IAG (ASX:IAG) share price on watch amid earnings miss but guidance upgrade

IAG had a difficult half…

| More on:
Two brokers analysing stocks.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • IAG has released a poor set of numbers for the first half
  • Its cash earnings have fallen well short of consensus estimates
  • However, it has upgraded its gross written premium guidance for FY 2022

The Insurance Australia Group Ltd (ASX: IAG) share price will be on watch on this morning.

This follows the release of the insurance giant's half year results.

IAG share price on watch after earnings tumble

  • Revenue down 4.4% to $9,233 million
  • Gross written premium (GWP) up 6.2% to $6,570
  • Insurance profit down 57.8% to $282 million
  • Cash earnings down 62% to $176 million
  • Reported insurance margin down 10.8 percentage points to 7.1%
  • Interim dividend down 14.3% to 6 cents per share

What happened during the half?

For the six months ended 31 December, IAG reported a 4.4% increase in revenue to $9,233 million but a 62% decline in cash earnings to $176 million. The latter falls well short of the consensus estimate of $285 million, which may not bode well for the IAG share price on Friday.

Management advised that this reflects the impact of a lower underlying insurance margin, higher net natural perils claims costs, a net strengthening of prior year reserves, and a lower gain from the narrowing of credit spreads.

This offset a 6.2% improvement in its GWP to $6,570 million, which was driven by a range of factors. These include higher premium rates and volume growth across personal short-tail classes in Direct Insurance Australia (DIA), significant premium rate increases in Intermediated Insurance Australia (IIA), and a combination of higher premium rates and good retention levels across all key portfolios.

In light of its softer performance, the IAG board has elected to cut its interim dividend to 6 cents per share. This represents the insurance company's lowest interim dividend in a decade.

Outlook

One thing that could lend some support to the IAG share price today was management's outlook for the full year.

Following stronger than expected GWP growth in the first half and ongoing supportive economic conditions, IAG has upgraded its GWP guidance from low to mid single-digit growth and reaffirmed its reported insurance margin guidance of 10% to 12%.

Management notes that the latter aligns to its aspirational goal to achieve a 15% to 17% insurance margin over the medium term.

IAG's CEO, Nick Hawkins, commented: "We have upgraded our FY22 gross written premium (GWP) guidance from low to mid single-digit growth reflecting the confidence we have in the business and future economic outlook. We've reaffirmed reported insurance margin guidance of 10-12% for FY22. We're encouraged by our strong GWP growth of 6.2% and sound underlying performance, with our underlying insurance margin improving to 15.1% (FY21: 14.7%)."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Earnings Results

A woman looks up at a plane flying in the sky with arms outstretched as the Flight Centre share price surges
Earnings Results

Web Travel share price rockets 13% on market leading full-year growth

Investors are sending Web Travel shares soaring today. Here’s why.

Read more »

Happy shopper at a clothes shop.
Earnings Results

Why did Myer shares just rocket 9%?

Investors are piling into Myer shares on Friday. But why?

Read more »

A woman looks up at a plane flying in the sky with arms outstretched as the Flight Centre share price surges
Earnings Results

Up 78% since April, why is the Webjet share price taking off again today?

Webjet shares have soared 78% since 4 April and are lifting off again today. But why?

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
Industrials Shares

Guess which ASX 200 stock is crashing 24% on results day

Investors were not impressed with this result. But why?

Read more »

A man in full American NFL playing kit crouches over with his arms across his chest in a defensive stance against a dark background.
Technology Shares

ASX 300 tech stock charges 7% higher to record high on stellar results

This tech stock delivered another impressive result this morning.

Read more »

a group of people sit around a computer in an office environment.
Earnings Results

Guess which ASX 200 tech stock is rocketing 12% on record results

Another half, another record result from this high-quality company.

Read more »

A young man sitting at an outside table uses a card to pay for his online shopping.
Consumer Staples & Discretionary Shares

Why is the Kogan share price crashing 12%?

Profits are down at this ecommerce company during the second half.

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Resources Shares

Guess which ASX 200 mining stock is sinking 7% following its quarterly update

Let's see how this miner performed during the third quarter.

Read more »