QBE Insurance Update

Submitted by Craig Strzelecki on 5 April, 2007 - 18:01

QBE Insurance have a reiterated Outperform recommendation and a 12 month price target of $35.08 per share from market analyst Maquarie Research Equities. Yesterday, QBE held its 2007 AGM, where management confirmed recent guidance at the FY06 result is unchanged. The analyst has said that yesterday's comments may "slightly enhance consensus Earnings Per Shares (EPS) forecasts", and accordingly, reiterate their outperform recommendation. FY07 guidance provided with the release of the FY06 result is unchanged:
(1) 17.5–18.5% FY07 insurance margin.
(2) 30% increase in FY07 Gross Written Premium (GWP) and 40% increase in FY07 Net Earned Premium (NEP) (subject to no regulatory delays in settling recent US acquisitions)
(3) 20% increase in FY07 NPAT and 15% increase in diluted EPS (with
capital gains on equities at a lower level than the past two years)

QBE Insurance management have reiterated that 2007 guidance is premised on average rate reductions of 3%. This does not specifically refute recent speculation that pricing has fallen by more than the 3% allowance, but if this has in fact been the case, management does not view it as material enough to warrant any change to existing margin guidance. The equity component of the US acquisition funding package has been reduced to less than $1bn from $1.3bn previously. This implies no further equity issuance and so the next two dividends will no longer be underwritten, resulting in just under 40m shares being issued, relative to the 60m originally envisaged by QBE. QBE does not contemplate any further major US acquisitions for at least the next 18 months, although it is investigating a number of small acquisitions in other countries. Importantly, currency sensitivity was provided for the first time. A 1% change in the A$ relative to all currencies (sustained for 12 months) equates to a FY07 NPAT impact of ~$10m, or 0.5% based on the anlayst's FY07 NPAT forecasts. This disclosure should alleviate any exaggerated fears regarding excessive adverse leverage to recent A$ strength. QBE also stated that subject to exchange rates, closing gross Funds Under Management (FUM) is expected to be ~$28bn by the end of FY07 and around $30bn by FY08.

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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