QBE likely to consolidate after precipitous decline
Under long-time chief executive Frank O'Halloran, QBE was Australia's most adventurous (still surviving) insurance company, making scores of acquisitions and getting a hold in foreign markets.
The US business has recently come back to bite it and new CEO John Neal has taken the axe to American exposures. Hurricane Sandy losses, he said, would cost $US350 million ($A338 million) to $US450 million, crop losses in the US drought of $US355 million, and another $US786 million would stem from a blow-out on individual claims and a broom being run through other US exposures.
All that means the insurance margin will fall to 8 per cent from 12 per cent, the company has been forced to raised $US500 million in debt and a $US750 million to $US1 billion equity raising is on the cards. The market didn't like the news and pushed the stock down from $12.85 to a low of $10.88, from where it has recovered a little.
But if we take the long-term view on QBE, some interesting things are emerging on the chart, this week produced by Robert Brain, a director with the Australian Technical Analysts Association.
QBE has had quite a run in the last decade. In 2001, before September 11 spoiled the party, the stock tried to break through what was then a resistance level of $11.81. The fallout from September 11 clobbered QBE and it didn't break through the resistance until 2004.
Then there was a steep run-up through 2006 to the all-time high of $35.49 in August 2007. It is notable that the frenzy that drove QBE into the stratosphere was not accompanied by high volumes, as the lower chart shows, meaning investors did not widely support the irrational exuberance.
The steep fall from late 2007 was followed by kick-ups in 2008 and 2009 but the general market malaise eventually won out and QBE has been in a downtrend since the 2007 highs. Now the chart is showing what Brain calls a ''change in polarity'', with the $11.81 resistance point looking like a support level - meaning QBE may have plumbed the depths of its lows and could now consolidate.
Also observable in the volume chart from 2010 onwards is that, as the share price fell, there were some steep volume spikes, which would normally indicate large numbers of investors jumping ship. But their size and random appearance lead Brain to suggest they may be indicators of high-frequency trading carried out by computers.
A comparison of QBE's performance chart (not shown) over 10 years shows QBE has made investors about 30 per cent (excluding dividends), while competitor IAG is up about 80 per cent, and Suncorp, which also has a bank attached, is down about 4 per cent.
This column is not investment advice. firstname.lastname@example.org