QBE set for solid H1 profit, say funds, analysts

Industry

QBE Insurance Group Ltd was expected to post a solid interim net profit after re-weight ing its resources portfo lio, improved equities markets and earnings on its acquisitions, analysts said mid-January.

The insurance major, which has a poli cy of making friendly acquisitions of smaller insurance companies, reports its

results for the six months to December 31, on February 22.

Paul Xiradis, equities director at funds manager Ausbil Partners, said that the mar ket expected QBE, targeting 15 per cent growth in net earned premium, to post a “good six months” after

an improvement

in its market investments.

“I’m led to believe that they’ve had a good six months and things have

improved signif

icantly on the

investment front as well,” Mr Xiradis told Australian Associated Press (AAP).

A European investment bank analyst, who requested anonymity, said that QBE had “generally weighted down” its invest ment in resources sector after those stocks were pummelled in 1998 due to a plunge in commodity prices.

QBE had an 8.1 per cent rise in annual net profit to $166 million for the year ended June 30, 1998, using the directors’ preferred overseas accounting standards, which spreads returns from its more than $3 billion funds book over seven years.

But under Australian accounting stan dards, QBE had a 49.9 per cent fall in annual net profit to $95.3 million, com pared to $190.1 million in the previous year, after financial markets world-wide,

particularly resource stocks, were effected by the Asian economic crisis.

QBE managing director Frank O’Halloran, who has imposed a “black out” on discussing the company’s profits until they are released to the market this month, has said that two-thirds of the net earned premium growth will come from acquisitions.

Mr O’Halloran also has said that depending on the performance of invest-

ment markets, QBE will post an improved operating profit in fiscal 1998/1999, com pared to 1997/1998.

Mr Xiradis and analysts said that QBE has a track record of acquiring smaller insurers, which did not require large good will payments nor distract management from its core business, that were earnings per share (EPS) positive in the first year.

A US investment bank analyst, who also requested anonymity, told AAP: “They don’t want anything that will take up core management time.

When they do take over a smaller com pany, there’s no management distraction from their main business”.

In October, Mr O’Halloran told a Merrill Lynch investment conference in New York that the company was wading

through “enormous” acquisition opportu nities in Asia and several opportunities in Australia.

Consolidation has gathered pace, with AMP Ltd acquiring 57.2 per cent of GIO Australia Holdings Ltd, German-based Allianz AG acquiring MMI Ltd, HIH Insurance Ltd and NRMA Ltd acquiring SGIO Insurance Ltd.

Mr O’Halloran said the Australian insurance companies that QBE was

assessing were unlisted. He said the company could spend more than the oft-quoted $lOO million on acquisitions if the potential tar gets added “sig nificant value” to shareholders’ wealth.

The $lOO million figure had been mis quoted because the company could raise addi tional capital by either share placements or rights issues or convertible notes or borrow ing. “There are

many ways to raise capital,” he told AAP.

Mr O’Halloran said that QBE wanted to expand its established Asian operations, though it did not rule out acquisitions in China, India, Korea, the Philippines or Taiwan.

“Some close, some not so close, some that have fallen by the wayside, but we’ve got a lot on our plate,” he said. Analysts said that QBE itself was not a take-over target.

An analyst from a US investment bank said a predator would have to pay 3.5 times QBE’s book value to be successful, “and that would be silly”.

“I would have thought that wherever their share price is, somebody would have to pay a significant premium over that,” another analyst told AAP. ■

Part of the QBE Group, Queensland Insurance Limited, in the heart of Suva’s CBD (Pic: SFH)