Earlier this week, Australia's largest pure-play insurance company QBE Insurance Limited (ASX: QBE) reported an 8% lift in cash profit after tax to US$821 million. Size wise, Insurance Australia Group Ltd (ASX: IAG) is snapping at its heals with a market capitalisation just $2.6 billion lower.
It was certainly a pleasing turnaround for QBE shareholders and has helped drive the stock price over 10% higher this week.
Overall however, the results were a mixed bag and whether this company should be considered a buy, hold or sell remains clouded.
The Good
- The sale of the underperforming Argentinian workers' compensation operations for US$95 million removes a difficult business unit from the group.
- The sale and restructure of numerous other business units has streamlined operations and set the global giant on a more sustainable path forward.
- Management is forecasting a combined operating ratio for 2015 of between 94% and 95%.
- In 2015 and 2016 management expects the group to generate enough franking credits to fully frank dividends.
The Bad
- The adjusted insurance margin moved in the wrong direction and remains sub-par, decreasing from 10.6% to 9.8% year-on-year.
- While fully franked dividends for the 2014 financial year were up 16% to 37 cents per share, this equates to a trailing yield of just 2.8% based on the current share price of $13.05.
- Gross Written Premium declined 9% – while this could suggest underwriting discipline it also draws into question the organic growth opportunities for QBE.
The Ugly
- Return on equity was just 6.9%
- As reported in the Sydney Morning Herald, the new Chief Financial Officer (CFO) received a bewilderingly excessive sign-on bonus of $8.5 million just for rocking up to work.
