Nib Holdings Limited (ASX:NHF) has announced that it will acquire Australia’s third largest travel insurance provider World Nomads Group. Nib has entered into an agreement to acquire Nomads for $95m on an enterprise value basis.
Shares in bin Holdings (NHF) have declined around 1.5% on the opening and are currently trading at $3.41 (as of 11am AEST). The fall doesn’t surprise as investors reassess the present value of the company following an acquisition and given the fact that the broader market is generally in the red today.
Nib states that the Australian travel insurance industry has been growing at an average growth rate of 9% between 2008 and 2012 and is forecasted to grow at around 6% through 2016 according to latest figures by Finaccord. Therefore the company believes that the acquisition is strategically well placed and will benefit nib as well as its shareholders going forward.
Nib intends to fund the transaction through surplus capital and debt and therefore does not plan to dilute shareholders in a capital raising. Nib’s gearing ratio will exceed the targeted 30%, however the company feels comfortable doing it for a short period of time in order to fund the acquisition.
Managing Director Mark Fitzgibon said that World Nomads Group “is an excellent business with significant expertise and capabilities in the fast moving travel insurance market”. He is pleased about the people and culture of the company and confident that their “investment in technology and digital strategy is outstanding.”
What’s Wise-owl Take?
nib’s premium revenue is on track to rise for the 13th consecutive year while Earnings per Share (EPS) have risen every year since listing in 2007. However nib operates in a competitive market undergoing structural adjustments, hence growth through acquisitions appears to be management’s strategy to maintain a competitive advantage. Management’s track record in value creation, operations and capital markets is strong as profitable growth remains a key focus.
Completion of the acquisition is expected to be completed by the end of August 2015.
Author: Simon Herrmann
Jul 08, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.