Tower’s profit up, shares go down

Tower said its core full-year profit would be as much as 75 per cent ahead of last year, but the company's shares plunged 11 per cent after the profit update yesterday as they were sold off by investors who had been expecting even better things.

The shares finally closed 24c down at $1.86.

The insurance company said its core after-tax operating profit excluding revaluations, goodwill and one-offs, such as the sale of its Australian Wealth Management business (AWM) earlier this year, was expected to be in the range of $40 million to $43 million - up 63 per cent to 75 per cent on last year.

Tower Group chief executive Jim Minto said once revaluations, amortisation and AWM sale gains were added in, the company's full-year net profit would be "much higher" than last year's.

But while Minto was pleased with Tower's performance, the company had issued the guidance yesterday to hose down even higher market expectations.

"Even though we're 75 per cent higher, a few analysts think we could be higher still. So we felt it was important to tell the market right now so that it was well informed of how we were going."

Macquarie Equities investment director Arthur Lim said his firm was one of a number expecting a better core profit from Tower. Macquarie had been forecasting a net profit before revaluations, goodwill and AWM of $53.1 million.

"The guidance they've provided is significantly lower than what the market has been expecting," he said.

Nevertheless, Tower's turnaround was "on track and progressing", said Minto, who was appointed chief executive earlier this year to oversee the financial services giant's ongoing fightback from a disastrous start to the decade.

While Tower was seeing good year-on-year growth in the troublesome Australian market, Minto said the company's New Zealand insurance division had suffered from service hiccups.

"While these have been substantially remedied, the 2005 operating result in New Zealand has been adversely impacted."

Lim said the New Zealand risk businesses' underperformance appeared to be behind the lower guidance.

"Operating margins look to be a lot lower in the second half and it seems to be related to a continuation of problems they've had amalgamating the various New Zealand offices. Declining new business levels, increased lapses, restructuring charges - a combination of all of those appears to be impacting on their New Zealand operations."

Minto said the company was not ready to comment on whether it would resume dividend payments.

But Lim said a final dividend was now unlikely.