QBE Insurance Group Limited

QBE Details

Anticipating Higher Catastrophe Claims: QBE Insurance Group Limited (ASX: QBE) is a general insurance and reinsurance company based in Australia. The company offers commercial, personal and specialty products and risk management solutions. QBE has reported recent catastrophe events in 1QFY21. Texas is experiencing power outages and water damage from burst pipes due to winter freeze in mid-February 2021. Moreover, flooding in the Hawkesbury-Nepean Valley has been witnessed. Cyclone Seroja in Western Australia has resulted in property damage and power outages. QBE expects catastrophe claims of ~$260mn, which is above the allowance of $180mn for the 1QFY21 and above ~$230mn of catastrophe claims in 1QFY20.  

FY20 Financial Highlights: QBE has registered an increase in its revenue to US$14,008mn in FY20 against US$13,257mn in FY19. The company has incurred a loss of US$1,511mn in FY20 due to significantly reduced investment return, Covid-19 costs and higher than anticipated catastrophe claims. QBE has seen an increase in its cash balance to US$766mn as on 31 December 2020 against US$547mn as on 31 December 2019.

Key Metrics (Source: Analysis by Kalkine Group)

Key Risks: The company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. The company deals in insurance for its clients. Therefore, any adverse climatic conditions may pose a risk of settling higher claims that may impact the company's financials. 

Outlook: QBE remains focused on creating a customer-centric business that a modern technology infrastructure will support. Moreover, portfolio optimisation is likely to be a key area of focus in FY21 for QBE for business improvement under challenging conditions.

Valuation Methodology: Price/Book Value based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of QBE gave a return of ~11.36% in the last one month and a return of ~19.88% in the last three months. The current market capitalisation of QBE stands at ~$16.13bn as of 2 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$7.88~$11.10. On the technical analysis front, the stock has a support level of ~$10.439 and a resistance of ~$12.005. We have valued the stock using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a muted outlook for FY21 and adverse climatic risks resulting in higher claims. For this purpose, we have taken peers Suncorp Group Ltd (ASX: SUN), Insurance Australia Group Ltd (ASX: IAG), AUB Group Ltd (ASX: AUB) to name a few. Considering the company has incurred a loss in FY20, anticipation for higher claims due to adverse climate in 1QFY21, volatile price movement in the past months, current trading levels and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $11.12, up by ~1.645% as on 2 June 2021.

QBE Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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