Nrma: Has Done Better

Sydney Morning Herald

Friday June 16, 2000

By ANTHONY HUGHES

NRMA Insurance Group will go into its $4 billion listing later this year forecasting a lower 2000 net profit, although it expects earnings to rise in the year to June 2001, thanks to improved investment returns and early gains from the group's strategy of increasing its penetration in the financial services sector.

The forecasts are highly volatile and will depend greatly on investment markets.

In its prospectus, due out later this month, it is understood that NRMA Insurance is forecasting net profit will fall from $253.1 million for the year to June 30, 1999, to $162 million this year, but to rebound to $272 million in 2001.

The NRMA has yet to set an exact dividend forecast, though it expects to pay out 40 to 70 per cent of earnings.

Earnings per share is understood to rise from 10.9c for the year to June 2000 to 18.4c in 2001. This indicates an annual pay-out of nearly 13c a share, if NRMA pays the maximum 70 per cent of profits as dividends.

Lower investment income due to weak financial markets looks to be the greatest drag on the 2000 result, though NRMA is looking for a substantial improvement in 2001. The new board of NRMA Insurance Group will be constituted formally on Monday and is expected to sign the prospectus next week ahead of the formal launch at the end of the month and a sharemarket listing either in late July or early August.

Securities analysts for the lead managers to the public float have been telling institutional investors this week that NRMA would be worth about $4 billion, or $2.75 a share on listing, though a figure of closer to $3 is possible.

For the average shareholder with about 800 shares, this would value their holding at $2,200. A valuation by Ernst & Young Corporate Finance contained in the information memorandum valued each NRMA share at between $2.60 and $3.

The final hurdle to the float is Monday's deemed proxy meeting which is considered a formality, although it will allow NRMA members to reverse their vote if they wish. However, a last-minute appeal yesterday by renegade director Mr Richard Talbot has cast yet another cloud over the float. (See report page 27.)

Barring any hiccups in the timetable, the prospectus to be issued in early July will provide a share sale facility mechanism for existing shareholders to buy, sell or hold NRMA shares.

It is understood investors can apply to invest an additional $500 each in NRMA, although this amount may be scaled back according to demand. NRMA is selling 117.2 million shares through the facility and more shares will be up for grabs if NRMA shareholders decide to sell before the float.

It is now understood that 25 per cent of the total shares set aside under the facility will be available to existing NRMA shareholders, with the balance to be spread among local and offshore institutions. NRMA is hoping to see top-line growth, with net premium revenue tipped to rise from $1.96 billion in 1999 to $2.65 billion in 2001.

Expected to boost results is the first full-year effect of last December's alliance with RACV, covering personal insurances lines in Victoria, NSW and the ACT. NRMA is also budgeting on a 7 per cent rise in net profit in 2001 for the financial services division, due to higher sales of life products and more lending by the building society.

The forecast

*EPS to fall to 10.9c a share in year to June 2000 but rise to 18.4c in 2001.

*Dividend pay-out ratio to range from 40 per cent to 70 per cent of normalised earnings and aim for stable and rising dividends.

*Improved earnings from financial services and better investment returns in 2001 to underpin gains

© 2000 Sydney Morning Herald

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