IAG share price hits fresh 52-week high: Is there any upside left?

The Insurance Australia Group Ltd (ASX: IAG) share price is climbing higher into the green in Tuesday lunchtime trade.

At the time of writing, the insurance shares are up around 1% to a 52-week high of $9.03 each.

The last time the ASX financial shares surpassed the $9-mark was in June last year.

But it hasn't been a smooth ride. IAG shares have gone through a couple of peaks and troughs over the past 12 months, swinging anywhere between $6.39 and the current $9.03 trading price.

The shares are now just over 13% higher than 12 months ago.

What pushed IAG shares to the latest high?

There hasn't been any price-sensitive news out of the insurer today. It looks like a continuation of a rally following the latest dip in between August to early October. 

IAG shares have been supported by the Reserve Bank's cash rate increases this year.

Because, as an insurance company, IAG collects its premiums upfront and pays claims later, the company holds a significant amount of cash.

As interest rates rise, IAG can reinvest its premium cash and shareholder funds into higher-yielding, low-risk fixed-income assets, which directly boosts its ongoing investment income.

With the official cash rate now at 4.85%, IAG can earn a higher interest income on its cash reserves, boosting its net earnings.

In company-specific news, it looks like the shares could also still be climbing higher following IAG's market update on its proposed alliance with the Royal Automobile Club of Western Australia (RAC) in mid-October.

IAG responded to competition issues previously raised by the Australian Competition and Consumer Commission (ACCC) and said that the alliance will "deliver the essential financial, technological and prudential resilience that RAC has been seeking through its strategy to partner with a leading insurer".

IAG said the proposed alliance adds a $1.2 billion in annual gross written premium.

Looking ahead, IAG expects approval of the RAC alliance to drive ongoing growth for its business and support its plans for Ambition 2030 targets of a sustainable 15% reported insurance margin and 15% return on equity. 

The ACCC formally opposed IAG's proposed alliance of RAC in late-September.

Is there any upside left for the IAG share price?

Market data shows the experts are split about the outlook for IAG shares, but the most likely case is for a downside ahead.

TradingView data shows that four (out of nine) analysts have a strong buy rating on the shares. Another four rate the stock as a hold and one has a sell rating on IAG shares.

The average $8.49 target price implies a downside of around 6% at the time of writing. But the difference between the maximum and minimum target prices is wide. Some tip the shares to fall another 14% to $7.75, and some forecast the shares to climb 3% higher to $9.25 over the next 12 months.

UBS confirmed its buy rating and put a $9.10 price target on IAG shares last month. The broker likes the company's robust home and motor policy pricing, leverage to higher bond yields, and potential upside from its proposed RAC acquisition. If that deal does not go ahead, UBS thinks a buyback is possible.

So is there any upside left? At the time of writing, I don't think so. I think we could see some more upside when we see the outcome of IAG's proposed alliance with RAC, but until then it looks like the shares have reached fair value.

The post IAG share price hits fresh 52-week high: Is there any upside left? appeared first on The Motley Fool Australia.

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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