FBD to report increase of 257% in pre-tax profits

FBD is set to report a massive 257% increase in pre-tax profits tomorrow delivering €90 million to the bottom line compared to just €25.2m a year earlier.

The company, which has a market capitalisation of almost €600m following a sustained increase in the share price, remains on a buy recommendation with Dolmen Securities.

Dolmen analyst Stuart Draper made the prediction in a note to clients yesterday.

"We are forecasting profit before tax and operating earnings per share of €90m and €1.95 respectively, major increases on last year's comparatives of €25.2m and €0.75.

"Such very strong growth will largely have been driven by a major turnaround in the company's underwriting profitability, with a substantial improvement in claims taking place at the same time as premium income has continued to grow," he said.

Mr Draper said the group's property and leisure interests in Spain continue to make a significant contribution to profitability.

"However, with much of the strength of FBD's 2003 results now largely reflected in its current share price, the area with the greatest potential for a positive surprise on Wednesday, is the company's expectations with regard to underwriting trends in 2004," he said.

Mr Draper points out that premium reductions of between 7.5% and 10% were announced at the time of the interim results and believes there is significant political pressure to pass on further rate reductions to customers in response to the improving claims environment.

"Indications from the company on whether it sees a further improvement in its claims experience in 2004, and on whether it intends to pass this on to customers by way of further premium reductions, will be crucial to the near term direction of the share price," he said.

Mr Draper said that even though further modest premium reductions can be expected during 2004, the current consensus forecast of a 4% decline in 2004 eps to €1.84, may be overly rash in anticipating no further claims reductions.

"Instead, we are forecasting no year on year deterioration in the 2004 underwriting result, and that the 2004 eps will be maintained in line with the current consensus 2003 forecast of €1.92. This generates our current 12 month price target for FBD of €17.30 (20% further upside), which is based on 9x 2004 earnings," Mr Draper said rating the shares a buy.

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