JDC Group — Strong results in a difficult market

JDC reported FY22 results that were generally in line with its preliminary results on 9 March. Revenue came in at €156.1m (+6.3% y-o-y), at the lower end of the guided range of €155–165m and lower than consensus estimates (€161m). EBITDA amounted to €9.0m, compared with guidance of €7.5–9.5m (consensus €8.8m) and €8.9m in the preliminary results.

In Q422, revenue declined by 7.7% to €40.4m, mainly due to lower life insurance, investment products and construction/real estate financing, driven by decreasing consumer confidence in Germany towards the end of the year. This is a trend that started in Q3 and led to a downward revision of guidance in November.

Advisortech revenue increased by 9.8% in FY22 (but fell by 4.6% in Q4), while Advisory revenue was 2.7% lower (13.3% lower in Q4). In particular, life insurance activities suffered in Q422, especially compared to the strong Q421. This affected revenues from the independent financial advisor (IFA) part of the business (6.2% growth in FY22). The largest key clients (27.6% growth in FY22) grew in Q4 and this is where JDC’s growth should come from in the next few years. Key client revenues now amount to €29.1m, or 19% of total revenues.

FY23 started well for JDC (January was still weak, but February and March were strong) and the company now expects turnover of €175–190m and EBITDA of €11.5–13.0m. At the midpoint, this equates to revenue of €182.5m and EBITDA of €12.3m, or 16.9% revenue growth and 36% EBITDA growth. On average, 17% top-line growth per year will be needed to meet the 2025 target of €246m in revenue.

JDC’s net debt at end FY22 amounts to €3.0m. Interest-bearing liabilities of €19.7m (largely from a bond) are partly offset by a cash position of €16.7m. JDC also has 687k (H1: 546k) shares due to buyback programmes, which provides a solid financial position.

JDC’s insurance platform can be sold either as a white-label product with the client’s look and feel or as a separate service, for example www.allesmeins.de and direct customer platform www.geld.de. Through the platform, private individuals/intermediaries can select, add and service insurance policies from almost all insurers active in the German market, in a simple app that also provides a comprehensive overview of an individual’s insurance portfolio.

Larger German financial institutions, ranging from savings bank-related insurers like Provinzial and Versicherungskammer Bayern (VKB) to company in-house insurance brokers (eg Lufthansa/BMW/Volkswagen) are starting to adopt JDC’s platform or have already done so in the last few years. These clients are JDC’s major or key customers. In FY22, they generated nearly 20% of the company’s total turnover and this percentage is expected to grow rapidly, as adoption progresses and more insurance contracts are transferred to JDC’s platform.

The savings bank and cooperative bank-related insurers in particular provide a large opportunity for JDC. The company expects these client groups to generate more than €300m in annual revenue once fully onboarded and as such these groups are vital if JDC is to reach or exceed its longer-term guidance.

The onboarding of Provinzial, the first large savings bank-related insurer contract, is on track, with more than 50 banks onboarded (with around 30 more to go). However, contract transfers to JDC’s platform (which generate turnover for JDC) are much faster at some branches than others. For example, Cologne (one million customers, balance sheet total €30bn) is the branch with the best adoption of JDC’s platform. This branch will roll out JDC’s S-Versicherungsmanager to all savings bank branches as the sole insurance platform for all retail activities. Provinzial’s clients will contribute €3–5m in revenue this year alone, according to JDC management.

Onboarding has not yet started at VKB and should start this year at cooperative bank insurer R+V Versicherung. All in all, savings and cooperative bank-related insurers should contribute c €10m in revenue this year compared to €5m in the last year.

JDC Group is constantly looking to add more client groups to its platform, as adding volume brings strong operational leverage. After winning in-house brokers from Lufthansa (Albatros) and BMW, JDC Group added insurance companies from large savings banks and cooperative banks, as well as, for example, internet platform Finanzguru and agency networks of insurers like Gothaer.

The joint venture with Bain and 27% shareholder GWL, initiated last year, is another opportunity for platform growth. In this deal, JDC can co-invest (we estimate c 10% of the equity) with Bain/GWL to acquire larger insurance brokers in Germany and Austria (we estimate €1m+ in revenue). The acquired brokers will consequently be plugged into JDC’s platform through service agreements. JDC expects to close three to five deals with the Bain/GWL joint venture this year. The first could be announced as soon as the end of April.

In late 2022, JDC Group’s unit Jung, DMS & Cie signed a purchase agreement to acquire Top Ten Financial Network Gruppe, adding another product and client group to its platform. Top Ten administers more than €2bn in investment portfolios for around 1,000 intermediaries in its network using its own software solutions, generating largely recurring revenues of around €20m.

The acquisition price was not disclosed. The transaction is expected to close in mid-2023. With this acquisition, JDC is expanding its position in investment management (it already has portfolio management activities in its Advisortech division), while gaining control over the technical platform required for this. Top Ten’s software solutions can be integrated with JDC’s Insurtech systems. This brings significant cross-selling synergies, as JDC can offer existing customers further digital services in the asset management, liability umbrella solutions and label funds sectors and service Top Ten’s c 1,000 intermediaries with its Insurtech platform and vice versa. Top 10 is likely to start contributing to revenues from Q3/Q423.

Building a revenue model around a platform business is always subject to a high degree of uncertainty, as adoption is generally unpredictable, while JDC’s revenue model is also changing quickly. In the next few years, we expect an acceleration in growth for Advisortech activities, not only driven by key clients, but also by increased growth in the IFA business. This is a result of the joint venture with Bain/GWL gaining momentum, as well as the partnership with Gothaer. As a consequence, we believe that the FY25 target of €246m revenues is realistic without further acquisitions. We have introduced FY25 estimates in this note (see Exhibit 4).

In FY23, we estimate that Advisortech revenues will increase by 16.1% to €154.3m, fuelled by 25% growth at key clients and 14% in the IFA business. In Advisory, we expect revenues to increase by 15% to €39.9m, as this division recovers from a weak 2022. After 2023, we expect revenue growth in Advisory to return to a more normalised level of 5%.

Compared to our previous estimates, our revenue forecasts are 5–6% lower and our EBITDA forecasts 7–12% lower in FY23 and FY24. This is due to the lower comparison base in 2022 as a result of a more difficult market environment and slower roll-out, especially at VKB and Provinzial.

JDC’s cost base is relatively stable and we have pencilled in 15% higher staffing costs, driven by higher pay rates and an increase in personnel to assist the growth in transfers of insurance contracts to JDC’s platform. We expect other operating expenses to grow by 3–4% in the next few years. As a result of fast-growing revenues, compared to a slower increasing cost base, we estimate that EBITDA will almost double over the next two years to €17.4m. We see D&A increasing by 5–10% in the next few years. JDC’s corporate tax rate will be 15–20% (we have assumed 20%), as it has deferred tax assets of €2.5m. As a result, we expect net profit will increase to €6.9m by 2024 from €0.9m in 2022.

Our DCF analysis results in a value of €32.51 per share, down from €36.40 in our last report published on 21 November 2022. This decrease is the result of our lower estimates. The most important assumptions in our DCF model are:

We see financial broker Aon and aggregators in the UK such as Moneysupermarket.com as relevant comparators for the advisory part of JDC’s business. Compared to these companies, JDC trades at a premium on EV/EBITDA but at a steep discount on EV/sales for the next two years due to its higher profitability. Compared to our report introducing forecasts published on 14 July 2022, the premium on EV/EBITDA has decreased, while the discount on EV/Sales has increased.

JDC’s much bigger Advisortech activities are essentially a platform business. This part of the business is most comparable to German mortgage specialist Hypoport, which also offers an insurance platform, and US-based Goosehead, which offers an independent advisory platform service. We have not included US-based Lemonade in our peer comparison as it is not yet EBITDA positive. Compared to the average multiples of Goosehead and Hypoport, JDC’s discount on FY23 EV/EBITDA now is 20.4% compared to 9.3% in July 2022.

Although we realise that a peer comparison is not easy given JDC’s diversified profile, we note that JDC trades at a 67% discount on FY24e consensus EV/sales compared to platform peers and 68% compared to financial brokers.