With the end of the reporting season having passed, now's a perfect time to take a quick recap of the companies in the financial sector that have surprised to the upside and downside.
The sector as a whole was a little disappointing this year. Taken against a negative 5% return for the S&P/ASX 200 since the start of August, there were roughly the same amount of companies that performed better and worse than the mean.
3 Disappointing Financial Stocks
Insurance Australia Group Ltd (AX: IAG) shares have fallen an ugly 12% since the start of August, driven by a disappointing full-year result where Gross Written Premiums (GWP) fell 0.6%, Net Profit After Tax (NPAT) fell 14%, and dividends per share fell 10%. Despite Warren Buffett investing in the company last year, I'm avoiding it until the industry dynamics improve.
In very similar circumstances to its peer above, QBE Insurance Group Ltd (ASX: QBE) had a terrible August, down 13% over the period, as it reported flat GWP, cash profit after tax down 39%, cash return on equity fell from 8.6% to 5.6%, while it increased the dividend by 5% to 21 cents per share. QBE's board have guided to a much better 2017 after removing some poorly-performing management, however the company will need much more than that to appease long-suffering shareholders.
Medibank Private Ltd (ASX: MPL) shares were decimated in August following the release of an earnings report that finally showed the group's momentum was unsustainable. Here's the crux of the issue: "Despite a legislated premium increase of 6.59%, Medibank's premiums only rose 5.1% due to customers downgrading their level of coverage. Additionally, Medibank's total customer numbers declined 2.6%, suggesting the group lost market share or more people dropped their health insurance entirely (or both). The worst part is that policyholder numbers were only down 0.6% in the six months to December 2015, so the decline has accelerated in the second half of the year."
3 Quality Financial Stocks
Shares in debt collector and small loan provider Credit Corp Group Limited (ASX: CCP) are 49% higher than three months ago following a bumper year where the group reported a net profit of $45.9 million on revenues of $226.7 million. The net profit and revenues were up 20% and 19% over the prior financial year. Debt collection is a risky business and companies have regularly turned a great year into a terrible one, so investors need to be careful.
Steadfast Group Ltd (ASX: SDF) performed strongly over the month following the release of a full-year report that appeared to show solid integration of recent acquisitions – The Calliden and QBE agencies. Underlying earnings before interest, tax and amortisation (EBITA) increased 43%. However some analysts were concerned that organic growth came in at just 6%, and that organic premium growth came in at only 1.5%. This will be a statistic to watch in a tough industry.
Challenger Ltd (ASX: CGF) shareholders were big winners in the reporting season as the company revealed a normalised net profit of $362 million, up 8 per cent over the prior year, and total annuity sales of $3.4 billion, up an impressive 22% over the prior year. Challenger's massive year was as a result of a big second half where annuity sales rocketed 45% over the prior corresponding half due to a significant ramp up in advertising spending and greater demand for income-bearing products.
