QBE Insurance (QBE) Share Trading Recommendation

Submitted by Craig Strzelecki on 23 February, 2007 - 01:54

QBE Insurance (QBE) have an Outperform recommendation and a price target of $32.20 per share which is subject to upgrade from Macquarie Research Equities (MRE). QBE shares are 28 percent higher since last December. The share price target is subject to upgrade reflecting revised US acquisition funding package and prospects for further acquisitions with the post balance sheet capital structure capable of absorbing further acquisitions without significant additional equity. QBE announced a FY06 NPAT of $1.483bn, up 36% from $1.091bn pcp. The final dividend was 55¢ps, up a whopping 45% from 38 cents per share pcp and well ahead of consensus. Gross Written Premium (GWP) was $10.4bn, up 10.5% from $9.41bn and NEP was $8.2bn, up 11% from $7.4bn pcp (consensus $8.42bn, MRE $8.53bn) with the slight disappointment relative to consensus due to currency related weakness and slightly higher outwards reinsurance costs. Investment income on capital was $363m, up 4% from $348m pcp (MRE $389m), reflecting higher average float and strong equity markets tempered by a reduced equity weighting and equity collars. The result itself was unlikely to surprise given quite specific guidance in early Dec and the market's tendency to project above guidance reflecting QBE's historical track record in managing then exceeding expectations. Based on proximity of MRE's existing forecasts to management guidance, at this early stage MRE do not anticipate material earnings changes. Commentary on pricing trends suggests a relatively benign cyclical downturn (at this stage) which bodes well for organic earnings sustainability. US acquisition equity funding package - still coy about details but confirmed they have secured underwriting arrangements for the next three dividend payments (totalling about $1.4 billion) which MRE interpret as giving QBE breathing space (S&P will given them capital credit for the underwriting agreements) to determine the optimal funding mix in due course.

QBE Insurance Group Limited is listed on the Australian Stock Exchange (ASX) under stock code QBE. You can view their investor website here. QBE was listed on the ASX on 28 June, 1973. Find out the meaning of the recommendations in this primer. John Cloney is the Chairman of QBE Insurance and Francis O'Halloran the CEO. The company is involved in underwriting general and reinsurance risks, investment management and the management of the economic entity's share of the NSW and Victorian workers' compensation scheme. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade QBE. Check your charts and good luck with your share trading!

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