Markets: QBE's wayward pattern

Investors are probably losing count of the number of years running that QBE Insurance Group Limited (QBE) has disappointed. Yet again they have posted poor profit figures, this time for interim results disappointing long-term investors who have endured the painful journey over the past three years. It is probably going to feel a lot longer after today. The shares are down over 8 per cent in early trade.

For the half year, net profit after tax for QBE came in at $US477 million, severely missing analyst estimates which ranged from $US491 million to $US637 million dollars.  The numbers were down 37 per cent from the previous comparable period – the gap looks bad, but 2012 was helped along by unrealised and realised gains on fixed interest and equity portfolios included in the final profit numbers.

It would seem QBE has not been able to recover far from natural catastrophes, lower interest rates globally and wider credit spreads in the wake of the European debt crisis.  Profit figures for this half year only just beat the first half of 2010, when $US440 million was the number.

For the half year, basic earnings per share came in at 37.9 US cents – the lowest for any interim period in five years. The vicious cycle continues. Consequently the dividend for the half-year comes in at 20 cents, half of what it was for the same period last year.

Investors must be losing faith with the fully franked dividend yield is just scraping 2.5 per cent. You would almost be better off in a term deposit, where you have certainty over your capital at the very least.

In February QBE said it would target a 50 per cent payout ratio. Rough calculations suggest they will be looking at a 60 per cent pay out in the second half.

QBE also told the market gross written premiums from North American operations are forecast to be down $US600 million to $US5.9 billion from initial full-year forecasts. But QBE does expect underlying profitability to improve in the second half of this year with rate increases and normalising lender-placed insurance. Can investors trust this?

Earnings per share in 2012 totalled US65.1 cents and US64.9 cents in 2011. Investors want businesses that can grow their earnings per share. Without earnings growth, dividends will stay flat, the share price will remain static and investors should leave in droves.

The outlook is tough for QBE. Insurance profit margin was 10.8 per cent, down from 13 per cent only a year ago. The company is targeting an 11 per cent insurance profit margin for the full year; however delivering on this is another question.