Stocks’ Details

QBE Insurance Group Limited

1H20 Operational Highlights: QBE Insurance Group Limited (ASX: QBE) is engaged in underwriting general and reinsurance risks, investment management and management of the economic entity's share of the NSW and Victorian workers' compensation scheme. As on 23 October 2020, the market capitalization of the company stood at ~$12.94 billion. During 1H20, the company reported accelerated pricing momentum with an average rate increase of 8.7%. During the half-year, gross written premium went up to $8,041 million, up from $7,637 million in the pcp. The company has recently appointed Richard Pryce as an Interim Group Chief Executive Officer.

1H20 Operational Highlights (Source: Refinitiv, Thomson Reuters)

QBE Response to UK FCA Test Case: With respect to legal issues concerning the interpretation of common business interruption policy wordings, the Court ruled in favour of QBE for two out of three of its notifiable disease policy wordings and in favour of insurers generally with respect to the denial of access policy wordings. QBE’s estimate of its UK business interruption claims exposure to be ~$170 million before allowing for recoveries.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has diversified insurance operations across 27 countries and retains healthy capital metrics with a PCA multiple of 1.80x. As per ASX, the stock of QBE is trading close to its 52-weeks’ low level of $7.130. The stock of QBE gave a return of 12.29% in the past six months but a negative return of 0.11% in the last one month. On a technical front, the stock of QBE has a support level of ~$8.2 and a resistance level of ~$10.69. We have valued the stock using the price to earnings multiple based relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, healthy balance sheet and decent operating performance, we recommend a ‘Buy’ rating on the stock at the current market price of $8.860, up by 0.681% on 23 October 2020.

Suncorp Group Limited

FY20 Financial and Operational Highlights: Suncorp Group Limited (ASX: SUN) provides banking, insurance, wealth and other financial solutions to the retail, corporate and commercial sectors. As on 23 October 2020, the market capitalization of the company stood at ~$11.26 billion. During FY20, the company reported decent financial performance despite the COVID-19 pandemic, demonstrating the financial and operational strength. During FY20, the company delivered a net profit after tax of $913 million and cash earnings of $749 million. The Group also maintains a healthy capital position with excess Common Equity Tier 1 capital of $823 million. The decent financial and operational performance enabled the Board to declare a final dividend of 10 cents per share.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The Group’s three businesses are likely to remain well capitalised, with significant excess capital at the group level. The company is prioritising improving the performance of the core insurance and banking businesses and leverage and build upon data and digital assets. It is also focused on embracing the regulatory change and embed operational excellence programs across the Group.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cashflow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focusing on new possibilities and is accelerating transformation through digitisation and automation. As per ASX, the stock of SUN is trading close to its 52-weeks’ low level of $7.3, proffering a decent opportunity for accumulation. The stock of SUN gave a negative return of 2.56% in the past three months and a return of 2.21% in the last one month. On a technical front, the stock of SUN has a support level of ~$7.89 and a resistance level of ~$10.67. We have valued the stock using the price to cash flow multiple based relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, a healthy balance sheet and decent financial performance and modest outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $8.750, down by 0.569% on 23 October 2020.

Insurance Australia Group Limited

Quarterly Trading Update (For the Period Ended 30 September): Insurance Australia Group Limited (ASX: IAG) is a provider of general insurance, including a full range of personal and commercial insurance products. As on 23 October 2020, the market capitalization of the company stood at ~$11.32 billion. During the first quarter of FY21, the company recorded a low single-digit gross written premium growth despite the softer market conditions and reported capital position above the target levels.

FY20 Financial Highlights: During FY20, GWP went up by 1.1% from $12,005 million to $12,135 million in FY20 but saw a decline of 35.9% in insurance profit to $741 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is focused on achieving an effective risk management system at every level of the organisation and seems well-positioned to manage its business and benefit from the new opportunities.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The pandemic has thrown into sharp relief the fundamental role of insurance. Despite the global pandemic, the company has a resilient business and retains a strong financial shape. As per ASX, the stock of IAG is trading close to its 52-weeks’ low levels of $4.380, proffering a decent opportunity for accumulation. The stock of IAG gave a negative return of 9.02% in the past three months and a positive return of 5.21% in the last one month. On a technical front, the stock of IAG has a support level of ~$4.62 and a resistance level of ~$5.72. We have valued the stock using the price to cash flow multiple based relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, healthy financial position and modest long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $4.840, down by 1.225% on 23 October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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