Insurance Australia Group (IAG) Share Trading Recommendation

Submitted by Craig Strzelecki on 19 February, 2007 - 08:05

Insurance Australia Group (IAG) have a Buy 2 share trading recommendation and a price target of $7.05 from analyst UBS. UBS is voicing come opinions on the upcoming 1H07E result. Post positive November data, the analysts are looking for further evidence of domestic improvement with the 1H07E result (Feb 22nd), noting the lag between GWP and reported profit. Consequently our focus will be on top line leading indicators, looking for continued momentum in domestic personal lines. At the bottom line, the analyst sees some downside risk to our 1H07E NPAT forecast (lagged impacts of slower growth and softening commercial rates in previous periods). However, the potential for improved Australian business performance and for creation of additional value in offshore markets (particularly the UK) presents upside risk to their FY07/08/09 forecasts and valuation, in our view.They have a positive view on IAG, noting further upside potential if the SUN/PMN integration is poorly executed. Key risks identified by the analyst, UBS include: (1) stalling of domestic turnaround; (2) extended delay or failure to complete stake in CPPI currently under negotiation; and (3) execution risk as international expansion efforts continue.They figure the value of IAG using an EVA/DCF methodology with key assumptions of 5.25% long-term premium growth, 10% long-term insurance margin, and 9.9% discount rate. They estimate that IAG is trading on a 14.4x FY08E PE.

Insurance Australia Group Limited is listed on the Australian Stock Exchange (ASX) under stock code IAG. You can view their investor website here. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade IAG. Check your charts and good luck with your share trading!

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