QBE Insurance Group Limited 

A Look at FY 2018 Results: QBE Insurance Group Limited (ASX: QBE) had posted cash profit after tax amounting to $715 million in FY 2018 demonstrating substantial improvement from FY 2017 in which it posted cash loss after tax amounting to $262 million. The company’s statutory net profit after tax amounted to $390 million while in the prior year there was a statutory loss amounting to $1,249 million. A key personnel of QBE Group had stated that, in FY 2018, the performance was supported by improved attritional claims experience throughout all the divisions along with reduced catastrophe claims level. However, it got partly offset by the lower net investment yield which got adversely impacted by the market volatility in final quarter.

 
FY 2018 Results Snapshot (Source: Company Reports)

There was a rise in 2018 final dividend to 28 cents per share (franked to 60%) which demonstrates a confidence in the balance sheet as well as improved earnings resilience. It will be payable on 18 April 2019 with the record date of 8 March 2019 and ex-date of 7 March 2019. The company’s financing and other costs amounted to $305 million in FY 2018, while in FY 2017 it was $302 million, and got impacted by foreign exchange and other one-off costs of approximately $30 million in total.

What to Expect From QBE: QBE Insurance Group would remain focused towards attracting as well as developing the high-quality talent and building the company for future by making deployments as well as leveraging data, analytics and technology.  The company’s would be making deployments towards the risk management capabilities, recognising the obligations to meet expectations of shareholders, regulators as well as communities in which it operates.

Stock Recommendation: On the daily chart of QBE, Exponential Moving Average or EMA has been applied and default values were used for the purposes. After careful observation, it was noticed that the stock price has crossed the EMA and had trended in the upward direction. This suggests that the company’s stock price might witness a rise moving forward.

Based on the aforementioned factors, we maintain our “Buy” rating on the stock at the current market price of A$11.960 per share (up 4.181% on 25 February 2019 owing to decent FY18 results).
 

Challenger Limited

Total AUM Rose 2% pcp: Challenger Limited (ASX: CGF) had stated that its half-year results ending December 31, 2018, got impacted by the challenging operating conditions. Its total assets under management stood at $78.4 billion which reflects the rise of 2% on pcp. As per the company’s CEO (or Chief Executive Officer), even though the half-year results reflect the challenging operating environment, the business is in a strong position when it comes to responding current market as well as capture opportunities for the growth in future.  

1H FY 2019 Outcomes (Source: Company Reports)

With respect to the Funds Management business, the company added that a rise in net income was witnessed on the back of higher average funds under management which got partially offset by the lower performance fees. Thefunds management average funds under management witnessed the rise of 9% and stood at $77.4 billion with Fidante Partners rising 8% while Challenger Investment Partners inching up 11%. Besides this, Challenger Limited, a substantial holder of IRESS Limited changed its holding from 7.05% of interest to 5.96% of the voting power on 21 February 2019.

Focus Towards Respectable Dividend Payout Ratio: Challenger Limited has been targeting the dividend payout ratio in the range of 45%-50% of the normalized net profit after tax.  As stated by the company, there are expectations that, in FY 2019, Challenger would not be able to reach the 18% normalized return on equity before tax target because of the lower earnings.

Stock Analysis: On the daily chart of Challenger Limited, Exponential Moving Average or EMA has been applied and default values were used for the purposes. After careful observation, it was noticed that the company’s stock price has crossed the EMA and had moved in the upward direction after the crossover. This suggests that the company’s stock might witness a rise moving forward. In the meantime, the share price has fallen 12.14% in the past three months as of 22 February 2019 and is trading close to a 52-week lower level with an annual dividend yield of 4.27%. Hence, we maintain our “Buy” recommendation on the stock at the current market price of A$8.220 per share (down 1.202% on 25 February 2019).
 

Bank of Queensland Limited

Termination of St Andrew Insurance Sale: Bank of Queensland (ASX: BOQ) had earlier stated that an agreement which relates to the unloading of St Andrew’s Insurance to Freedom Insurance Group had been terminated. As per the release, this decision was mutually agreed with the Freedom Insurance Group after it was clear that conditions related to the transaction would not be satisfied within time limits contained in the sale agreement.

 
Robust Capital Position (Source: Company Reports)

The bank stated that its capital position happens to be robust with the common equity tier one ratio of 9.31%. It added that the customer expectations are rapidly changing with respect to digital experience. As a result, they have made a decision to reap the benefits of the robust position and deploy for the future.

What to Expect From BOQ: Recently, the bank had released an update with respect to trading conditions for half-year ending February 28, 2019 (or 1H FY 2019). Considering the January year-to-date performance, there are expectations that the bank’s 1H FY 2019 cash earnings after tax would be between $165 million-$170 million while, in 1H FY 2018, its cash earnings after tax was $182 million. The income reduction from 1H FY 2018 is large because of non-interest income which is anticipated to be lower by $8 million- $10 million as compared to 1H FY 2018 level of $75 million. This is because of downward pressure throughout fee, trading, insurance as well as other income lines.   

Stock Recommendation: On the daily chart of BOQ, Relative Strength Index (or RSI) has been used and default values were considered for the purposes. After careful observation, it was noticed that the 14-day RSI has reached the oversold levels. As a result, there are expectations that the 14-day RSI would now rebound. Hence, the stock price of BOQ might witness a rise in moving forward. In the meantime, the share price has fallen .63% in the past three months as at February 22, 2019 and is trading close to a 52-week low level of $8.70 with reasonable PE multiple of 10.40x, representing an attractive opportunity for the investors to acquire the stock at the current juncture. Hence, we maintain our “Buy” rating on the stock at the current market price of A$8.910 per share, considering aforesaid facts and current trading level.  

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