Monday, March 11, 2019
Analysis of the Investment Opportunities in Amp and Qbe Essay
This study spendigates the opportunities to make an enthronisation decision in the midst of group A special and QBE Insurance Group curb. In order to find that, this study has do ratio compend, assay and return assessment, SWOT analysis and analysis regarding the wreak of the extraneous environment.Both adenosine monophosphate limited and QBE Insurance Group Limited argon in the insurance application whereas QBE provides customary insurance wait on and vitamin A has two business units which includes AMP financial Services and AMP Capital Investors. Considering profitability analysis, systematic risk and appeal control policy, expend in AMP Limited is found out to be a wear choice than commit in QBE Insurance Group Limited, flush though EPS and P/E ratio contrary the choice. This study has excessively done SWOT analysis on the insurance industry and remote environment analysis which may affect the investment decision. Therefore, after considering exclusively t hese analysis, this study concludes that commit in AMP limited decision would be worthwhile than investing in QBE Insurance Group Limited. 1.Introduction The objective of the report is to make a conclusive investment decision betwixt AMP and QBE companies based on educated analysis which includes ratio analysis, risk and return assessment, SWOT analysis and impact of external environment on the AMP and QBE. Therefore, companys financial performance, future profitability prospect associated with risk back end be speculated prior to the investment decision.2. Company pen As one of the largest companies in Australia, QBE Insurance Group Limited provides general insurance services not only in Australia, just now excessively in all all over the world. And for AMP limited, it is an Australian financial potty which focuses on insurance services to the customers in Australia and New Zealand.3. Risk opinion 3.1 Current ratio For the financial year ended 31st descent 2010, AMP has a legitimate ratio of 9.99 which is larger than the QBE figure 1.30. Since current ratio is a measure of short-term solvency of companies, the ratio indicates that AMP is more than liquid than QBE in 2010 financial year. In a historical befool from Table 1 in appendix, the current ratios of AMP were constantly larger than QBE figures in the past 10 year.3.2 Debt/ fair-mindedness ratio From the balance sheets provided by Annual Report Online Database (n.d.), the D/E ratios stern be careful as 29.36 for AMP and 3.08 for QBE in 2010 financial year. The enormous difference betwixt D/E ratios of the chosen firms indicates that AMP has bigger debt components in its upper-case letter structure than QBE does. The D/E ratios of AMP and QBE for years between 2006 and 2010 shows AMP shareholders are bearing more risks than QBE shareholders because of the heavy portion of debts the company has to breed value for each dollar in equity.3.3 Return on equity In 2010 financial year, AMP gi ves us a hard roe of 24.45%, compared with the hard roe of QBE which is 12.30%. The ROE figures indicate that each dollar in AMPs equity could gene dictate more profit than that in QBEs. From information provided in Fin Analysis Database (n.d.) and illustrated in Table 2 in appendix, we screw analyze the historical causes of the two companies. From 2005 the ROE ratio of AMP had a continuously growth above QBE and reach the peak of 52.43% in 2007. afterward that period, both(prenominal) AMP and QBE had slight contraction in ROE, however the ROE of AMP maintained larger than QBE till now.From the ratio analysis above, we can briefly conclude that the AMP has more risks in long-term solvency than QBE however, it is overmuch more profitable than QBE for each dollar invested in its equity. Considering analysis above, investing in AMP is better over QBE from the profitability point of view.3.4 dogmatic risk analysis 3.4.1 AMP Provided by Fin Analysis Database (n.d.), the central c oefficient of AMP is 1.73. The beta figure suggests that the systematic risk of AMP is great than the norm risk in the commercialize. Based on coupon rate of 5-year and 10-year government bonds as well as the market risk amplitude for 2010 provided by Pablo Femandez (n.d.), the expected return of investing in AMP is 14.78% for 5 years and 15.78% for 10 years.3.4.2 QBE From Fin Analysis Database (n.d.), the beta coefficient of QBE is 0.50, which is smaller than an average risky asset and the beta of insurance industry. The expected return of investing in QBE is calculated as 7.65% for 5 years and 8.65% for 10 years.As illustrated above, the systematic risk of AMP is larger than QBE, this result in a greater expected return on investment in AMP for a five to go years period.4. Return analysis 4.1 loot Per Share As we can see from the historical data from Fin Analysis (n.d.), as at 30/12/2010, the EPS of QBE was $121.73, obviously utmoster(prenominal) than that of AMP which was $36.90. For the subsist ten years, the EPS of QBE was generally indicated a trend of inactive growth from 2001 to 2007 and peaked at 2007 of nearly $225.67, however, from 2008 to 2010, the EPS started to decrease, especially decreased from $196.41 in 2009 to $121.73 in 2010. As for AMP, on the other hand, there was a prodigious change of EPS in 2003, during which time the EPS decreased from -$78.73 to -$399.86, afterwards it also had ups and downs, but the trend was quite smooth with an EPS around $40.00. Therefore, considering the trend in the last ten years, OBE has a higher EPS with reasonable fluctuation.4.2 Net Profit tolerance Net profit margin is commonly used to evaluate the authorisation of the companys ability of converting revenue into actual profit. During the last ten years, both AMP and QBE experienced a generally increasing trend in the Net Profit Margin except for the year 2008. The average net profit margin of QBE and AMP was around 5% and 10% respectively, wh ich indicates that AMP might get under ones skin a more effective cost control policy compared to QBE.4.3 P/E ratio (PER) As we can see from the database of Financial analysis (n.d.) which showed in Table 3, from 2003, the PER trend of both QBE and AMP were quite smooth without much fluctuations. Also QBE generated a moderately higher PER than AMP, which indicates that QBE yields higher returns and is more price sensitive than AMP.5. SWOT analysis 5.1 Strengths The life and the non-life insurance section in Australia are certainly considered as an attractive place where to do business, because both segments are expecting to grow over the future period more at a rate of 7% per annum compared to the growth rate for the industry as a whole.5.2 Weaknesses Non-life insurance premiums are barely developing because this segment is fully grown in vaned market, so it is laborious to invest and benefit to investors. There is also a lack of reinsurance capacity in the local market and the local market of investments is exposed to the requirements of the global market.5.3 Opportunities There is a strong linkage between life insurance products and retirement pension funds which mean the growth of the superannuation funds will benefit to life insurance in Australia. uncoerced motor insurance and non-life insurance are growing quite dramatically in Australia, so there is still a possibility of investments to these products.5.4 Threats The investment risks in connection with the popular insurance products are placed with the clients, not with the insurers. That is, fluctuation in global financial markets may easily have a negative impact on life premiums.6. Impact of external environment of insurance industry The world economy is not durable in recent several months. That means the growth of world economy cannot be reasonably guaranteed. It is due to the fact that two of the most important and largest stinting bodies in the world cannot seek appropriate solutions to t heir own economic problems.As the largest economy in the world, American economy has been in difficult situation and struggling since the world financial crisis. The US economic statistic data have revealed that the recovery of the Americas economy will plausibly be a long process. For example the unemployment level of the last half-dozen months in America is between 9 to 10 percent. It should be mentioned that the US average unemployment rate is 5.7 percent. Even though the data indicates that the US manufacturing industry rebounded last month, the probability of recession is still high.The economy of atomic number 63an Union (EU) is also experiencing difficulties. The European debt crisis has been spreading from Greece to Spain and Italy. It is an unambiguous fact that Greece is insolvent. Even though Spain and Italy is not insolvent, they have liquidity problems. The suddenly deteriorated finance in Europe has resulted in the loss of confidence of investors.The insurance indus try has been growing steadily since global financial crisis. But the natural disasters such as the climax and hurricane in Queensland have important influence on insurance industry .More specifically, QBE suffered from these catastrophes such as storms in Queensland and Victoria. Besides, the 12 tornadoes that happened in America and Christchurchs fourth major earthquake in New Zealand also affected QBEs profit. But these natural disasters failed to decrease QBEs profit. Instead, it was the contraction in insurance margins led to the shares of QBE to decrease.7. Conclusion In conclusion, AMP limited is better choice than QBE Insurance Group Limited to invest due to high profitability opportunity, considering systematic risk and cost control policy although EPS and P/E ratio indicates in favor of QBE. According to returns, AMP is jolly better than QBE in terms of investment decision. Therefore, it would be highly recommended to invest 1 million dollar in AMP limited quite than Q BE Insurance Group Limited.