Insurance Australia Group Ltd (ASX: IAG) shares are trading at $8.45, up 0.6% at the time of writing.
Top broker Macquarie has issued a new note on the insurer and predicts a "strong" FY25 first-half result next month.
Let's find out why.
IAG shares in the green on Tuesday
IAG is one of the largest general insurers in Australia and New Zealand. Its insurance brands include NRMA Insurance, CGU, WFI, ROLLiN', Swann Insurance, AMI, State, and NZI.
The business has been going gangbusters amid high inflation, which allowed it to raise its insurance premiums. Like all insurance companies, IAG has also benefitted from higher bond yields.
In FY24, IAG reported a 7.9% year-over-year increase in net profit after tax (NPAT) to $898 million. Its insurance margin lifted 6% to 15.6% and gross written premiums (GWP) rose 11% to $16.4 billion.
In November, IAG announced it would use surplus capital to acquire 90% of RACQ's insurance underwriting business, with the option to buy the remaining 10% in two years on the same terms.
The deal will cost IAG $855 million but is expected to add $1.3 billion to IAG's GWP.
IAG is due to report its FY25 half-year result on 13 February.
According to The Australian, Macquarie expects a "strong" set of figures, particularly due to "very positive weather" conditions throughout 1Q and 2Q FY25.
Weather is a key risk for insurance companies, as major events require large payouts to customers.
Macquarie analysts note that IAG shares are currently trading at about a 3% price-to-earnings (P/E) ratio premium to overseas competitors.
Meantime, IAG's chief rival in Australia, Suncorp Group Ltd (ASX: SUN), is trading at a 1.6% P/E discount, which Macquarie analysts said "does not make sense to us".
What do other experts think of IAG shares?
Goldman Sachs has a neutral rating on IAG shares with a 12-month price target of $8.05.
Ord Minnett has an accumulate rating and a $9.30 price target on IAG shares.
UBS has a neutral rating and an $8.55 price target. It notes that "value appears limited at a 19.4x P/E".
However, UBS is bullish on the outlook for IAG's business.
It expects the company to accelerate its NPAT growth by 45% to $1.13 billion in FY25.
The broker predicts this will flow through to higher dividends for investors.
UBS predicts IAG shares will pay an annual dividend of 29 cents per share in 2025, up from 27 cents in 2024.
What happened to the IAG share price in 2024?
IAG shares were among the top 10 best-performing ASX 200 large-caps for share price growth last year.
IAG shares ripped 49.5% higher to close out the year at $8.46 per share.
By comparison, the benchmark S&P/ASX 200 Index (ASX: XJO) rose by 7.49%.
