Australian-based specialist risk insurance company Freedom Insurance Group Ltd (ASX: FIG) shares uplifted by 5 percent on 21 December 2018 after proving an update on its earnings expectations for the half year ending 31 December 2018.
The company is expecting an EBITDA loss of between $9.0 million and $10.0 million for the six months ended 31 December 2018. Earlier the company was expecting EBITDA loss of between $7.0 million and $8.0 million. The lower than anticipated net Revenue, higher commission clawbacks and higher one-off external consultant costs are the main reasons behind this increase in the expected loss.
Recently on 6 December 2018, the company announced the completion of the strategic review process which was undertaken to examine the company’s business structure and operating model in light of ASIC’s recommendations. As part of the review, the Board found out that, the company might face a liquidity shortfall during CY 2019 due to the timing of payments of commission clawbacks in the absence of receipts of commissions from new business sales. Currently, the company is evaluating various alternative options to solve this problem of potential shortfall. Further, the company is also implementing initiatives to improve operational efficiency and reduce costs.
In the 2018 financial year, the company reported Net revenue of $64.1 million which was 20 higher than the previous corresponding period (pcp). The Group’s revenue includes a mix of commission revenue which includes upfront commission and fees generated by policy sale and ongoing commission and fees; net present value trail commission movement and administration fees related to the ‘in force’ book of policies. The company also reported an EBITDA of $18.7 million which includes $3.3mn profit on the sale of the Noble Oak shareholding, and $1.7mn in transaction related costs. The company earned a Net Profit After Tax (NPAT) of $13.2 million which was 6% less than pcp.
The company’s sales were affected in the first half of FY 2018 due to the lead quality and sales conversion issues; however, after the implementation of various operational improvements, sales productivity recovered in the second half. Total sales in the second half of $32.8 million, were 0.5 percent higher than the second half of FY17. During the financial year 2018, the total number of customer grew by 24 percent to 357k and in force premiums increased by 14 percent to $124.6 million, supported by sales and customer retention results. Higher in force premiums contributed to a $4.0 million increase in trail commissions and administration fees and a $30.2 million increase in the value of the trail asset to $72.8 million.
In the last six months, the share price of the company decreased by 95.60 percent as on 20 December 2018 and traded at a PE ratio of 0.360x. FIG’s shares traded at $0.021 with a market capitalization of circa $4.79 million as on 21 December 2018 (AEST 4:00 Pm).