𝛼SKNobleOak Life Limited - Sewing the Seeds for Growth
NobleOak Life Limited
Sewing the seeds for growth
NobleOak Life Limited (ASX:NOL) is an independent, APRA-regulated friendly society which manufactures and distributes life risk insurance including term life, income protection, trauma, total & permanent disability (TPD) and business expenses cover. The company’s history dates back to one of Australia’s first benevolent societies, the United Ancient Order of Druids Friendly Society of NSW. NobleOak listed on the ASX in July 2021, raising $62.2m at $1.95/share to give a market capitalisation at listing of $162.7m. Of the IPO proceeds, $32.2m was paid to departing shareholder Avant for its 24.3% stake. Since listing, NobleOak has acquired Budget Direct’s run-off portfolio from Auto & General Services for $3.2m in NOL scrip. The transaction delivered 4,000 policies across the life insurance, income protection and accidental death products and at the time of acquisition had a gross written premium of $4.1m. The acquisition is part of the company’s strategy to add strategic acquisitions while focused on growing organically without taking on excessive risk. NOL has reaffirmed its FY22 profit forecast for $9.03m underlying NPAT.
Business model
NobleOak Life operates across three business lines: Direct Channel, in which mostly Noble- Oak branded policies are marketed and distributed by NobleOak, often through Alliance Partners and without personal financial advice; Strategic Partner Channel which are mostly white-labelled policies marketed and administered by one of NOL’s strategic partners, PPS Mutual, Avant Mutual and NEOS; and Genus, which is the administrator of legacy life insurance portfolios. The company generates revenues differently across each of these business lines. With Direct Channel, NOL earns a margin on retained insurance risk in the portfolio, while its Strategic Partner Channel generates additional management fees for providing services such as product manufacturing and claims handling. With Genus, NobleOak earns an administration fee for administering the portfolio’s life insurance books.
H1 FY22 exceeds prospectus forecasts
NobleOak delivered a 47% increase in H1 FY22 underling NPAT to $4.6m, exceeding its prospectus forecast for NPAT of $4.13m, or 11%. The company generated 59% in-force premium growth in the half year to $226.5m and ended the half with a 54% increase in active policies which now stand at more than 94,000. NOL’s in-force premium growth was 12% ahead of prospectus forecast driven in particularly by its strategic partner segment which increased in-force premiums by 79.0% to $162.8m. The company’s direct channel segment grew in-force premiums by 23.8% to $63.7m in H1 FY22. In-force premiums are the key value driver for the company, and benefitted from strong sales and continued low lapse rates. New business generated in the half grew 27% on the previous corresponding period (pcp) to $40.2m and exceeded prospectus by 24%. Direct channel contributed $2.58m to underlying H1 FY22 NPAT, while the Strategic Partner channel delivered $1.45m and Genus $0.56m.
Tower Ltd is the closest peer in market size
ASX/NZX-dual listed Tower Ltd (ASX:TWR) is the closest peer in terms of market capitalisation, although unlike NOL, it is an insurance broker and does not manufacture or distribute products. TWR is currently trading on a Price/Earnings ratio of 14.4x, which is at a discount to NOL’s FY21 21.6x.
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