In the first of a series in December, here are two stocks that I think look really well-placed for growth – and that I would be happy to see in my Christmas stocking.
- NobleOak Life (NOL, $1.605)
Market capitalisation: $139 million
12-month total return: –9.3%
Three-year total return: –11.2% a year
FY25 estimated dividend yield: no dividend expected
FY26 estimated price/earnings (P/E) ratio: 7 times earnings
Analysts’ consensus price target: $2.85 (Stock Doctor/Refinitiv, three analysts)
With its beginnings in Australian “benevolent societies” – early community-based organisations that accepted annual contributions and helped members and their families in the event of illness or death – nearly 150 years ago, life insurer Noble Oak floated on the Australian Securities Exchange (ASX) in July 2021, raising $63 million at $1.95 a share, for a market capitalisation of about $160 million market capitalisation. The stock peaked at $2.37 in March 2022, but have struggled since, subsiding to $1.39 by July this year, before commencing a recovery that has lifted it back above $1.60. And the handful of analysts that cover the stock sees plenty of scope for capital gain from these levels.
The company describes itself as “Australia’s fastest-growing direct life insurer.” This means that it sells its product range, which includes life insurance, income protection, total and permanent disability (TPD) insurance, trauma insurance and business expenses insurance direct to buyers, which means no adviser fees. The products suit people and companies that are happy to calculate how much insurance of a particular kind they need, without the greater security of having an experienced financial adviser work this out and negotiate a good rate. The company says it operates in an $11 billion market, with structural tailwinds favouring Direct insurance.
NobleOak sells its life insurance products through a modern digital technology platform, but also has in its direct channel digital marketing and alliance partnerships with the likes of Budget Direct, RAC WA, Costco, and Singapore Airlines’ KrisFlyer program.
In FY24, in-force premiums (where the life insurance policy is active and fully paid-up) grew by 22%, to $387 million – ahead of the company’s guidance of 15%–20% growth – driven by a 14% increase in the active policies the company manages, to 137,000.
In the “strategic partner channel,” in-force premiums surged 25%, to $295.2 million, with the division’s underlying net profit increasing 6%, to $8.3 million. All up, NobleOak’s market share of in-force life premiums increased 0.7 percentage points to 3.3%.
New business in the financial year was up 18% to $54 million, a market share of new business of 12.8%, which the company says is 2.8 percentage points above its long-term target. The company’s lapse rate (the percentage of an insurance company’s policies that have not been renewed by customers) was 11% in FY24, 4 percentage points below the rate of the Australian industry as a whole.
Underlying net profit appreciated by 19%, to $15 million, but statutory net profit (what the company has to report to incorporate one-off expenses or gains) slipped 31% to $9.3 million, largely due to movement in provisions for onerous contracts and one‐off compliance and IT project costs, offset by the impact of interest rates on policy liabilities. But higher interest rates and growth in NobleOak’s investment portfolio drove investment returns up materially to $11.7 million, with the average return on invested assets improving to 4.4% (FY23: 2.5%).
It was an impressive performance, and at the annual general meeting (AGM) in November, NobleOak management gave an FY25 trading update that showed the year was off to a strong start, with in-force premium growth running well ahead of the company’s guidance. For the four months ended October 2024, in-force premium growth was 6%, which equates to an annualised rate of 19%, versus the guidance NobleOak had previously given the market, of 15% growth. To put that in context, the Australian life insurance market is expected to show in-force premium growth of 5% this year.
Analysts see solidly growing net profit (in both cash terms, and reported numbers) over the next three years, but do not see a dividend being paid before FY28 at the earliest. But NobleOak looks very attractive buying, on a single-digit price/earnings (P/E) ratio based on FY26 expected earnings.
- ikeGPS (IKE, 52 cents)
Market capitalisation: $84 million
12-month total return: 20.9%
Three-year total return: –15.1% a year
FY25 estimated dividend yield: no dividend expected
FY26 estimated price/earnings (P/E) ratio: n/a (loss-maker)
Analysts’ consensus price target:
ikeGPS is an American-based, New Zealand-founded company that provides services for measuring, modelling, and managing power and telecommunications assets – particularly the humble pole. Its data capture and structural analysis tools help utilities, engineering firms, and communications companies efficiently acquire and dependably analyse the data needed to properly assess and maintain grid infrastructure.
The technology platform comprises:
- IKE Office Pro: a cloud-based software platform that takes the data acquired in the field with the IKE Device and creates a standardized digital twin of accurate, defendable pole records.
- IKE PoleForeman: structural analysis software that enables utility engineers to efficiently design distribution power and communication networks, thus helping to maintain the integrity of the grid’s physical infrastructure.
- IKE Insight: a tool for gaining actionable insights from new or existing digital imagery or data sources, including drone, LIDAR (light detection and ranging), aerial, satellite, or thermal.
The company’s customers are electric utilities, communications companies and their engineering service providers in North America. ikeGPS currently serves more than 395 customers with subscription products and expects total subscription revenue growth of more than 50% by March 2025. While a small company, it is a little-known success story, with its software products effectively the ‘industry standard.’
In the first quarter of FY25, subscription revenue grew by 29.4%, to NZ$3.23 million: this figure has grown over the last three years at a compound annual growth rate (CAGR) of 41%. The company expects it to increase by more than 40% in the current financial year. Transaction revenue slipped by 15% in the first quarter, to $NZ1.8 million, but over three years, this figure has grown at a CAGR of 23%: based on guidance from long- term customers, the company says it expects transaction volumes and associated revenue to “build into FY25.”
The smallest component of revenue, “hardware and other” revenue, rose by 4% in the first quarter, but the recurring subscription and reoccurring transaction revenues dominate IKE’s revenue mix, at 87% of the total. The company has told shareholders it expects “healthy” total revenue growth in FY25. ikeGPS increased its gross margin in the first quarter of FY25 from 61% a year ago to 70%.
The business model is based on:
- A recurring subscription to access any IKE Solution;
- Additive, re-occurring revenue based on useage (licence seats or transactions); and
- optional value-added products, such as IKE Analyze (driving further transaction revenue), and training and education service via IKE University.
IkeGPS says it is looking at a “25-years-plus “macro-market tailwind for grid resiliency and expansion, in a North American electric utility industry that is currently spending about US$64 billion a year – and “needs productivity solutions, such as IKE’s products. Right now, the company says it has a presence in approximately 6% of addressable customers, but these include eight of the ten largest Investor-Owned Utilities (IOUs) in North America, all multi-billion-dollar businesses – in a market that it estimates to be only 20% penetrated. IKE says this puts it in the right place, at the right time, and with the right technology, team and execution capability.
IKE solutions make fibre (sic) and 5G network deployments faster: and there is expected to be:
- more than US$174 billion expected investment into fibber network development in the US alone over the next five-plus years.
- more than US$29 billion expected investment into 5G network development in the US alone over the next five-plus years; and
- An additional US$35 billion-plus expected investment into rural broadband development as part of the Biden administration’s new infrastructure bill, if that is carried-on by the incoming Trump administration.
ikeGPS says the fibre and 5G investment “super-cycle” in North America is still only in its early stages, even though US$42 billion is expected to be spent in 2025.
Broker Bell Potter expects revenue for FY25 (year to March) to rise by 41.2%, to NZ$29.8 million, but move to NZ$45.7 million by FY27. That is the year in which the broker expects IKE to break-through to net profit. The broker says IKE is well-positioned to support and embed its products within tier-1 utilities and communications firms during multi-decade tailwinds in electrification, grid hardening, and communications capacity investment accelerated by proliferation of power-hungry AI/data centre infrastructure and severe weather events – all of which sum up to a forecast investment into the North American 5G, fibre and rural broadband rollout of at least US$410 billion, in its opinion. Bell Potter has a valuation on the stock of 94 cents. I think ikeGPS looks like a classic undiscovered gem.
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