Brokers Still Mildly Positive About Nrma

Sydney Morning Herald

Thursday November 30, 2000

Anthony Hughes

Brokers have largely retained their positive outlook for NRMA Insurance's shares and financial position in the wake of its first annual meeting as a publicly listed company, despite disappointment about the reinsurance performance.

NRMA shares fell 4c to $2.84, just above the $2.75 August float price, as investors digested the first detailed profit update since September's announcement of full-year results.

Managing director Mr Eric Dodd, whose one million share rights were approved at Tuesday's annual general meeting, said at the meeting the group's inwards reinsurance portfolio had not performed to expectations but NRMA would still meet prospectus forecasts.

The comments come as Macquarie Equities' analyst Mr Tony Jackson said that NRMA was well-placed to acquire State Insurance. The NZ general insurance business, being sold by Commercial Insurance, would add about 10 per cent to NRMA's premium income. Royal & Sun Alliance could be another contender for the business, while Suncorp-Metway might also be interested.

Mr Jackson estimates the business could be worth $NZ350 million to $NZ375 million ($271 million to $290 million) and could be funded by debt.

``The timing might for various reasons fall into NRMA's favour. It would make a great deal of sense to debt-fund it, in keeping with the managing director's comments at the AGM," he said.

Mr Dodd said NRMA would either buy back its own shares, make a big acquisition and/or launch a debt or hybrid equity issue by next June to bolster its lazy balance sheet.

Macquarie values NRMA at $2.70 to $2.90 a share, with potentially another 15c to 20c of upside from such an acquisition.

UBS Warburg retained its buy rating and valuation of $2.59 and has a 12-month price target of $3.10.

``We were also pleased to see Eric Dodd again canvassing the capital management options as we still see the ability to use the surplus capital in a value-adding fashion as one of the major risks for this company," Warburg said.

Brokers like J.B. Were remain more cautious with a $2.55 a share valuation and a hold recommendation, noting the group faced a ``big task" to meet 2001 prospectus numbers given the uneven performance of equity markets.

But Mr Jackson said NRMA had ample reserves and had a conservatively stated balance sheet.

``I've always been quite confident about their ability to meet the insurance side of the forecasts," Mr Jackson said. ``Investments returns are somewhat in the hands of the gods. The aspect of the result the management will be rated on is the insurance result. This is a very well positioned and reserved insurer."

Credit Suisse First Boston has a buy on NRMA shares and a 12-month target of $3.15, though a base valuation of $2.60 a share.

``We believe NRMA's core strengths of risk pricing (using the database gathered from major market shares) and brand dominance, combined with a focused approach to cost cutting, constitutes a solid business case," the broker said.

© 2000 Sydney Morning Herald

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