JDC Group — Gaining a firm foothold in commercial insurers

FY24 has started successfully for JDC, with strong tailwinds in several areas. After year-on-year revenue growth of 21.6% in Q124, it accelerated to 29.4% in Q2. For H124, revenue growth rose to a very respectable 25.4%. Adjusted for the acquisition of Top Ten Investment Group, organic growth was approximately 19%.

In addition to the robust insurance business, the investment and financing business is contributing to revenue growth, as well as the real estate business. Advisortech continues to be the growth driver for JDC, with 26.5% growth year-on-year to €94.9m. Advisory also had a strong performance, with an increase of 16.9% in H124 to €18.6m. This is the company’s second quarter ever with over €50m in revenue.

The commission expense (amount of commission JDC passes through to its platform partners) increased to 72.6% of total revenue, versus 72.2% in H123. This reflects the larger part of revenues from major clients, as they negotiated more favourable terms with JDC compared to smaller clients.

Staff numbers increased c 5% and staff expense rose by 17.8%. This was partly due to pay rises, but also because of the higher average pay at the newly acquired Top Ten Investment Group. The combination of 25.4% revenue growth with a lower increase in costs resulted in an EBITDA increase of 35.5% to €6.9m. Net income improved to €2.8m, from €1.6m in H123.

JDC’s financial position remains solid, with liquidity of €26.7m and a net cash position of €6.8m. After the completed buyback JDC started in November 2023, it now has 147k shares or roughly 1.1% of the company’s outstanding shares. A new buyback programme has not been announced.

JDC revealed Ramona Evens will join the board as COO from 1 September. Previously, she worked as the managing director (property insurance division) of comparison site Check24. Her appointment increases the board to four members, in addition to CEO Dr Sebastian Grabmaier, CFO Ralph Konrad and CSO/CMO Marcus Rex. We believe that adding members to the board who come from competitors is a healthy development. For example, Marcus Rex has sales and marketing experience from Hypoport, while Ramona Evens brings her managing director knowledge from her time at Check24.

Revenues from large clients, JDC’s most important growth driver, accelerated to 43% y-o-y in H124. The number of transfers on the Advisortech platform (including from IFAs) increased by 45.5% to well over 250k, with an annual written premium on the platform of more than €1.2bn. It seems that the expected acceleration of revenue growth is starting to play out. Adding large pools of potential insurance policy transfers has always been JDC’s growth driver and the company has achieved this by adding major clients to its platform. Although the onboarding process is notoriously slow for some of these large insurers, it is gradually increasing, as we can see through JDC’s transfer numbers.

On 7 August, JDC announced it had added one of Europe’s largest insurance companies as a client. The agency network of the cooperation partner will add over 9k agents and more than 7k agencies for which it can service the third-party insurance business. As such, we believe the client could be Germany’s largest insurer, Allianz. The client will be supported by JDC in the third-party insurance business as a technology and service provider. This is an offering JDC also has for savings bankrelated insurers (eg Provinzial and VKB) and cooperative bank-related insurers (eg R+V Versicherung).

Like with the savings bank and cooperative bank-related insurers, it will take time for the agents of the new client to adopt to JDC’s platform. We believe that JDC now has a dominant position in commercial insurers as the company already has a joint venture with Gothaer Group, one of the top 20 insurance companies in Germany. As a result of JDC’s new client, we expect the faster adoption of other commercial insurers as well. Although the onboarding process has already started, we estimate no revenue from this new client before 2025 because it takes time before transfers of policies lead to commission income.

We have updated our major clients table (Exhibit 2) and outlined the expected path of onboarding. We have also added Summitas Group, which is the joint venture with Bain Capital and major shareholder Great-West Lifeco (GWL) to consolidate the German local insurance broker market. However, the insurance policies will be transferred to JDC’s platform.

Large clients, especially those with over a million customers, should be able to generate more than €20m net turnover each after commission expenses, or over €100m in gross premium turnover. This demonstrates that there is plenty of room for revenue growth at JDC.

In the conference call after the H1 results, Dr Sebastian Grabmaier indicated that he expects to add at least one more large client this year. We anticipate this to be VGH Versicherungen from Lower Saxony, as it is another savings bank-related insurer that could join the JDC platform.

Management reiterated its FY24 guidance of turnover of €205–220m and EBITDA of €14.5–16m. In order to reach the midpoint of its sales guidance of €212.5m, JDC needs to generate at least 22% revenue growth or €106.4m turnover (H124: €106.1m). This seems feasible given the M&A effect of c 10% from the acquisition of Top Ten Investment Group, which was consolidated as of December 2023 and the organic growth was realised in H1. Furthermore, the second half of the year usually is better than the first half and Q4 is traditionally strong quarter as consumers evaluate their insurance portfolios.

We cautiously estimate 30% revenue growth for major clients and 15% growth for the IFAs, which is a significant deceleration compared to H1 (43.0% and 22.3%, respectively). Our estimates now land at the high end of guidance at €220.4m in revenue. In the conference call after the H1 results, Dr Grabmaier indicated that the higher end of the guided range might be reached.

The same is true for EBITDA. The higher expected revenues compensate for higher staff costs (mostly due to the addition of Top Ten Investment Group) and the lower gross margin (as a result of a higher percentage revenues from large clients). Therefore, we have increased our EBITDA estimate to €16.0m. We have assumed a lower tax rate over FY24 (25% previously) as the tax rate was less than 15% in H124. This had a large impact on our EPS estimate, which is now €0.44, up from €0.37 previously.

For FY25, we expect organic revenue growth for Advisortech activities to stay roughly at the same level as this year (c 19%). This will be driven not only by major customers but also by increased growth in the IFA business and Top Ten Investment Group, as well as the joint ventures with Bain Capital/GWL and Gothaer Group gaining momentum. In 2026 we assume growth of 15% in Advisortech. For Advisory, we see growth levelling off to 5%, from 10% in FY24.

With our new estimates, we are above the FY25 target of €246m in revenue. We estimate FY25 EBITDA of €23.3m, which is also somewhat higher than before. We expect JDC to provide new mid-term targets later this year.

Our DCF analysis results in a value of €38.20 per share from €34.04 per share previously. This due to the higher top-line and margin estimates compared to our FY23 forecasts. The most important assumptions in our DCF model are:

Although we realise that a peer comparison is not easily given due to JDC’s diversified profile, we note that JDC trades at a 40.5% discount on FY25e EV/EBITDA compared to platform peers and a premium of 20.8% compared to financial brokers.

In comparison to our report in April, the premium at which JDC trades for one-year estimates compared to financial brokers was much higher, mostly because of JDC’s lower multiple. However, the discount to platform peers increased from 22.1% to 40.5%. This is due to the higher valuation of Goosehead Insurance, which now trades at an FY25e EV/EBITDA of 19.0x (13.2x in April), and it is much more in line with German competitor, Hypoport. Given JDC’s growth profile and operating leverage, we would expect its valuation to move increasingly in the direction of its platform peers. However, this has not been the case in H124.