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Stockwatch: QBE Insurance Group Limited (QBE)

January 3rd, 2009 · Greg Atkinson · 7 Comments

QBE Insurance Group (ASX.QBE) is an Australian general insurer that over the long term, has been good to investors. However the stock price has not been immune from the recent stock market rout and the share price was clipped from a 52 week high of over $33 in late 2007 to under $20 in March 2008.

Oddly enough the QBE share price has not closed under $20 since March, and from June onwards the stock price has basically been tracking upwards while the ASX 200/All Ords has been on the way down.

QBE Insurance: 1 year share price chart.

qbe-1-year-chart.gif

Although I am not normally one that spends a great deal of time analysing charts, the movement of the QBE stock price has been of interest to me for some years. This is because I feel it acts as a sort of market barometer and therefore it is perhaps a useful stock to watch as discussed in: QBE and the All Ordinaries
Curiously enough this relationship between the QBE share price and All Ords has in the last few weeks been re-established, and I hope this means that 2009 is year we start to see the stock market stabilise.

I am long term fan of QBE mainly because of the company’s solid returns and ability to bounce back after market routs. The management team also appears to be looking after shareholders money well, and for the last few years the Return on Equity (ROE) has been bouncing around 20% mark.

In addition QBE is an Australian company that has significant overseas exposure and this fits in well with my investment approach, as I feel the Australian economy is in for some tough years. A weaker Australian dollar also helps QBE’s bottom line when translating those overseas earnings into $AUD. The stock currently offers a yield of around 5% (partially franked) which in an environment where interest rates are being cut, is starting to look pretty attractive.

If we look at the QBE stock price chart over the last 5 years (see chart below) we can see that the stock is currently trading well below it’s long term price trend. (show as a green line on the chart) Of course this means little if the company is in serious trouble, but for a company that seems pretty robust like QBE, I would suggest that over time the stock price will revert to the long term trend. Therefore it does not seem unrealistic to expect the stock price to break through $30 in 2009 as long as global economic events start to improve.

QBE: 5 year share price chart

qbe-5-year-chart.gif

Please note that QBE has recently been doing some capital raising via an institutional placement and a share purchase plan so this has kept a lid on the share price. For further details please refer to the QBE investor information website.

As always I urge readers to do their own research. However if you are a long term investor then perhaps QBE is worth having a look at as part of a diversified stock portfolio.

(Please note that the author of this article has an interest in QBE shares and we also remind site visitors to read our blog disclaimer.)


7 responses so far ↓

  • 1 Anon // Sep 21, 2009 at 8:50 pm

    Insurance companies have historically done very poorly during high inflationary periods.

    http://capital-flow-analysis.com/capital-flow-watch/what-inflation-does-to-the-insurance-industry.html

    Look at insurance share price performance in the 70’s – it wasn’t pretty. I guess this is why Buffet mentioned “the party was over” for insurance a couple of years ago.

  • 2 Plornt // Aug 7, 2010 at 3:09 pm

    “Insurance companies have historically done very poorly during high inflationary periods.
    Look at insurance share price performance in the 70’s – it wasn’t pretty. I guess this is why Buffet mentioned “the party was over” for insurance a couple of years ago.”

    I am actually thinking of shorting QBE on significant strength and think it will do poorly over the next few years at best flat. It maybe a good company but good companies can still lose 50-70% in bad times, look at Wells Fargo for example.

    Qbe share price since post: ~17$ or down 30%.

    All posts by this poster is not financial advice or a reccomendation to do something. Can change my mind quickly on any decision I make, given markets always change. Have positions in instruments discussed unless otherwise indicated.

  • 3 Plornt // Dec 19, 2011 at 4:02 pm

    Qbe share price since post: 24.17 (intrahighs) on Sep 21; down more than 55% as of 19/12/2011.
    Been wrong a lot though, so this was just dumb luck.

    System firing long QBE. I am not in this stock and do not intend to take a position.

    All posts by this poster is not financial advice or a reccomendation to do something. Can change my mind quickly on any decision I make, given markets always change. Have positions in instruments discussed unless otherwise indicated.

  • 4 Greg Atkinson // Dec 19, 2011 at 4:16 pm

    QBE shares have been getting hammered along with the market in general but they have been hit especially hard as tends to be the case with this stock. At just above $13 they are now at a level last seen around 2004. Ouch!

    Looks like Buffet was right.

  • 5 Plornt // Dec 19, 2011 at 4:49 pm

    Yes, but looks like they might turn if my system is correct, but the upside might only be 20-30% from here, so given the downside risk i’m reluctant to enter given there are so many better value scenarios out there. If I were to enter i’d place otm puts below 12$; maybe double the puts to common ratio so that if a tail risk event occurs you won’t get wiped out.

    All posts by this poster is not financial advice or a reccomendation to do something. Can change my mind quickly on any decision I make, given markets always change. Have positions in instruments discussed unless otherwise indicated.

  • 6 Greg Atkinson // Mar 15, 2012 at 8:21 am

    Here is an updated chart of QBE Insurance. The share price fell quite some way since I wrote the post in 2009!

    QBE 3 Year Share Price (March 2012)

  • 7 Plornt // Mar 19, 2012 at 9:25 am

    Yep insurance cycle has turned unfortunately. Intrinsic value based on my method is 7$, so at 13+ this does not look cheap. Unless fundamentals significantly change this doesn’t bode well long term. If you look back in history (over 100 years) many times insurance companies will blowup a bit like financial companies did in the GFC.

    All posts by this poster is not financial advice or a reccomendation to do something. Can change my mind quickly on any decision I make, given markets always change.

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