Despite some tough commentary from exasperated investment analysts about yet another shock downgrade, QBE shares rebounded slightly in yesterday’s generally positive market.
The downgrade happened to come on a day when there was a mass selloff on the local market which lost more than 90 points or 1.6%.
QBE shares fell more than 10% to well under $12, but yesterday they regained the $12 level and ended on $12.07, up 1.8%.
Wednesday’s warning of higher-than-expected claims in its emerging markets division saw investors wipe $1.9 billion off the insurer’s market value, and the stock fell nearly 1% to $11.77 in early trading yesterday, but then recovered to stagger higher in afternoon trading.
QBE said its insurance margin – a key profit margin, will fall in the six months to June 30, but compared to a year ago, the profit margin will be higher (a low of 8.5% was suggested by QBE compared to the 5.8% reading from a year ago)
But what upset many analysts and shareholders was the fact that downgrade came out of the blue and just a month after QBE confirmed its 2017 guidance at its annual general meeting, where it also failed to warn of any problems in its emerging markets business.
The latest warning was just another in a long string of negatives from QBE in the past seven to eight years – almost like clockwork at least one downgrade seems to emerge as problems – storms, weak business, poor underwriting, inadequate reserving or low premiums bite the bottom line.
Daniel Toohey, an analyst at Morgan Stanley, said the revision in the outlook for the emerging markets division was the latest in a line of downgrades and questioned why the group’s total insurance book wasn’t able to sustain stresses throughout its business.
"For QBE it’s a sense of deja vu. Twelve months ago there was the Australia/New Zealand surprise downgrade. The other disappointing thing is that it’s really 10 per cent of the book underperforming by 10 per cent," he said.
"The fact that the guidance can’t withstand this questions whether QBE has many hollow logs [to prevent downgrades]."
Shaw and Partners analyst David Spotswood was just as bitter
"It is another stuff-up by QBE. The management, their track record is in tatters. They have got a 20-year track record of missing numbers and making mistakes," he said.
"They had their AGM and they were confident and a couple of months later, bang. People are angry."
And UBS analyst James Coghill said the latest downgrade revived questions about QBE’s entire business and “will raise the obvious questions around the quality of QBE’s overall portfolio and whether further divestitures are required.
Although he added that while the downgrade was "clearly disappointing, with improving market conditions across ANZ and greater stability in QBE’s other major regions, we’re not changing our overweight view on QBE and the sector".
Deutsche Bank analyst Ross Curran said yesterday’s share plunge "partially reflects the earnings impact [of the announcement], but goes well beyond the temporary nature of the downgrade".
"We believe the reaction reflects some loss of confidence in management being able to manage a very complex business, with multiple product lines across multiple geographies."
Curran also noted that; “management has been upfront on the complexity of the franchise and it is taking active steps to simplify the business and focus on core products”.
And by the way, the other surprise downgrader on Wednesday, retail Food Group saw its shares rebound – by 1.6% funnily enough – after a big sell off. The shares ended the day at $4.63.
