If you're a value investor finding it hard to come across decent opportunities at the moment then don't look past QBE Insurance Group Ltd (ASX: QBE). Selling for $11.03 it's trading on just 10.8 times analyst forecasts for earnings per share in the current financial year.
The company is in the middle of a turnaround strategy which if successfully executed means current prices could be offering deep value. Here's why.
1) QBE is in the middle of overhauling its troublesome North American operations. Insurance markets appeared too hot to handle for QBE in North America in 2013 after it wore a $482 million underwriting loss in the region. Management say they have learned from past mistakes and that a new divisional management team is expected to return North American operations to profitability in 2014 and beyond.
2) It's not just North America that has seen large amounts of changes to senior personnel recently. In fact after a series of disappointing years the new chairman appointed in December 2013 announced that one of his three key strategic priorities for 2014 would be to complete the renewal of the board and executive team. This process should put the past behind the company and point to a better future.
3) Macro-economic conditions in QBE's important North American and European markets should slowly turn in its favour throughout 2014 and 2015. Evidence of this should filter through to profits in the coming years.
4) While the performance of an insurance business can never be entirely predictable, QBE is making strong progress on its transformative plan to deliver $250 million in operating cost savings by the end of 2015 and this is certain to benefit the bottom line.
5) Based on analyst forecasts for dividends of 49.3 cents per share for 2014, the group trades on an attractive 4.47% yield at today's prices.
Rival Insurance Australia Group Limited (ASX: IAG) has doubled its share price in not much more than two years after it delivered on its own strategic growth strategy recently. An investment in QBE equates to backing the ability of new chairman Marty Becker and chief executive John Neal to deliver on their promise to deliver stability, cut costs, and get a grip on North American operations. If their successful it sure looks cheap at today's prices.
