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Stocks
Stock picks for the long haul: QBE Insurance Group and Leighton Holdings Ltd
Jill Fraser - December 5, 2007
Fund manager stock pick: QBE Insurance Group and Leighton Holdings Ltd
Current share price: QBE Insurance (QBE) $31.80; Leighton Holdings (LEI) $59.41
Fund manager: Mark Daniels, Aberdeen Asset Management
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Mark Daniels, Aberdeen Asset Management | In this section, CompareShares picks fund managers' brains for the stocks to watch in the year ahead. Jill Fraser reports
Market watchers this week tipped switching to value stocks due to slowing global growth rates and mounting fears of a US recession. Aberdeen Asset Management's Mark Daniels shares this view, favouring QBE Insurance as a fine example.
Daniels gives credit to QBE’s "fantastic management team" for its impressive track record. The big insurer is currently trading at $31.80 and Daniels has confidence in it as a long-term performer. Aberdeen Asset Management does a projected three-year assessment on all its stock.
"If you’re investing in a company you’re backing management and QBE is the best run insurance company in Australia; just ask the market," Daniels declares.
QBE is a Sydney-based general, property and motor vehicle insurance provider that has operations in the Americas and Europe.
In February it reported an annual net profit for 2006 of $1.483 billion, a 36 per cent improvement on the previous year. At the time the group’s Chief executive Frank O'Halloran predicted the company’s three US acquisitions would ensure tremendous growth in 2007 and 2008.
Daniels maintains that O’Halloran, the architect of the group’s expansion and CFO, Neil Drabsch are pivotal players in QBE’s success.
"They have been with the company for a long time, are pretty conservative, have a really good handle on their business both in Australia and internationally and always deliver on expectations," he says.
Goldman Sachs JBWere summed up their report on QBE’s 1H07 NPAT of $921m that came in 12% above consensus as "an impressive outcome; defensive with upside = buy".
The report noted that the company's risk management continues to leave most local and global peers in the shade. It is close to completing a new reinsurance arrangement which, from 1 Jan 2008, will limit its group wide exposure to large and catastrophic claims to around 8.5% of premium. So we would continue to buy the stock (up to at least $33).
Daniel’s second stock pick is construction company, Leighton Holdings, which reaffirmed this week that it expects profit growth of 30% in the 2008 business year.
The big contractor, Australia’s largest, is currently trading at $59.41. Goldman Sachs JBWere increased its fiscal 2008 and 2009 earnings per share forecasts by 4.2% and 5.6% respectively based on the group’s strong first quarter in which revenue was up 9%.
Its share price has set record highs this year and climbed from nearly $7 to $56 in three years. Daniels maintains that with contracts that total $21 billion under its belt it will continue to outperform the market.
"They turn over around $1 billion a month," he says. "They have 25,000 workers in Australia and will probably double that with their joint venture in the lucrative Gulf market."
In September it acquired a 45% stake in Middle Eastern building company Al Habtoor Engineering for $870 million and the company's shares immediately leapt from $2.86 to $46.70.
Al Habtoor is one of the Middle East's biggest engineering firms and one of the builders of Dubai's sail-shaped Burj Al Arab - the world's tallest hotel.
The investment in the Dubai-based builder gives Leighton a foot in one of the world's biggest building markets. The acquisition of 45% of Al Habtoor made a significant impression on Leighton’s first-quarter result.
Leighton, 54% owned by Germany's Hochtief AG, is looking at further possible acquisitions to diversify and/or expand its business in Australia into Asian regions.
Leighton Group companies offer a broad range of project development and contracting services and skills to public and private sector clients from a wide range of industries. Project development skills – infrastructure, property or resources-based – and project management of construction and property developments complement the Group’s contracting activities. These activities include construction, mining and services.
Last month its HWE contract mining unit won a two-year extension from BHP Billiton worth $600 million at one of its iron ore mines in the Pilbara region of Western Australia. Later that month Leighton Contractors secured a $163 million contract to undertake site preparation bulk earthworks at the new Burrup Liquid Natural Gas Park site on Western Australia’s Burrup Peninsula near Karratha.
Leighton subsidiary John Holland and McMahon Holdings, in which the company has a 15 % stake, are the preferred partners to build the controversial $1.7 billion Gunns pulp mill in Tasmania.
More articles from this edition of CompareShares:
Investing: How to make money from new energy plays
Stocks: Stocks for the Long Haul: QBE and Leighton Holdings
Resident Trader: A frustrating foray into forex
Trading: The ultimate guide to trading shares for beginners - part 4
Markets: Cash injection won't help liquidity crisis
Economics: Inflation pressures just tommy rot
Outlook: The impact of commodities prices on mining companies
Rates: RBA leaves rates on hold
IPOs: Surge of IPOs deliver scant returns
Markets: ECB, US officials downbeat on recovery
Whatever your views, you can discuss this article - or any of Jill's articles - on our message board Your 2 Cents.
Jill Fraser has 25 years' experience in the media as a radio producer on 2UE and journalist for News Ltd, Australian Consolidated Press and Key Media.
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