Motley Fool Australia

Earnings: IAG share price on watch after 50% profit slump

Disappointing results

Insurance Australia Group Ltd (ASX: IAG) is one to watch this morning after the insurer’s full-year earnings announcement. The IAG share price could be on the move after the company reported a 49.6% slump in underlying net profit after tax.

What did IAG announce today?

There will be no final dividend paid by Australia’s largest general insurance company. That means total FY20 distributions fell 68.8% from FY19 with just the 10 cents per share interim dividend for shareholders.

IAG reported a 5.2% increase in revenue to $18,576 million for the year ended 30 June 2020.

Net profit from continuing operations fell 49.6% to $439 million while net profit attributable to parent company shareholders slumped 59.6% to $435 million.

Gross written premium (GWP) climbed 1.1% higher to $12,125 million. Insurance profit slumped 39.5% as IAG’s underlying and reported insurance margin fell by 60 basis points (bps) and 680 bps to 16.0% and 10.1%, respectively.

That 10.1% reported margin is below the company’s revised guidance which makes the IAG share price worth watching today.

IAG’s common equity tier 1 (CET1) multiple fell 8 bps to 1.23 as diluted cash earnings per share (EPS) plummeted 68.8% to 12.12 cents.

The IAG share price is currently trading at $5.07 per share. That means a 12.12 EPS would translate to a price to earnings (P/E) ratio of 41.8 with a dividend yield of 2.4%.

What about COVID-19?

IAG did provide an update on the impact of the coronavirus pandemic on its earnings.

The low single-digit GWP growth was attributed to a modest negative COVID-19 effect. IAG reported some Australian commercial portfolios were underperforming despite personal and New Zealand commercial lines performing well.

The Aussie insurer has also increased its provision for customer refunds to $141 million after-tax for the full year.

The COVID-19 impact on underwriting profit was largely offset during the second half of the year. IAG reported lower motor claim frequency while business interruption and landlord claims weighed on profits.

Foolish takeaway

The IAG share price could be on the move this morning following the full-year update. Shares in the Aussie insurer are trading down 34.4% this year while the S&P/ASX 200 Index (ASX: XJO) has fallen 9.7%.

A near 50% fall in underlying net profit doesn’t read well. However, I don’t think IAG will be the last ASX company to report a heavy earnings hit this month.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Ken Hall has no position in any of the 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 Scott Phillips.

Related Articles...

Latest posts by Ken Hall (see all)