Insurance Australia (IAG) has reported well today, and shares are rallying, currently up 6% on the session, the obvious question being, could this be a major inflexion point for the insurer that has been under immense pressure falling from ~$8.50 to nearer $5. Today they reported cash net profit after tax (NPAT) of $462m, smashing consensus of ~$280m. Margins were a lot stronger than expected, largely from lower reserve top-ups.
There was not a lot ‘baked into the cake’ in terms of dividends for the half, the market expecting 3.3c while they delivered a big beat at 7cps. In terms of guidance, there was none provided other than to say that a new aspirational target for insurance margin is 15-17% and cash return on equity is to be 12-13%. Importantly, for dividend investors, they are going to pay out 60-80% of earnings going forward although don’t expect franking credits anytime soon.
MM likes IAG as a turnaround play around $5.30
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