FY25 should also see 17% top-line growth in order to meet the target of €246m in revenue that year.

JDC’s financial position is very solid. Where it used to have a net debt position it now has a net cash position of €7.0m. The recently refinanced bond of €19.4m, with a maturity to 2028 and coupon rate of 7.0%, is more than offset by the cash position of €26.4m. JDC has sold all of the shares it had bought through share buybacks to Provinzial (by H123 it had 687k shares). It now has 105k shares from the buyback program started in December. Savings bank-related insurers Provinzial and Versicherungskammer Bayern (VKB) are now 6% shareholders.

German savings bank-related insurers Provinzial and VKB, both 5%+ shareholders, as well as SparkassenVersicherung (SV) are starting to adopt JDC’s insurance platform. The onboarding of Provinzial, the first large savings bank-related insurer contract, seems to be accelerating, especially driven by the good adoption by the Cologne branch. By now, 85 savings banks from Provinzial are onboarded on JDC’s insurance platform. Onboarding of branches has also started at VKB and SV, but is progressing more slowly. VGH Versicherungen from the Niedersachsen region is another savings bank-related insurer that could join the JDC platform this year.

Cooperative bank-related insurance company R+V Versicherung is also expanding its roll-out of JDC’s platform. In 2024, it will expand the running project to 20 branches from four last year. With c 30m customers, this is also a very important client.

The savings bank-related insurers and cooperative bank related insurers are JDC’s most important key customer groups and should contribute c €18m in revenue this year including Finanzguru. JDC expects that these client groups could generate more than €300m in annual revenue once fully onboarded.

On 23 January 2023, JDC signed the purchase agreement to acquire Austrian Top Ten Group, adding another product and client group to its platform. With this acquisition, JDC is expanding its footprint in investment management, where it already had a small position, while gaining control over the technical platform required for this with Top Ten’s software solutions. This software platform can be integrated with JDC’s Insurtech systems.

Top Ten administers €2.0bn in investment portfolios for around 1,000 intermediaries in its network using its own software solutions, generating largely recurring revenues of >€20m and EBITDA of >€0.7m. The company has been consolidated since December 2023 and we have assumed €18m in turnover from this acquisition in FY24.

The acquisition brings significant cross-selling synergies potential, as JDC can offer existing customers further digital services in the asset management, liability umbrella solutions and label funds sectors and service Top Ten’s c 1,000 intermediaries with its Insurtech platform, and vice versa. The acquisition closed in December 2023 and JDC now also has a top 30 position within German wealth managers.

Unlike FY23, FY24 is off to a very strong start in terms of new business activity and portfolio transfers. JDC expects a strong tailwind in 2024: in addition to strong growth in insurance, it expects a return of real estate and financing business as well as stronger new business in the investment sector.

This was already reflected in our expectations. Therefore we have only made slight adjustments to our FY24 estimates, foremost reflecting a somewhat lower comparison base, as the FY23 results were on the lower side of our estimates, and a lower profitability level of the Top Ten Group. Our new estimates are on the higher end of the guided range, with a revenue estimate of €212.9m (€205–220m) and an EBITDA estimate of €15.3m (€14.5–16.0m).

In the next few years, we expect an acceleration in revenue growth for the Advisortech activities, driven not only by key customers, but also by increased growth in the IFA business and Top Ten Group, as well as the joint ventures with Bain Capital/GWL and Gothaer gaining momentum. As a result, we believe the FY25 target of €246m revenues is realistic without further acquisitions. We now expect €250m turnover and EBITDA of €22.3m in FY25, 10% higher than our previous estimates, driven by operating leverage.

During the year, we would expect JDC Group to provide new mid-term targets.

Our DCF analysis results in a value of €34.04 per share, virtually unchanged from €34.09/share in our last report published on 16 August 2023. This is the result of somewhat lower margin estimates on balance compared to our H123 estimates and a net cash position now, compared to a net debt position last year. The most important assumptions in our DCF model are:

Although we realise that a peer comparison is not easy given JDC’s diversified profile, we note that JDC trades at a 22.1% discount on FY25e EV/EBITDA compared to platform peers and a premium of 35.9% compared to financial brokers. Compared to our report in August last year, the premium at which JDC trades for one year ahead estimates compared to financial brokers increased by >20% percentage points (was 15.5%), while the discount to platform peers decreased slightly (was 24.6%). We see this as a sign that the market increasingly perceives JDC as a platform player.