QBE Insurance Group Limited

Positive Outlook: QBE Insurance Group Limited (ASX: QBE) is a blue-chip company in the insurance sector with the market capitalization of $13.2 Bn as of July 06, 2018.  In the first quarter, the group experienced a premium rate strength of approximately 4% (excluding CTP) due to Australia & New Zealand Operations, but also with positive rate movements in North America and Europe. Furthermore, the company has launched a program called “Brilliant Basics” which will improve the underwriting quality, pricing, and claims in the market in which it operates its every product that it underwrites. The stock price climbed up marginally on ASX by 0.204% (as at July 06, 2018) due to positive market sentiments as some experts feel that the company will be performing well in the coming months because the June quarter was particularly good for insurers which means there can be profit upgradation in the sector. Meanwhile, the stock was up by 3.49 per cent in the last one month and trading over 52-week low level. The dynamics now seem to be changing to favourable ones given the initiatives at the fundamental level that helped QBE further move up by 0.41 per cent in the last five days. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 9.800, considering positive sentiments developing in the insurance sector in Australia and the group making continuous efforts to achieve improvement in underwriting quality, pricing, and claims.


 Investment Performance (Source: Company Reports)
 

Insurance Australia Group Limited

Profit Booking: Insurance Australia Group Limited (ASX: IAG) has recently agreed to sell its operations in Thailand, Indonesia, and Vietnam for $525 Mn.The company, with a market cap of $19.6 billion, will book $200 Mn NPAT on the sale. According to the management, the sale is to be completed by FY19, with proceeds likely to be returned to shareholders upon completion.  Further, the management stated that the exclusion of these operations will have a negligible impact on gross written premium (GWP) growth for FY18, but it will improve its insurance margin by about 50 basis point. Based on the capital position at 31 December 2017, the sale of Thailand, Indonesia, and Vietnam assets is expected to add at least 13 basis points to IAG’s Common Equity Tier 1 (CET1) ratio. However, the Group has been expecting low-single-digit growth in gross written premium for FY18 on an insurance margin in the range of 15.5%-17.5%.


Optimization Plan (Source: Company Reports)

Over the last quarter, the stock has outperformed among its peer group and rallied up to 9.23 per cent as at July 05, 2018 and is trading close to 52-week higher level. The stock prices slipped by 2.93 per cent in the past one week owing to some volatility and profit booking. Hence, we maintain our “Sell” recommendation on the stock at the current market price of $ 8.280, considering the recent announcement i.e., a sale of Asian asset and other positive updates, already been factored in the price.
 

AMP Limited

Non- Compliance with Regulatory Framework: AMP Limited (ASX: AMP) has recently reported a decent set of results in Q1 2018 wherein the Bank's total loan book grew by 2% and amounted to A$19 Bn. It reported Capital net external cashflows of A$1.6bn driven by cash flows in real assets. Its AWM business’ net cash outflow performance accounted A$200 Mn in Q1 FY18 which is in-line with Q1 FY17 performance, representing the subdued period of activity in superannuation following non-concessional contribution cap changes in 2017. Of late, the Grandfathered Commission inquiry disclosed that the group deceived the corporate regulator for 10 years, provoking the departure of best administration from the firm. Based on the above allegation, Moody’s revised its view on AMP Life's business profile and profitability which will prompt further pressure on earning and profitability of the business. However, the net debt to EBITDA ratio substantially reduced to 12.42x in 1HFY18 from 19.0 in 1HFY17, representing improved leveraging during the same period.


Moody’s Rating (Source: Company Reports)

On the other hand, BlackRock Group ceased to be the substantial holder of the Group since 28 June 2018. As of now, we maintain our “Expensive” recommendation on the stock at the current market price of $ 3.630, considering the aforesaid allegations that have led to weaker sentiments in the investment market.

 
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