In today’s daily we have covered stock research on IAG (HOLD).

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TheS&P 500 was down23.45points or 1.18%on Thursday.   The S&P 500 posted its biggest one-day percentage decline since April 10 as news of a Malaysian Airlines passenger jet crash near the Ukraine-Russia border sent shivers across markets. After the bell, shares of Google fell 1.66 percent following the release of its results and news that its chief business officer is leaving the company.

Equities extended losses in the final hour of trading after Israel sent ground forces into the Gaza Strip in a military offensive intended to stop the barrage of missiles fired by Hamas. Gold was a major beneficiary of the heightened mood of nervousness. The metal jumped $20 or 1.6% to $1319 a troy ounce. Across the Atlantic, the FTSE Eurofirst 300 index fell 1% while theXetra Dax in Frankfurt shed 1.1%.


Google Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was up by 3.5 points or 0.06%on Thursday and closed at 5522.4 points. Chorus (CNU) has entered into an conditional agreement with Crown Fibre Holdings (CFH) to bring forward the existing funding in the build of ultra-fast broadband network. Resource Equipment Limited (RQL) has appointed Andrew Aitken as its new Managing Director and Chief Executive Officer. Guildford Coal has received an offer from a Singaporean company listed on SGX to acquire all of its Australian coal assets.

Corum Group has declared an unfranked interim dividend of 0.6 cents per ordinary share with an ex-dividend date of Wednesday 13^th August 2014. Federal Court of Australia has approved the scheme of arrangement for acquisition of issued shares of David Jones by Woolworths Holdings Limited of South Africa. AGL has advised that based on unaudited results its FY14 NPAT is expected to be in line with market consensus of $561 Million. The top performer on ASX 200 was Buru Energy (BRU). To read our latest report on Buru Energy – Click Here


BRU Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 



Stock of the Day – Insurance Australia Group   (IAG)

We believe IAG’s business is currently in good shape and the flagship personal lines division is well positions to defend its dominant market position. Looking forward while we consider IAG’s insurance margin to be sustainable in the near term, gross written premiums (GWP) growth is likely to be minimal for IAG and with an increased exposure to commercial lines post the Wesfarmers acquisition there is potential for GWP decline in our view.


IAG NPAT  (Source – Company Reports)

India’s new BJP government has recently stated in its first budget that it would increase the foreign ownership caps on insurers to 49% to encourage foreign investment. IAG has a joint venture with state Bank of India. Currently the SBI General business writes about A$200m of GWP, and annualizes an A$7m loss. In the light of the ownership rule changes we think it is very likely that IAG will exercise this option (could cost on our estimates about $150m).


IAG Dividend (Source – Company Reports)

IAG had stated very tough targets for its Asian operations of 10% of Group GWP by 2016 and 15% ROE pre development costs by 2017. In our view the ROE target is increasingly unlikely with larger loss making operations in India  and any future  (likely to be low ROE) business in Indonesia (although both may be good for long term value).


IAG Daily Chart (Source – Thomson Reuters)

IAG said at a previous result that its investment in Asia was $865m. With the potential acquisitions in Indonesia and India this could increase to over $1bn, implying a target $150m NPAT vs current of around $30m. The potential upside from Asia we think will take substantial time to be reflected in the share price and less patient equity investors may point to low ROE’s particularly given some of the difficulties in the Thai economy/ political environment affecting one of their largest operations. The main focus over the coming year will be on the targets for insurance margins for the combined IAG/WES business. We put a HOLD recommendation on the stock at the current price.
  

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