Since early August, QBE Insurance (ASX: QBE) shares have fallen more than 16%.
For context, S&P/ASX 200 Financials (ASX:XFJ) index lost about 5% in the same period.
Earlier this month, Macquarie placed an outperform rating on QBE shares with a price target indicating roughly 15% upside.
However the team at Bell Potter is a little less optimistic.
Bell Potter released updated analysis on QBE shares last Thursday.
The broker has a hold recommendation on QBE shares.
Here's what the broker had to say.
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Concerns over slowing rate increases
In last week's report, Bell Potter said it sees the investment thesis on QBE as generally good, but with some concerns over slowing rate increases and potential rising inflation.
The broker said premium rates have been improving, ahead of inflation, showing that insurers retain pricing power, although rate increases are now slowing.
Profitability is seeing a strong underwriting profit, and investment returns are reasonable and stable (running yield) meaning the business is making a return on equity of 17.5% in FY25e.
The valuation is full, and in our opinion, and anticipates a lengthy continuation of a positive upcycle.
Hold recommendation from Bell Potter
The broker said at the half year results, it felt the company could be seen to be growing into a softening environment.
With a PCA capital ratio of 1.81 (after interim dividend), the company's capital is at the top of its target range (1.6-1.8x). This capital is being valued by the equity market at a premium to book value and the company is looking for ways to utilise its capital and grow into attractive areas.
The broker said it will review its forecasts post the Q3 update, noting the upside with the shares below $20.
However for now, Bell Potter has maintained its target price of $21.20 and retained its hold recommendation.
QBE shares closed last week at $19.64.
Based on this price target it appears QBE shares are hovering close to fair value, with an indicated upside of approximately 8%.
