Perennial disappointment, QBE Insurance Group Ltd (ASX: QBE), is set to hit earnings guidance for the first time in what seems like forever! QBE, with a financial year ending in December this year, reported at its AGM earlier this month that it's on track to re-establish its long-forgotten reputation for earnings stability. Incredibly, that could come with an improvement in yield back towards the 6% mark of years gone by.
Great News!
QBE's management confirmed full-year guidance of gross written premium (GWP) between US$15.5bn and US$15.9bn, net earned premium (NEP) between US$12.6bn and US$13.0bn, and combined operating ratio (COR) between 94% and 95%.
This compares to US$16.3bn, US$14.1bn, and 96.1% in the 2014 financial year. It should be noted that a higher operating ratio far outweighs the fall in GWP due to the slim margins on offer in the general insurance industry. The fall in GWP represents the impact of selling parts of the business over the last 12 months.
Cash Net Profit
For a company like QBE, to accurately compare apples to apples, investors should look at cash profit (or profit before once-off items) and cash earnings per share. The $915 million cash profit in 2014 translated to earnings per share of 68 cents and analysts are expecting a 30% rise to 90 cents this financial year.
If QBE maintains its 'up to 50% of cash profits' dividend payout ratio then investors can expect up to 45 cents per share, or a 3.4% yield, at the current share price.
Is there time to buy?
QBE's share price has run up from around $10 to well over $13 so far in 2015. While the 30% rise seems significant, QBE remains a superior option to rivals Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN), both of which have limited share price and earnings upside in my opinion.
I believe there's still plenty of time to buy QBE at the current price assuming management can continue to turnaround underperforming parts of the business to boost overall margins.
