Here’s the bull case for QBE Insurance Group Ltd shares

QBE Insurance Group Ltd (ASX: QBE) was for a long time considered a blue chip share.

These days QBE doesn’t seem to get much “air time” after a disastrous decade which has been punctuated by write-downs, profit downgrades and large cuts to the dividend.

Pleasingly for shareholders, QBE’s operations appear to have finally steadied with the group actually reporting a rise in earnings and increasing its dividend in 2015 (the insurer operates on a calendar year basis).

Given that downward momentum appears to have ceased, now could be the right time for long-term, contrarian investors to take a closer look at the stock.

Here are three reasons to be positive on QBE’s future…

  1. With the share price at $10.70, the stock is trading on a trailing fully franked dividend yield of 4.8%. With expectations that the dividend will be significantly raised over the next two years the income stream from QBE looks attractive. (source: CommSec)
  2. Cumulative earnings growth of around 25% is expected over the next two full year reporting periods. This implies a 2017 price-to-earnings (PE) multiple of 11.4x. This forecast multiple is undemanding relative to peers such as Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN) which trade on forecast PEs of 14.1x and 12.8x respectively. (source: CommSec)
  3. Headwinds turning to tailwinds. QBE has battled a combination of company specific problems as well as industry wide problems. Company specific issues include the previous acquisition-led strategy of the group. Meanwhile, industry wide issues include the ultra-low interest rate environment globally, which has diminished QBE’s investment earnings. Looking forward and many of these headwinds appear to be dissipating. Insurance markets globally are expected to harden, global interest rates are expected to rise (albeit slowly) and a streamlining of QBE’s operations are creating cost savings and improved performance.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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