QBE Insurance Group Ltd (ASX: QBE) has been a constant source of frustration for investors and market analysts for the last four-and-a-half years. After the shares hit $25 in late 2009 during a period of excellent profitability and big dividends, the company has failed to meet earnings guidance at almost every opportunity since.
Wealth Destruction
Since late 2009 QBE's share price has more than halved to $10.85 currently, having hit a low of around $10 at the end of 2013.
Low Expectations
It seems to me that most market commentators believed that QBE would be able to meet this year's guidance. Moving toward the end of July, with no word from management, investors pushed QBE's share price up to nearly $12 on the expectation that maybe this half would be different.
Alas, investors were once again let down and profit for the first half of fiscal 2015 will be lower again than that of 2014. I think it's safe to say that investors' expectations are now at their lowest for QBE.
Long-Term Optimism
QBE's biggest problem boils down to focussing too heavily on expanding the size of the business rather than the profitability of the business. This should be a case study for management teams; investors care not what the revenue is, they want to see earnings growth and reliable earnings growth at that.
Revenue has risen over 50% since 2008, yet the company has swung from a $1.9 billion profit to a $300 million loss. Figure that one out.
Management is typically optimistic that the problem areas of the business have been identified and will be eliminated in due course. The latest downgrade was because of the company's Argentinian arm, the previous one was the US, the one before that, Australian natural disasters.
Some of these events cannot be predicted or fully planned for, but if QBE is to return to its mantle as Australia's best insurance company, its management team has to start proving that it can make the hard choices necessary to return to the 'good old days'.
