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













 
The S&P 500 was up by 10.48points or0.51%on Tuesday to 2051.80 points.   U.S. stocks rose on Tuesday, with the Dow and S&P 500 ending at records as healthcare shares advanced and optimism grew about the global economy. Medtronic Inc. and Actavis Plc rallied more than 4.7 percent to pace gains among health-care companies. Urban Outfitters Inc. dropped 6.6 percent after the clothing retailer posted third-quarter profit that missed analyst estimates. Home Depot Inc. slipped 2.1 percent after failing to raise its forecasts for sales and profit this year amid signs the housing market is cooling.

The euro added 0.7 per cent to $1.2535 after the Zew survey of German economic sentiment rose more than expected. Meanwhile, sterling bounced off session lows to rise 8 basis points to $1.5646 after UK inflation data came in a touch higher than forecast. Tokyo’s Nikkei 225 rose 2.2 per cent, recovering a chunk of the heavy losses recorded at the start of the week after Japan unexpectedly slipped into a technical recession.



MEDTRONIC Daily Chart (Source – Thomson Reuters)
S&P ASX 200 was down by 12.8points or 0.20% on Tuesday and closed at 5399.7 points. Among the iron ore miners,BC Iron fell 10.27 per cent to 65¢, Fortescue fell 6.29 per cent to $2.98, Atlas fell 4.54 per cent to 21¢ and Mt Gibson fell 4.88 per cent to 39 ¢. BHP Billiton shares were down 0.1 per cent to $33.18, whileRio Tinto, which received environmental approval for a iron ore mine in the Pilbara, was down 0.7 per cent to $59.47.
Among the big banks, Australia and New Zealand Banking Group slipped 0.2 per cent to $31.83, Commonwealth Bank of Australia lost 0.05 per cent to $80.95, National Australia Bank dropped 0.06 per cent to $32.37, while Westpac Banking Corp added 0.1 per cent to $32.76. The Australian dollar is trading at US87.25¢, compared with US87.19¢ at Tuesday’s local close.  Iron ore retreated 4.4 percent to $71.80 a dry ton, the lowest level since June 2009.
 

Fortescue Metals Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Insurance Australia Group (SELL)

During the recent Annual General Meeting, Insurance Australia Group (IAG) has illustrated snippets of its remarkable and healthy financial performance for FY14. The Company has three divisions, the Enterprise Operations business providing the platforms, processes and services; Personal Insurance and Commercial Insurance businesses for delivering customer experience.

IAG has been focusing on home markets of Australia and New Zealand, and its efforts to establish a longer term growth platform in Asia have been commendable. Further, the acquisition of the former Wesfarmers business, and the execution of the new operating model in Australia are the key highlights adding to the strong performance.


FY14 Financial Summary (Source – Company Reports)

The Gross Written Premium (GWP) rose by 3% reflecting the low inflation environment. The net profit after tax increased by about 60% owing to the sale of the UK business which was completed last year.


Gross Written Premium Growth (Source – Company Reports)

IAG’s Australia Direct business has been performing well. The higher reported margin of 22.5% indicated higher reserve releases and lower natural peril costs. Other aspects included the strong customer experience and the new advertising campaign that was launched in September. The NRMA campaign has resulted in bettering the customer base.

The Australian intermediated business, CGU, witnessed healthy results with GWP growth of 2.8%. CGU focused on its customers with the launch of the new CGU brand campaign.



Dividend History (Source – Company Reports)

The New Zealand business also continued to perform strongly with local currency GWP growth of nearly 4% coupled with promising foreign exchange movements which led to reported growth of 17%. The integration of AMI also got completed. In fact, New Zealand’s reported margin of 11.5% illustrated an improvement on the prior year. This was witnessed irrespective of the net natural peril claim costs which were above allowances. The recovery of the Canterbury region has also been of importance.

Under the Asia segment, businesses in Thailand and Malaysia witnessed, more or less, a fine performance. The Company witnessed Malaysian business benefitting from a full year’s contribution from the acquisition of Kurnia. However, GWP in Thailand reduced a little in view of the closure of the prior year’s government incentive scheme for car buyers. Strong growth was achieved in India, China and Vietnam. IAG is also emphasizing on having market entry opportunities in Indonesia.


IAG Daily Chart (Source - Thomson Reuters)

Some recent updates include IAG receiving required regulatory approvals from the Commonwealth Acting Assistant Treasurer for its acquisition of the Wesfarmers insurance underwriting business; and approval from the Reserve Bank of New Zealand for the purchase of Lumley General Insurance Limited, the New Zealand portion of the Wesfarmers insurance underwriting business.

The Company reported that it witnessed strong performance during the opening months of FY15. Further, IAG expects to have strong operating performance as per the full year guidance. The GWP growth is expected to be in the range of 17 to 20% in view of addition of the former Wesfarmers business. The Company also expects to deliver a reported insurance margin in the range of 13.5 to 15.5%. In view of the above, we acknowledge the robust performance by IAG. Nonetheless, we opine that it be some more time when we start seeing leaps and bounds of profits from IAG. For instance, the Company expects to realize combined overall pre-tax synergies and benefits of $230 million per annum over a two-year period. It expects to hit the run rate by FY16.


Divisions (Source – Company Reports)

Accordingly, we put a SELL recommendation for this stock at the current price of $6.36.
 

 
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