Stocks’ Details
 

AUB Group Limited

Positive Progress on Strategic Initiatives: AUB Group Limited (ASX: AUB) is focused on insurance broking, underwriting agency and risk management businesses. As on 9 April 2020, the market capitalization of the company stood at $694.63 million. During 1H20, the company witnessed strong performance driven by organic growth, whilst making positive progress on strategic initiatives. During the half year, the company reported an increase of 25% in adjusted NPAT to $21.3 million and a growth of 12% in adjusted earnings per share to 28.96 cents. The company has also strengthened its value proposition by implementing market-leading technology capabilities and has simplified the scale of its portfolio which will accelerate opportunities to leverage scale and target new growth markets and segments.


1H20 Financial Summary (Source: Company Reports)
 
What to Expect: The company has made positive progress to realize internal efficiencies and implement strategic initiatives. The company expects flattened New Zealand premium growth rates. AUB is making significant progress against FY20 Strategic Initiatives with the aim of driving improved long-term earnings growth.

Stock Recommendation: As per ASX, the stock of AUB is trading close to its 52-weeks’ low level of $9.010, proffering a decent opportunity for accumulation. During 1H20, net margin of the company stood at 12.6%, higher than the industry median of 4.7%. In the same time span, Assets/Equity ratio was 2.02x as compared to the industry median of 5.02x. On TTM basis, the stock is trading at an EV/Sales multiple of 2.3x, lower than the industry median (Financials) of 4.1x. Considering the current trading levels, improvement in margins and decent outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $9.530, up by 1.275% on 9 April 2020. 

QBE Insurance Group Limited

Decent Increase in Premium Rates and NPAT: QBE Insurance Group Limited (ASX: QBE) provides underwriting general insurance and reinsurance risks, management of Lloyd’s syndicates and investment management. As on 9 April 2020, the market capitalization of the company stood at A$11.64 billion. During FY19, the company increased its premium rates to 8.3% from 4.7% in 1H19 which resulted in gross written premium of US$13,442 million. In the same time span, expense ratio of the company decreased to 14.6% from 15.2%. This resulted in an increase in NPAT to US$622 million, up from US$597 million.


FY19 Operating Performance (Source: Company Reports)

Growth Opportunities: The company is focusing on accelerating premium rates and is targeting growth in corporate segment. It will also focus on E&S business and is aiming on improving expense ratio. QBE will continue to implement business continuity plans and will ensure availability of services in the coming years. 

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation

Price to Cash Flow Multiple Based Approach (Source: Thomson Reuters), *1USD=1.61 AUD
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of QBE gave a negative return of 18.35% in the past one month and is inclined towards its 52-weeks’ low level of A$7.130. Despite the unprecedent COVID-19 pandemic, QBE has maintained a strong capital position and has decent liquidity levels. During FY19, expense ratio of the company was 15.4%, lower than the industry median of 30.2%. Considering the current trading levels, decent capital position and improvement in margins, we have valued the stock using Price to book value multiple based illustrative relative valuation method which offers a target price with an upside of lower single-digit (in percentage terms). Hence, we recommend a watch stance on the stock at the current market price of A$9.11, up by 2.36% on 9 April 2020.

 
Insurance Australia Group Limited

Decent Underlying Operating Performance: Insurance Australia Group Limited (ASX: IAG) provides general insurance, including full range of personal and commercial insurance products. As on 9 April 2020, the market capitalization of the company stood at$14.1 billion. During 1H20, the company reported decent underlying operating performance with a slight increase of 1.4% in gross written premium to $5,962 million with an underlying margin of 16.9%. In the same time span, net profit after tax went down by 43.4% to $283 million from $500 million in 1H19.


1H20 Financial and Operational Highlights (Source: Company Reports)

What to Expect: The catastrophic weather events have impacted IAG’s financial performance and thus resulting in lowering of its FY20 reported insurance margin guidance range by 350 bps, to 12.5-14.5%. IAG is focused on building a lean, efficient and modular insurance operation, through its simplification. The company is also increasing its focus on customer engagement and longer-term growth. It is prioritizing top quartile total shareholder return. Despite the global pandemic, the company is maintaining its guidance and expects lower single digit growth in GWP. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of IAG gave a negative return of 19.53% on the YTD basis and a negative return of 4.09% in the past one month. During 1H20, loss ratio of the company was 65.6%, higher than the industry median of 61.6%. Considering the volatility in returns and environment, decline in profit and uncertain outlook, we have valued the stock using price to earnings multiple based illustrative relative valuation method and arrived at an indicative downside of lower single-digit (in percentage terms). For the said purpose, we have considered Suncorp Group Ltd, QBE Insurance Group Ltd, etc., as peers. Hence, we have a watch stance on the stock at the current market price of $6.13, up by 0.492% on 9 April 2020.

Nib Holdings Limited

Decent Profit Margins: Nib Holdings Limited (ASX: NHF) is a private health insurer and underwrites health insurance to the residents of Australia and New Zealand. As on 9 April 2020, the market capitalization of the company stood at $2.22 billion. During 1H20, the company reported an increase of 6.4% in group revenue to $1.3 billion and underlying operating profit of $83.2 million. The current results of the company are indicative of the industry pressures and escalating competition. However, the private health insurance profits remain solid and reported statutory EPS of 12.6 cps. 


Statutory EPS (Source: Company Reports)

Future Expectations: The company is emphasizing on personalization and Honeysuckle Health and have placed a heavy focus on claims and operating efficiency. It is targeting to achieve UOP at least $170 million. NHF also expects M&A possibilities in short to medium term. The company has announced several support packages in response to the COVID-19 pandemic.

Stock Recommendation: As per ASX, the stock of NHF gave a return of 21.16% in the past one month is inclined towards its 52-weeks’ low level of $3.335. During 1H20, Assets/Equity of the company stood at 2.51x, lower than the industry median of 5.13x, indicating a financially stable balance sheet.Hence, we recommend a ‘Hold’ rating on the stock at the current market price of $4.990, up by 2.675% on 9 April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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