Are IAG shares expected to have another strong year in 2025?

Can this large stock ensure another strong return next year?

| More on:
A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

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

The Insurance Australia Group Ltd (ASX: IAG) share price has delivered an incredible return in 2024, rising by 50%, as shown on the chart below. Investors may be wondering if the ASX blue-chip share is capable of delivering impressive returns in 2025.

IAG is one of the largest insurers in Australia and New Zealand, with brands such as NRMA Insurance, CGU, WFI, ROLLiN', Swann Insurance, AMI, State, and NZI.

The company has benefited from the recent period of inflation due to higher premiums. But, inflation in Australia has reduced compared to 2023.  

Let's look at what IAG is expected to achieve in 2025, which could be very influential on the IAG share price.

Commentary on the ASX financial share

According to the broker UBS, the company recently held its 2024 investor day and told the market about organisational initiatives that "lay the foundations for growth".

UBS noted that technology is the "key enabler" here, with the progressive migration of its retail migration of retail and commercial divisions to new trans-Tasman platforms on track to deliver an approximate 100 basis point (1.00%) expense ratio reduction by FY27.

The broker noted that rather than raise its return on equity (ROE), the company is looking to recycle its productivity benefits into growth. UBS also believes that enhanced scale efficiencies could help IAG pursue new partnerships like the RACQ one with other motor clubs, original equipment manufacturers (OEMs), financial institutions and mutuals.

UBS noted that IAG expects the significant digital uplift and cost opportunity ahead for Intermediated Insurance Australia (IIA – CGU and WFI) to support improved market share and incremental margin upside even as the commercial pricing cycle slows. IAG also thinks there is potential for further capital optimisation at IIA.

On the growth investing, UBS recently said:

We expect this to assist IAG's competitive positioning as the pricing cycle slows, particularly in commercial given IAG's expense ratios remain well above peers, and to support further partnership opportunities in retail and potentially further down the track in commercial. However, value appears limited at a 19.4x PE, supporting our Neutral rating.

Financial predictions for IAG shares

UBS is projecting that IAG could generate $1.13 billion of net profit after tax (NPAT) in the 2025 financial year.

The broker is also predicting that the insurance giant could generate 46 cents of earnings per share (EPS), which puts the current IAG share price at 18x FY25's estimated earnings.

It's projected to pay a dividend per share of 29 cents, which translates into a forward dividend yield of 3.4%, excluding franking credits.

UBS currently has a price target of $8.55 on IAG shares, which implies that if the broker is correct, the insurance giant may only slightly rise over the next year.

Motley Fool contributor Tristan Harrison 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Financial Shares

A man and a woman sit in front of a laptop looking fascinated and captivated.
Financial Shares

5 ASX 200 financial stocks reporting next week

Earnings season is underway...

Read more »

Woman and man calculating a dividend yield.
Financial Shares

Own AMP shares? Here's what to watch out for in the upcoming result

This is what investors should keep an eye on.

Read more »

Businessman studying a high technology holographic stock market chart.
Financial Shares

Under $6.30 now, is this ASX 200 high-flyer set to soar after 74% Japanese sales growth?

Is this ASX 200 financial share set to rise?

Read more »

Multiple ASX share investors take on one another in a tug of war in a high rise building.
Mergers & Acquisitions

Up 116% in a year, Insignia Financial share price rockets again as bidding war heats up

Insignia Financial shares have just attracted takeover interest from a third suitor.

Read more »

man looking happy and excited as he looks at his mobile phone
Earnings Results

ASX 200 share jumps to record high after half-year profit rockets 151%

Investors have responded very positively to this company's strong half year results.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Financial Shares

Top broker forecasts IAG shares could benefit from this $1 billion prediction

Here’s how the insurance industry could give itself a boost.

Read more »

A golfer celebrates a good shot at the tee, indicating success.
Financial Shares

How this $6 billion ASX 200 stock is beating the benchmark on Monday

The ASX 200 stock is flashing a welcome green in Monday’s sea of red.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Earnings Results

Why this $1.2 billion ASX 200 stock is diving 6% today

Let's find out why investors are selling down this stock today.

Read more »