Dramatic rise moves IAG upwards

As interested investors will appreciate, the financial sector has been strong in recent times, but most of the commentary has focused on the banks, the big four in particular.

As interested investors will appreciate, the financial sector has been strong in recent times, but most of the commentary has focused on the banks, the big four in particular.

Another component of the financials index, insurance, has also been doing well. Suncorp is up 50 per cent in a year. QBE has had similar rises since its price collapsed late last year.

Insurance Australia Group (IAG) has done even better, with its price up about 90 per cent in a year. The chart, produced by Paul Ash, Victorian president of the Australian Technical Analysts Association, compares IAG's progress with that of the Financials (Insurance) Index . The index is in an uptrend, but its progress has not been as steady as IAG's, mainly due to QBE's gyrations last year.

Ash observes that IAG has been in a strong uptrend since June 2012. But since March it moved into a trading channel between $6 and $5.50, with the lower support line holding during that period. IAG has reached an important moment, with the horizontal support line reaching the upward trend line.

That means the price needs to turn up again for the upward trend pattern to remain in force. Ash says that given the support line has held up recently, and there is good support for the stock and significant momentum in the sector, IAG should move back towards $6 in the near future. For it to kick above that level, the broader market would need to take a strong step up, he says.

On the fundamental side, IAG has a price-earnings ratio of 13.7 times compared with the sector average of 14.6 times. Its dividend yield is 4.5 per cent, just shy of the industry average, but both dividends and earnings per share are tipped to grow strongly in the next two years. Earnings growth is an impressive 24 per cent.

Its underlying performance in the December half was driven by a 7.7 per cent rise in gross written premiums and an increase in the insurance margin to 23.1 per cent.

This column is not investment advice. rodmyr@gmail.com

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