Daily ShareChat: TOWER Australia

By Jenny Ruth

Monday 31st May 2010

Tower Australia net earnings in the six months ended March, which were up 5% to $A28.4 million ($NZ35.4 million), suffered from an increase in life claim costs, says David Ellis, an analyst at Aegis Equities Research in Sydney.

"The first-half earnings result was below our expectations and we have reduced our full-year 2010 and 2011 targets to take into account the slower start to the year," Ellis says.

"We retain positive medium term earnings growth assumptions on the back of solid industry dynamics, improved sales performance, particularly in group risk, a recovery in investment markets, better claims experience and reduced unit costs."

Ellis says he is positive on the longer-term outlook for Tower due to its strengthening market position, well-balanced product and distribution platform, tight expense control and strong capital position.

Tower plans to raise $A96 million from a fully underwritten one-for-seven renounceable rights issued priced at $A1.85 a share ($NZ2.29 for New Zealand shareholders), a 20% discount to the theoretical ex-rights price.

Ellis says the capital raising is a surprise, "particularly as the life insurer maintains the

additional capital will be used for future unidentified growth opportunities." Even before the capital raising, its solvency levels are well above regulatory minimums.

Recommendation: buy.

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