Insurance Australia Group (ASX:IAG) AU$550 million post-dividend capital and AU$1.26 billion total excess capital may enable the resumption of its AU$350 million buyback program, according to a Thursday note by Morgan Stanley.
While the strong capital position could also lead to more predictable dividends, IAG'S potential acquisition of RACQ Insurance from the Royal Automobile Club of Queensland could impact the buyback plans, Morgan Stanley said.
Morgan Stanley believes that IAG should focus on a single deal at a time, given the challenges of slow integrations in financial services and investor preference for capital returns.
The acquisition is pending regulatory approval, and the investment firm expects that it could lead to 4% earnings per share accretion for fiscal 2026.
Morgan Stanley also noted conservatism in IAG's fiscal first-half results.
It expects the AU$120 million rise in reinsurance spend, including AU$30 million to AU$40 million from accelerated amortization, to boost future earnings.
Morgan Stanley upped IAG's price target to AU$8.35 from AU$8.05 while keeping its equal-weight rating.
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