Income portfolio: Moving Steadfast to a hold

The company continues its stellar run, and we’re watching the price closely.

Insurance broking business Steadfast group (SDF) has produced a stellar share price run since joining the Income First model portfolio back in November. This was catalysed by a strong financial report for the first half of FY16, and seen the company rerate for expectations of an improving insurance premium price environment. SDF has announced that chief executive officer Robert Kelly will remain with the business until at least 2020, and has also reiterated its full year guidance within a presentation at a conference for analysts and fund managers. Despite retaining a positive view on SDF, we are changing the recommendation from buy to hold. This is purely a price versus valuation assessment. The crux of our view is that the market may be pricing in upside to the company’s future through an improving cycle that we have yet to include in our forecasts. Should conditions improve further, as the market appears to be predicting, our valuation will be adjusted higher. For now, we note that the share price exceeds our valuation and thus the call is changed to a hold. Additionally, the strong share price has led to a steep decline in the dividend yield, which sits at around 3.2 per cent (based on a share price of $1.90). This is pushing the lower limited of an acceptable yield for the portfolio, and for inclusion as an income first recommendation. This lower yield reinforces our change to a hold call.

SDF has had a very strong run since it first entered the income first model portfolio on December 7, 2015:



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