Operational leverage kicks in

Growing competition and the impact of larger clients are affecting JDC’s gross margin, which came in at 29.1% in FY24 versus 30.8% in FY23. Nevertheless, JDC continues to expand its margin in absolute terms. Between FY20 and FY24, gross profit rose from €33.7m to €64.3m. This €30.6m rise outpaced the €22.4m increase in the cost base, generating operational leverage. As a result, the EBITDA margin on gross profit, which we consider a better KPI than revenue, improved from 15.1% to 23.5%. On total revenue this was an increase from 4.2% to 6.8%. As the platform scales further, this effect is expected to strengthen.

2030 outlook conservative

We believe JDC’s 2030 outlook is realistic but conservative. It implies roughly a doubling of revenue over five years from FY25 and a 2.3x increase in EBITDA at the midpoint of guidance. This aligns with the five-year guidance provided in FY20, projecting a doubling of sales and EBITDA multiple expansion, both of which are on track to be realised. Assuming moderate growth at major customers and Independent Financial Advisory (IFA) growth levelling off to 10% by 2030, JDC should achieve the top end of the new guidance. For the Advisory business, we conservatively assume only 5% growth in this scenario. Furthermore, the 2030 outlook implies EBITDA growth from €15.1m to €40–50m and, based on our assumptions, the upper limit of this should be attainable.

Valuation undemanding

JDC trades at an FY25e P/E multiple of 29.0x and an EV/EBITDA multiple of 13.7x, based on our estimates. The discount to its platform peers on FY25e EV/EBITDA widened from 22.1% to 40.5% at the time of our last update note and has since increased further to 44.5%. While Hypoport’s valuation has decreased, US-based Goosehead’s valuation has risen further to 28.6x EV/EBITDA in FY25e. Given JDC’s growth profile and operating leverage, we would expect its valuation to increasingly align with its platform peers. Our DCF valuation stands at €34.56 per share.

Results in line with preliminary numbers

JDC reported revenue growth of 28.4% to €220.9m, for the most part organic, but with some contribution from the acquisition of Top Ten Financial Network (Top Ten) in December 2023. At the divisional level, Advisortech revenue increased 30.6% to €197m, with major customer growth of 30.6% and impressive IFA growth of 31.5%. A significant portion of Top Ten’s revenues is included in the IFA growth figure. Advisory revenue increased 16.8% to €38.8m.

Looking at the different income streams, commissions on investment funds, the core business of Top Ten, increased by 56% or €29.7m. Insurance commissions increased 17% by €18.4m. Follow-up commissions (commissions received periodically after the initial commission when insurance contracts are retained) on investment funds increased 60.5% to €50.2m. This is an important source of recurring income for JDC although the total amount of recurring income is higher, as part of the initial commission also is of a recurring nature.

Gross margin pressure has been visible for some time, with clients getting bigger and competition from players like Blau Direkt and Fonds Finanz increasing as the market matures and consolidates. As a result, gross margin decreased to 29.1% in FY24 from 30.8% in FY23. The integration of Top Ten had a further negative impact on EBITDA margin, with an associated cost of €0.8m for the year, bringing EBITDA to €15.1m, which was at the lower end of the guidance range of €14.5–16.0m. Excluding Top Ten’s integration costs, EBITDA was €15.9m.

Pre-tax income doubled to €7.5m versus FY23, but net income only increased by 54.9% as the company has now begun reporting income taxes. EPS was €0.43, up 56.3% compared to €0.28 in FY23. Although JDC does not pay dividends, it completed a share buyback programme last year and now holds over 1% of its outstanding shares.

Management has issued FY25 guidance of €245–265m in revenue and EBITDA of €18.5–20.5m. This implies revenue growth of 15.4% at the midpoint of guidance and a 22.6% increase in EBITDA compared to FY24, adjusted for Top Ten’s integration costs. Growth should be driven by rising insurance prices, the transition of key customers, organic growth and operational leverage.

Scaling effects becoming more visible

We believe that gross margin is a better key performance indicator (KPI) than revenue, as it represents the net amount of money coming in after payments to its platform users. Gross profit, in absolute terms, has increased from €33.7m in FY20 to €64.3m in FY24.

The large increase in gross profit of €30.6m compares to a more limited increase in the cost base of €22.4m between 2020 and 2024. Measured on gross profit, the EBITDA margin increased from 15.1% to 23.5% in FY24. On total revenue this was an increase from 4.2% to 6.8%. As such, the effects of scaling up are becoming more pronounced, and we expect this trend to continue in the coming years.

As the integration costs for Top Ten subside, we expect the cost base to increase more modestly compared to FY24, while gross margin continues to expand. This will further enhance operating leverage.

Driven by the ongoing revenue growth in the Advisortech division (we expect 17.2% growth), we forecast total revenue growth of 16.3%, or €256.8m, in FY25, roughly in the middle of the €245–265m guidance. Advisortech growth will be driven not only by major customers but also by the IFA business, Top Ten and the Summitas joint venture (JV; with Bain Capital Insurance and Great-West Lifeco), which is gaining momentum. For FY26, we assume revenue growth of 18.6% in Advisortech, and for Advisory we see growth levelling off to 5%, from 10% in FY24.

We estimate FY25 EBITDA of €19.5m, compared to €15.1m in FY24, reflecting the absence of Top Ten’s integration costs, partly offset by higher expected staff costs. Our estimate is in line with company guidance of €18.5–20.5m. We expect FY25 EBIT of €12.8m and EPS of €0.68.

For FY26 and FY27, we estimate revenue growth of 15.3% and 14.8%, respectively, mostly driven by the increasing conversion of insurance policies at major customers. Gross margin is expected to stay stable at 27%. Although the cost base is, for the most part, fixed, we anticipate rising staff costs and therefore estimate EBITDA of €24.8m in FY26 and €30.8m in FY27. As a result, the EBITDA margin on gross profit is expected to increase to 32.4% by FY27, marking an almost nine percentage point increase compared to FY24, further demonstrating operating leverage. EPS is anticipated to rise from €0.43 in FY24 to €1.00 in FY26 and €1.37 in FY27.

Hidden value in Summitas JV

The income from the companies acquired through the Summitas JV is still quite insignificant, as can be seen in the income from investments line (€0.019m) in the annual report. However, this number only represents the income of JDC’s participation, which is significantly levered, and not the insurance policies the acquisitions deliver to JDC’s platform, which we expect is significantly higher.

Since its inception in FY22, a significant amount of equity has built up in the JV. JDC has a 10% stake in the entity, which it operates together with Bain Capital Insurance (65%) and major shareholder Great-West Lifeco (25%, via Canada Life Irish Holding). This can be seen in JDC’s FY24 balance sheet, where non-current financial assets have grown to €9.2m from €2.6m in FY23, with Summitas accounting for the majority. Given this, at least €92m in equity has been invested, bringing the JV closer to its original €150m equity investment cap (set in FY22), with the total investment expected to reach several hundred million euros.

As the JV approaches its investment limit, with around €100m in remaining investments (€50m equity/€50m debt), we foresee three possible scenarios:

1. Summitas is sold to another private equity firm;
2. Summitas increases its investment limit; or
3. JDC secures another co-investor.

Whatever the outcome, this will be a trigger event for JDC. In the first scenario, JDC would exit and potentially realise a sizeable profit on its investment as the broker M&A market is highly active in Germany. In the second and third scenarios, JDC would benefit from increased platform traffic, which would also be a positive, while a future exit with a larger entity could lead to a higher exit multiple.

As the JV is not realising direct profits, we believe it is not valued by investors. Assuming a money multiple of 1.7–2.3x, we expect JDC’s stake to be worth between €25m and €35m when fully invested. This is still well below the 3x multiple that private equity firms usually target for insurance broker M&A deals, according to consulting company MarshBerry. This represents more than 10% of JDC’s equity value, or €1.82–2.55 per JDC share.

FY30 targets seem conservative

JDC has issued new medium-term guidance of €450–500m in revenue, with EBITDA of €40–50m by 2030 (see Exhibit 4). This implies roughly a doubling of revenue in five years and 2.3x FY25e EBITDA at the midpoint of guidance. This is comparable with the five-year guidance (provided in FY20) of a doubling of sales and a multiple expansion of EBITDA, which we believe will be reached this year. In FY20, revenue was €122.8m and EBITDA was €5.1m.

During the post-results conference call, management indicated that no material M&A is needed to reach the target, although M&A is certainly on the agenda. With tailwinds from the underlying trends of digitisation, regulation, demography and consolidation, and a current market share of around 0.6%, JDC expects the revenue target to be conservative. The expected progress of the EBITDA margin is less than in the previous five-year period as the market is maturing.

We estimate roughly €500m in revenue by FY30, assuming growth at major customers levels off from 30.6% in FY24 to 15% by 2030. Furthermore, we anticipate revenue growth at IFA levelling off from 31.5% in FY24 (mostly due to Top Ten) to 15% in FY25, and down to 10% by FY30. For the Advisory business, we pencil in 5% growth in this scenario in all years. We see this scenario as conservative as the transformation at major customers still has to gather momentum and JDC has indicated previously that these clients (VKB, Provinzial and R+V Versicherungen, among others) alone could contribute over €300m in revenue. Under our scenario, revenue from these customers is estimated at €157m, potentially understating their full impact.

Furthermore, the 2030 outlook anticipates EBITDA growth from €15.1m to €40–50m. Assuming the cost base grows around 10% every year and the gross profit margin remains stable at c 27% after FY27, the upper limit of this outlook should be attainable.

Valuation undemanding

Our DCF analysis results in a value of €34.56 per share, from €34.04 per share previously. This change is due to rolling our model forward by one year and adjustments to our longer-term estimates in line with FY30 guidance. The most important assumptions in our DCF model are:

• We only consider organic revenue growth, although we expect JDC to remain active in M&A. We anticipate organic revenue growth to increase over the next few years and then level off after our explicit forecast period to 10% as adoption of the platform by retail clients increases, before stabilising at a terminal growth rate of 2.5%.
• We expect the EBITA margin to improve from 1.9% in FY22 to 7.7% in FY26, as JDC benefits from platform effects and operational leverage. After FY26, the EBITA margin should increase to 10%, driven by operational leverage.
• We assume an effective tax rate of 32%, based on the corporate tax rate in Germany, starting at a lower level as a result of JDC’s tax shield.
• We use a beta of 1.5x to reflect the relatively low-risk IFA/Advisory business, offset by more uncertain key client developments.
• We assume a risk-free rate of 3.0% and a market equity risk premium of 5.0%, delivering a weighted average cost of capital of 9%.
• We have excluded treasury shares from our calculations.

Looking at a peer analysis, which is difficult given JDC’s diversified profile, we note that the company trades at a 39.3% discount to platform peers on an FY25e EV/EBITDA basis and at a premium of 99.6% compared to financial brokers. We have excluded Aon from our comparison because of its much larger size and different position, which has lowered the average multiples of financial brokers and hence has led to a higher perceived discount for JDC.

The discount to platform peers has widened from 22.1% in early FY24 to 40.5% in our last update note in August 2024 and has now stabilised at 39.3%. While Hypoport’s valuation has decreased, it is still significantly higher than JDC’s valuation and US-based Goosehead’s valuation has risen further to 27.0x FY25e EV/EBITDA. Given JDC’s growth profile and operating leverage, we expect its valuation to move increasingly in the direction of its platform peers.