Last week I covered why I believe QBE Insurance Group Ltd (ASX: QBE) is a great chance to beat consensus estimates when it releases its half-year results on Tuesday, however the price reaction on the day will be about more than just the earnings per share and dividend per share numbers!
Metrics to Watch
QBE, as Australia's largest listed insurance company, will have every statement scrutinised by analysts who are expecting a lot over the next two years from the global giant.
Here are the current consensus estimates for the 2015 financial year (which ends on December 31):
| Earnings Per Share | 66.2 cents |
| Normalised Earnings Per Share | 70.4 cents |
| Dividend Per Share | 40.9 cents |
| EBITDA (earnings before interest, tax, depreciation and amortisation) | $1.315 billion |
| Normalised Net Profit | $973 million |
There are, in my opinion, four other major items that analysts will be watching:
- Combined operating ratio (COR): QBE has forecast a COR of between 94% and 95% and will be expected to deliver at the lower end of that band. Note that a lower COR implies a higher profit margin.
- Insurance profit margin: QBE has forecast an insurance margin of between 8.5% and 10% for the full year. Having divested two poorly performing sectors, I am expecting the full-year outlook to be closer to 9.5% than 8.5%.
- North America: Last year QBE reported a combined operating ratio of 100.8 and insurance profit margin of 0.2% for the North American business. Seeing as this was QBE's largest division in 2014 in terms of gross written premium, a turnaround in insurance margin will make a big difference on profit.
- Emerging Markets: Last year QBE reported a combined operating ratio of 112.7 and insurance profit margin of negative 6.4% for the emerging markets division. The division contributed 13% of group gross written premium and delivered a solid 7.1% margin in 2013 so again, a turnaround in fortunes would be well received.
Should you buy QBE today?
Now, I'm a big believer in QBE's current strategy but I'd struggle to justify buying more shares today. If QBE's results are less-than-stellar the shares will be crushed back to $12 (I believe), however a good result shouldn't see a massive jump as the company is already trading on a forward price-to-earnings ratio of 20, well above its peers.
