Daily ShareChat: Tower

By Jenny Ruth

Friday 11th December 2009

Insurance company Tower's stronger-than-expected annual result had led him to upgrade his 2010 net profit forecast by 15.6% to $54.6 million and his valuation from $1.98 per share to $2.30, says Forsyth Barr analyst John Cairns.

"Over 2009, Tower experienced strong growth in individual and group life premiums, both in new business and in-force business volumes," Cairns says.

After-tax earnings from its health business near doubled to $10.9 million due to improved underwriting margins, he says.

Its general insurance underwriting result was up 36% to $14.1 million, driven by increased premiums and reduced claims cost.

Its funds under management grew 6% in the second half but were down 3.5% over the full year. Profit from investments rose 57% to $5.8 million.

"Tower is continuing to make operational improvements across its three business units," Cairns says. "Tower is in a robust financial position, capable of executing value-accretive acquisitions to build scale in its core existing business units," he says.

Any acquisition risk is mitigated by the involvement of Tower's 35% shareholder, Guinness Peat Group, he says. After its recent capital raising, Tower has $66 million in net cash.

Cairns expects Tower will target gearing between 20% and 30%, "implying potential acquisitions of around $200 million."

BROKER CALL: Forsyth Barr rate Tower as accumulate.

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