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Research: Financials
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.
JDC Group |
Starting to execute on large client wins
Diversified financials |
Spotlight - Update
30 May 2022 |
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JDC Group is a research client of Edison Investment Research Limited |
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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.
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Consensus estimates
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
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Research: Financials
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