Insurance Australia (IAG) Update

Insurance Australia (IAG) has a target price of $3.83 and an under-perform recommendation on the stock from Australian Stockmarket analyst Macquarie Research Equities.

Insurance Australia (IAG): In A Grind

IAG’s CEO, Michael Hawker, has announced his resignation on the back of a loss of key institutional support. His replacement is COO and former Promina CEO, Mr Mike Wilkins. Macquarie Research Equities (MRE) discusses the impacts of this move for the company and the implications of IAG’s global operational review in early July.

The Impact

Mr Wilkins, whilst reputable amongst institutional investors, does face a number of challenging tasks, namely:

• Strategic Positioning of the UK Operations;
• Managing the Outlook for Australian Commercial lines margins

There is also speculation that Wilkins will attempt to “clear the decks” and re-base consensus earnings expectations. However, the implications of such a move may not be well received given he has been the COO since Nov 2007. The final area of speculation is the operational review to be announced early July. This analysis is likely to clarify possible dividend rebasing, the write-down of UK intangibles and the clarification of the group’s underlying reserving position.

Action & Recommendation

MRE maintain an under-perform recommendation on the stock with a 12-month price target of $3.83. In regards to the recent QBE proposal, whilst the firm may pursue other alternative in the short term, IAG is likely to remain on their radar for the next year. And should the July review reveal any further disappointment a similar offer from QBE may be tabled.