QBE Insurance Group (ASX:QBE) announced a 24% increase in net profit for the half year ending 30 June 2015. As previously announced management raised the interim dividend to 20c and intends to further reward shareholders in 2016.
QBE Insurance Group announced a half year net profit after tax of US$488m which compares to last year’s profit of US$392m. Revenue decreased slightly to $US7.9bn which is 6% lower compared to the previous corresponding period. Cash profit was US$471m compared to $416m for the same period last year, an increase of 13%.
Shareholders will be particularly pleased with the improved efficiency of QBE’s core business as it allows management to reward shareholders with an interim dividend of 20c, a 33% increase compared to last year’s 15c interim dividend.
QBE’s share price closed at $13.97 on Monday. The equity has advanced ~30% in the past 12 months, significantly outperforming its peers and the broader market. It is currently an open position in Wise-owl’s portfolio, exclusively recommended to our members.
The past six months were heavily impacted by QBE’s strategic review which was announced about a year ago in an attempt to return to profitability. Soaring claims and profit downgrades have resulted in a selloff of QBE’s stock. The strategic review included a capital raising, the disposal of underperforming and loss-making assets and balance sheet restructuring. The sale of the Argentine workers’ compensation business was completed on 10 August 2015 and the non-core US and Australian agency businesses as well as the Mortgage Lenders Services have a material impact too. While the sale of these businesses are expected to have a slight impact on QBE’s total income for the upcoming period, an increased focus on its core business is expected to further strengthen the Group’s balance sheet and profitability.
The company said in today’s statement that “following the completion of our capital initiatives and in light of significantly improved earnings quality, capital is now above our target minimum requirement and provides the opportunity to increase the future dividend payout ratio while remaining comfortably within target capital levels.” In response management increased the maximum dividend payout ratio to 65% up from 50% of cash profits.
Earlier this year we have recommended QBE to our subscribers as we expected ongoing improvements in the Group’s core operations. Improved profitability has led to a strong income yield for shareholders and is expected to improve over the upcoming 12 months. The company reports in USD which will put pressure on its earnings in light of the recent USD strength. The past 12 months have seen record claims for most insurance company due to an above-average occurrence of natural disasters, both locally and internationally. The company performed solid despite the challenging environment. Due to the sale of its M&LS business and also currency exchange projections, the Group was forced to slightly downgrade its 2015 forecast gross written premium target range to US$15.2bn -US$15.6bn (initial target of US$15.5-US$15.9bn).
Despite the downgrade QBE remains an attractive income opportunity offering a healthy mix of dividend distribution and the potential for capital growth. We will update our subscribers about any updates in relation to our recommendation.
Author: Simon Herrmann
Aug 18, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.