Insurance Australia Group (IAG)
BUY

Needing more

 21 Aug 2023
Sector: Financials

RESULTS

Need To Know

  • Mixed result. Both NPAT and core insurance profit inline, cash earnings below are driven by lower earn-through rates from premiums. Insurance margin softer than expected.
  • 2H dividend missed, no new capital management – despite the further release of Business Interruption provision.
  • Premium FY24 guidance “low double-digit” vs market at 8%. Mid-point of margin guidance is ahead of the market. 

FY23 Result Overview:

NPAT $832m vs $880m consensus

Core Insurance profit is $803m in line with consensus

Cash earnings $452m vs $522m consenus

2H23 dividend 9cps vs 10cps consensus. Franked 30%

Gross Written Premium (GWP) FY24 guidance “early double-digit” growth implies upgrade vs consensus 8-9%.

Insurance profit $1,200-1,450m, ($1,325m mid-point) vs consensus $1,300-$1,350m

Underlying margin 13.0-15.5% vs consensus 14.0%.

On market share buyback: no change to the existing program. $227m left of the $350m program.

Investment Implications

Mixed earnings result which is likely to leave the market looking for more given recent strong share price performance.

A lack of conversion from strong GWP in cash earnings is the key reason earnings missed.  A further $200m release of Covid-19 Business Interruption (BI) provision, now leaves $400m remaining (peaked at $1.6bn). 

Given the strong pricing environment, which has resulted in IAG lifting premium growth guidance, the margin guidance of 13.75% (mid-point) may be a touch disappointing for FY24.  IAG’s medium-term guidance of 15%. Perhaps IAG is simply being conservative. CAT allowance increased by +26% $1.15bn, but is below the $1.2bn CAT charge in FY23.

Overall the result is not enough for bulls on IAG. Strong operating environment, but conservative on guidance, in our view, needs to be put in the context of the strong share price (>20%) performance since the June 2023 Investor Day.

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Stock Overview

Share Price

Company Overview

IAG is an insurance company in Australia and New Zealand offering various insurance products, including car, property, life, and liability. They sell through online, branches, and agents.

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