Figures show a big improvement at the broker – but the way ahead is bumpy

Peter Blanc’s bullish email to staff, which gives a glimpse of Oval’s full-year results, is encouraging as it clearly shows that the company is on more solid footing. However, it may be slightly too early to break out the champagne, given the challenges facing the broking world as a whole.

The chief executive’s missive revealed that Oval’s earnings before interest, tax, depreciation amortisation and exceptional items (EBITDAE) grew by 16% in the year to 31 May 2012 to £17.7m (2011: £15.3m).  

This is a big improvement on the 7% drop in EBITDAE reported in 2011. The company is moving forward again and has exceeded the £16.5m EBITDAE it reported in 2010.

Even when one-off costs are added back in (or in other words the last E of EBITDAE is knocked off) earnings grew by 4%.

This suggests the restructuring and changes Oval has gone through in the past year, which made up the bulk of the one-off costs, have been both affordable and worth it.

Also encouraging is the £6.1m cut in debt, following a £6.2m reduction in 2011. Net debt in May 2011 was £34.4m – 2.2 times EBITDAE –  and so it looks likely that the latest reduction will bring Oval’s indebtedness close to Blanc’s target range of 1.5 to 2 times EBITDA.

Falling debt against a background of rising profits is an ideal situation, as it means Oval has more cash to pay off a dwindling bill.

The big question now, though, is whether Oval’s actions are enough to sustain it through a period of prolonged downturn and further challenges for brokers.

The UK economy is showing few signs of improving, which will continue to stifle insurance spend, prices, and thus broker revenues.

In addition, brokers generally are still at the mercy of a rising regulatory burden, uncertain about their treatment under the FSA’s replacement agencies, and face the threat of mandatory commission disclosure from the revised EU Insurance Mediation Directive.

Oval has done well to turn itself around, but hopefully it has build in enough shock absorption for the bumpy road ahead.

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