Australia | Jul 13 2006
By Terry Hughes
Like many other stocks, QBE (QBE) has had a lousy last couple of months, with its share price having fallen from $23.59 to below $21.00.
The reasons for this recent underperformance, UBS says, are signs that insurance premium rates are falling, a lack of deal newsflow and exposure to the 2006 hurricane season.
However, the analysts expect to see around $700m in extra premiums added over 2007 and 2008, probably in Europe and the US, and they forecast insurance margins will remain at current levels.
As for the exposure to hurricane season, ABN Amro says this could end up presenting more of an opportunity rather than a threat as margins can continue to expand and premiums could increase, the analysts say.
Furthermore, the stock is inexpensive, a key defensive, and they see upside risk to consensus, as well as potential acquisition activity.
While Citigroup has made minor cuts to its 2006 acquisition forecasts, the broker still feels the stock offers the potential for far better returns than its competitors.
All in all, this is probably why UBS says that "prima facie concerns on sector newsflow miss QBE’s countercyclical value."
Of the four brokers that have released reports on the company since its recent fall, three have Buy recommendations on it, with only JP Morgan preferring a Neutral rating.
The average target on the stock is $24.24, and it is currently trading at $21.38.