What Happened to QBE’s Share Price?
Shares in international insurance underwriter QBE Insurance Group Ltd [ASX:QBE] saw more than 11% of their value wiped out today, as the Australian stock market eked out a positive session. QBE has now underperformed the benchmark S&P/ASX 200 index by more than 45% over the past 12 months.
Why Did This Happen to QBE Shares?
QBE stunned the market this morning with yet another profit downgrade. The culprit this time is QBE’s workers’ compensation business in Argentina.
Even if you’re an informed shareholder, I’d forgive you for not grasping every fine detail of QBE’s Latin American operations…but the scale of today’s downgrade shows just how complex QBE’s business can be.
Higher than expected individual risk claims have forced the company to bolster its claims reserves. That means injecting $170 million into its Latin American division.
This will compress QBE’s insurance profit margin to less than 8% — much less than the 10% margin the market had previously expected.
Long-suffering investors have simply given up on this company today. That’s the only explanation for such a dramatic collapse in a large-cap stock like QBE.
What Now For QBE Insurance Group Ltd?
There are bright spots amidst the gloom for investors. QBE sees their Australian, New Zealand and Asian operations growing profitably. And any improvement in the US business would drive QBE’s earnings significantly.
QBE’s stock price is severely depressed compared to previous years. The company is well and truly out of favour with investors.
At times like this, companies like QBE tend to come onto deep-value investors’ radars. Plenty of bad news is now built into the price …which means any ‘less bad’ news could turn QBE’s share price performance around.
Cheers, Tim Dohrmann
Small-Cap Analyst, Australian Small-Cap Investigator