Australia | Oct 30 2006
By Greg Peel
The US hurricane season usually peaks in September, and although November is considered the end of it, major storms can be experienced into December. However, the El Nino weather pattern that is portending potentially the worst drought in Australia’s history is also one that ushers in calm conditions on the Gulf of Mexico.
To that end, the hurricane season is now considered to be over. The team at ABN Amro Warrants is excited, because QBE Insurance (QBE) will thus benefit twice.
Firstly, there have been no hurricanes. So in stark contrast to last year, there will be no related insurance payouts. Secondly, due to the devastation of last year, premiums have been raised. ABN calculates that QBE still came through with a 19.4% margin last year, and that could translate to 26.4% this year.
As each day has passed without event in the Gulf, the QBE share price has been in a steady upward trend. The question thus must be is there still upside from here? ABN believes so.
The analysts’ view is that the benefits of a quiet hurricane season could see EPS upgrades of 9-10% for each of the next three year. This provides QBE with an opportunity to move into a new growth phase, through accretive acquisitions. QBE has stated a desire to deliberately increase gearing from existing low levels.
While QBE’s result was well accepted in August, it was ahead of the hurricane season, and ABN feels the share price response has thus been muted to date. The analysts have now raised their target from $24.30 to $26.80.
That takes the average in the FNA database to $25.46, against a $24.20 close yesterday. Buys outweigh Holds 5 to 4, with no Sells. The Hold school feels the stock has already had a good run.