Insurance Australia Group (IAG)
HOLD

IAG FY22 Result

 15 Aug 2022
Sector: Financials

Need to know:

  • Cash earnings and dividend both below market
  • FY23 guidance maintained regarding premium growth and underlying margins
  • Underlying margin improvement in 2H, will increase confidence in IAG’s outlook

Investment outlook

FY22 Earnings: Reported NPAT $347m in line with July pre-release, Cash earnings $213m vs $239m market, cash EPS 8.6 cps vs 9.0cps market. Importantly the underlying insurance margin 14.6% in 2H22, up 0.8% on 1H22.

Dividend: DPS 11cps (70% franked) vs 11.5cps market, weaker than expected given capital position at the bottom end of IAG’s target range. Pending asset sales will get capital back to the mid-point.

Guidance for FY23: IAG has reiterated July guidance, premium growth 'mid-to-high' single-digit growth, reported insurance margin 14-16%.

Aspirational guidance to grow business by +1m customers into 2026 remains.

Key issues: The result was largely preannounced, so there are limited areas of surprise in these Results.

Most of the focus remains around the trajectory of underlying margins, which IAG is confident of achieving given the inflationary backdrop and higher investment yields offsetting the impact of claim and reinsurance costs and increased natural hazards allowance.  

Investment View: With the tough FY22 period now behind them, IAG has presented a confident outlook into FY23. The question remains, as to whether than can be delivered, given poor execution (and bad luck) over the last few years. The company is not expensive on both PER and P/B measures.

The pending threat of another La-Nina weather event across the East coast over summer 2022/23 also needs to be considered, despite a higher level of financial protection IAG now has in place.   

We retain our Hold recommendation, preferring Buy-rated QBE and SUN in the sector.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

View the latest Research Report

Stock overview

Share price

Company overview

Insurance Australia Group Limited is engaged in general insurance operations in Australia and New Zealand.

Disclaimers and Disclosures

Issuer

The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").

Reliance

Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

General Advice

Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs. 

General Disclosures

This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au. 

Currency of Research

The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.

Access and Use

Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.

Equities Research Methodology

Please click here for information about MST equities research methodology.