There have arguably been better times to invest in QBE Insurance Group Ltd (ASX: QBE) over the last 12 months as the group's share price has fluctuated between $10.13 and the recent high of $15, however a small retreat to $14.50 today could present a buying opportunity for long-term investors.
What's Happened?
The most interesting recent event has been the group's sale of its mortgage and lender services business in North America for $90 million. The sale is expected to generate a $120 million book value loss in the current year, but analysts estimate that the unit was going to deliver a US$40 million loss this financial year, so overall it's a positive.
The sale led to the revision of the company's near-term price target by a number of analysts, with a few ambitious groups slapping targets of between $18 and $20 on the massive insurance company.
Is there still time to buy?
The sale of the business is expected to improve the North American division's combined operating ratio by 1.5% and return on capital by 1.8%, hopefully pushing the division to an underwriting profit this financial year. Two weeks ago, analysts were pointing to a 2015 dividend of 40.5 cents per share and a 2016 return of 54 cents. On an improved outlook this has increased materially to 50.4 cents and 63.4 cents respectively. Even on the higher share price of $14.50, this implies a fully-franked yield of 3.5% and 4.4% grossed up to 5% and 6.2% respectively! This outlook makes QBE a far more compelling buy at current prices.
Further Upside?
Well analysts clearly think so. After years in the doldrums following some poorly managed acquisitions, QBE is streamlining its operations in the 43 countries it has a presence in and improving the return from its policyholders in more than 140 countries. QBE's management team has also improved the balance sheet and thus-far avoided a dreaded negative market update, so the outlook can be considered fair-to-good.
Is now the time to buy?
I certainly wish I'd bought more shares at around the $10 mark and I'll probably wait until the shares drop lower before buying a meaningful amount. My theory here is that the risk/reward equation isn't as straightforward as when the price was $10, or even $13. I'm going to wait for the half-year report before diving in again.
