eureka report says buy qbe

From today's eureka report...


QBE (QBE). Australia?s leading insurance company booked a 6% increase in profit to $1.97 billion, which was slightly above market expectations. Veteran chief executive Frank O?Halloran laid out a solid case for the insurer, saying: "The outlook for growth in our existing business and for a continuation of strong underwriting profits is positive.? But he also added that 2010 was "likely to be another difficult year for the insurance industry with a continuation of low interest yields and premium rate increases being less than claims inflation for many products". With insurance margins disappointing some analysts, the market decided to pay more attention to his second statement and punished the share price by 7%.

It is unfortunate timing for the insurance company with storms pounding Australia?s east coast over the weekend, given the companies had noted the absence of such events in the past year. Severe hailstorms in Victoria are expected to leave insurance companies with a bill of about $400 million, while the damage from major flooding in Queensland, strong territory for QBE, could run into billions.

QBE?s insurance margins in its last set of results came in at 17%, which disappointed some analysts (rival IAG?s was 13.4% and Suncorp?s insurance division?s 12.8%). The newsletters were perplexed as to why some felt so let down, because QBE has made it clear that margins were expected to be 17?18%. Part of the answer lies in QBE?s enviable track record, which features a strong portfolio that is well balanced to minimise risk. This will serve the company well as cleanup efforts commence.

QBE has already declared its hand for the commercial operations for Dutch giant ING and one newsletter points out that its $2.5 billion war chest not only sets it apart from IAG and Suncorp, but puts the latter two well within QBE?s reach. The speculators might be hard pressed to make a case for a QBE takeover of either of its local rivals with the looming storm damage bill, but that?s not the point. QBE is proudly on the hunt for acquisitions while its rivals are busy eking out margins.

The final dividend rose 1? to 66?, 20% franked, with a yield of 6.4%. As one newsletter says: try getting that deal at IAG. QBE?s group combined operating ratio came in at 89.6% making it the fifth straight year it has come in below 90%. One newsletter says this is a great achievement that its domestic and international rivals simply can?t match.

Investors are advised to buy QBE shares at current levels.