QBE Insurance Group Ltd (ASX: QBE) shares could be in the buy zone following its quarterly update.
That's the view of analysts at Bell Potter, which have just upgraded the insurance giant's shares.
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What is the broker saying?
Bell Potter was relatively pleased with the company's quarterly update, noting that management has reaffirmed its guidance for a combined operating ratio (COR) of 92.5%. It said:
The Q3 update was benign and much as we expected. The company continues to expect an attractive COR of 92.5% for FY25, and this expected to continue into FY26. Gross Written Premium rose to $18.6bn an increase of 6% at the headline, and excluding rate increases this is 5% underlying, or 6% excluding the $250m of US noncore run-off and crop rates.
Rate increases continue to be weak around ~1.5% in the 9m, or around 4% excluding property. This compares with 2% at the HY. The company did not disclose rating trends by geography and quarter as it has done in previous years. Using a weighted average of Q1, Q2 and Q3, we estimate group renewal rates would have been around -1% year-on-year in Q3.
Three reasons to buy QBE shares
Bell Potter has upgraded QBE's shares to a buy rating for three key reasons.
These include capital returns, management confidence in its COR outlook, and its fair valuation. It explains:
We move our recommendation to buy on three improvements. 1/ The return of capital to shareholders, which switches the capital equation from retaining capital for growth, to writing for profit and RoCE. 2/ Management remains confident about writing at a 92.5% CoR in FY26, seeing options to maintain profitability. 3/ The valuation is much less stretched, with the shares at 1.5x FY26 NAV with an RoE of 15.5%. The share price is now in buying territory. We increase our assumptions, improving the COR ratio by 66bps in FY25, and 86bps in FY26. Our forecast EPS increases by 4.1% for FY25, 6.6% for FY26, and 0.5% for FY27.
According to the note, the broker has put a buy rating (from hold) and $21.80 (from $21.20) price target on its shares. Based on its current share price of $19.25, this implies potential upside of 13% for investors over the next 12 months.
In addition, Bell Potter is expecting a 4.8% dividend yield over the period, which boosts the total potential return to almost 18%.
