Analysts give IAG thumbs down, but QBE gets a tick
IAG has been hit by analyst downgrades followings its announcement of a 68% fall in first-half profit at the end of last month.
Merrill Lynch has reduced its earnings per share forecast for IAG by 9% for the 2007/08 financial year, while Goldman Sachs has lowed its estimate by 12%.
Neither firm is recommending investors buy IAG shares, even at the bargain price of $3.59. The insurer’s share price continued to slump after the downgrades, finishing the week at $3.27.
Analysts have also questioned the company’s ability to continue to fund its dividend. At last month’s results announcement, IAG CEO Michael Hawker promised to retain a first-half dividend of 13.5 cents, in the expectation of doubling the company’s insurance margin to 12% in the second half of the financial year. IAG will partly fund the dividend by a dividend reinvestment plan (DRP).
But in a marked departure from the company’s usual policy, Mr Hawker would not be drawn on the second-half dividend.
“I can’t comment on the second-half dividend,” Mr Hawker said. “We will make a determination at the appropriate time.”
In contrast, QBE has received a welcome boost, with UBS recommending the stock as a “buy”. UBS notes the insurer will have an implied price to earnings (P/E) ratio of 10.4 even if its insurance margin falls to 17%, comparing favourably with its current P/E of 9.
QBE has flagged an insurance margin of up to 20% of net earned premium. Its share price has lost almost a third of its value since it announced a 30% rise in net profit to $1.93 billion – 6% shy of analysts’ forecasts – late last month. It closed at $20.58 last Friday.
Merrill Lynch has reduced its earnings per share forecast for IAG by 9% for the 2007/08 financial year, while Goldman Sachs has lowed its estimate by 12%.
Neither firm is recommending investors buy IAG shares, even at the bargain price of $3.59. The insurer’s share price continued to slump after the downgrades, finishing the week at $3.27.
Analysts have also questioned the company’s ability to continue to fund its dividend. At last month’s results announcement, IAG CEO Michael Hawker promised to retain a first-half dividend of 13.5 cents, in the expectation of doubling the company’s insurance margin to 12% in the second half of the financial year. IAG will partly fund the dividend by a dividend reinvestment plan (DRP).
But in a marked departure from the company’s usual policy, Mr Hawker would not be drawn on the second-half dividend.
“I can’t comment on the second-half dividend,” Mr Hawker said. “We will make a determination at the appropriate time.”
In contrast, QBE has received a welcome boost, with UBS recommending the stock as a “buy”. UBS notes the insurer will have an implied price to earnings (P/E) ratio of 10.4 even if its insurance margin falls to 17%, comparing favourably with its current P/E of 9.
QBE has flagged an insurance margin of up to 20% of net earned premium. Its share price has lost almost a third of its value since it announced a 30% rise in net profit to $1.93 billion – 6% shy of analysts’ forecasts – late last month. It closed at $20.58 last Friday.