What Happened?
The share price of serial underperformer QBE Insurance Group Ltd (ASX: QBE) on Monday closed at $12.72, its lowest close in more than six months, just a month after delivering a half-year report that exceeded expectations on almost every front.
For those that weren't paying attention, the highlights of QBE's report were:
- Cash profit after tax up 13% to US$471 million
- Adjusted combined operating ratio (COR) of 93.4%
- Adjusted insurance profit margin of 10%
As my colleagues noted at the time, "perhaps the most exciting point to note for shareholders from today's announcement was the board's decision to raise the pay-out ratio from 50% of cash profits to 65%."
Then why's the share price down 15.2%?
QBE's share price peaked at $15 in mid-July as the ASX 200 staged a mini-rally following a tough start to the new financial year. It's interesting to note that over the last 12 months QBE has outperformed the ASX 200 by nearly 18%, however over the last three months the share price has moved essentially in lock-step with the index.
Source: Google Finance
My takeaway from this is that QBE's share price has fallen for precisely the same reason as many other stocks on the ASX- the general malaise infecting worldwide stock markets.
What should we do now?
As a shareholder of QBE I'm happy to say that I'm doing absolutely nothing. As us Foolish investors will often tell you, there's 'nothing to see here', and most likely no company-specific reason why the share price has fallen.
The fact that QBE has broken its six-month trading pattern between roughly $13 and $15 could be a cause for concern for short-term traders, however long-term investors know that the break below $12.80 could signal great buying opportunities in the near future.
For those playing at home, QBE recently reiterated its 2015 forecast of gross written premium (GWP) between US$15.5bn and US$15.9bn, net earned premium (NEP) between US$12.6bn and US$13.0bn, a combined operating ratio (COR) between 94% and 95%, and an insurance profit margin of between 8.5% and 10%.
I still believe there's a good chance it'll smash these predictions come the February 2016 reporting season.
