What: QBE Insurance Group Ltd (ASX: QBE) shares have surged nearly 25% in February after hitting a 1-year low of just $10.13 in mid-January. The share price yesterday hit $13, the highest level in over 9 months and only 2% away from the 12-month high of $13.23 reached in late February 2014.
So What: QBE has been a bit of a basket case for years as the company repeatedly missed earnings guidance, causing sharp plunges in the share price roughly every six months between periods of recovery as hopeful investors bought the 'cheap' shares.
The share price has traded sideways between $10 and $18 over most of the last four years, while profit has fluctuated wildly between $730 million in 2012 and a loss of $285 million in 2013.
QBE now looks to be turning things around! The company reported net profit of US$742 million for the 2014 financial year, while cash profit rose 8% to US$821 million and the final dividend doubled to 22 cents from a year earlier.
The market responded positively to the news, pushing the share price up 10% over the two days following the release, even though the numbers were below analyst consensus.
What Now: QBE's CEO John Neal appears to have stuck to the well-worn principal that it's better to under promise and over deliver than do the opposite, as has often been the case with QBE in the past.
QBE is predicting a fall in gross written premium (GWP) from US$16.3 billion to between US$15.5 billion and US$15.9 billion, but an increase in insurance margin from 7.8% in 2014 to between 8.5% and 10%.
Analysts are predicting that this could drive earnings per share growth in excess of 40% and potentially boost the dividend by over 20%! QBE's dividend yield jumps from the reasonably modest 3.2% this year to over 3.7% next year.
