It's been a bumpy ride for QBE Insurance Group Ltd (ASX: QBE) shareholders in 2014. The share price has fluctuated wildly between $10 and $13, punctuated by an assortment of violent surges and plunges throughout the year.
Despite this volatility, and QBE's poor recent operational performance, I believe there's still a good chance the company can turn into one of 2015's best investments. Here's why:
1. QBE hasn't lowered its forecast
QBE shareholders have had a stress-free December, which is a nice change from years past when the company has traditionally announced downwards revisions to earnings guidance. While this isn't a sure sign of a bumper second half performance, it's certainly a positive (for now).
QBE's revised financial year targets are gross written premium in the range of $16.6 – $17.0 billion, net earned premium of $13.9 – $14.2 billion, insurance profit margin of 8.0% – 9.0% and a net investment yield of 2.4% – 2.7%.
2. QBE is more resilient now
QBE's new management team has sought to strengthen the group's capital position following a lean couple of years. A range of capital initiatives have been launched to boost balance sheet resilience and give the group more flexibility. An oversubscribed equity raising was completed in September, a $700m debt issue was completed last month, and asset sales are planned for 2015.
The sale of the group's US agency businesses and Central & Eastern European operations is planned for the near future and will "deliver significant additional cash and capital resources that will substantially improve the Group's financial flexibility and ability to better withstand a reasonable range of downside scenarios".
3. QBE could be a massive dividend stock in coming years
For shareholders willing to play the long game, if QBE can get back to paying a dividend of similar magnitude to that in 2011, the dividend yield based on today's price is approaching 12%. Returning to a similar level of profitability doesn't appear to be outside of QBE's reach if the management team can divest unprofitable businesses and focus on the group's core businesses.
Other insurance companies like Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN) offer higher immediate yields but their future potential pales in comparison to QBEs.
