Zurich Insurance Group: The turnaround is underway

9 years ago - Published by IG Bank in Commodities, Expert opinion, Finance

After falling by more than 40%, shares should begin to climb again.

The shares of Europe’s third largest insurer dropped by more than 40% in the space of a year from March 2015 to March 2016. The return of Mario Greco to the position of CEO in early March seems to have marked a significant turning point. Shares have begun to climb again, despite the USD 700 million disbursed for the acquisition of RCIS, and a 2nd quarter riddled with natural disasters which cost the Zurich Group USD 200 million. The recovery program put in place by Greco, particularly the ambitious budget cuts and a more disciplined management of high-risk insurance policies, seems bear fruit. With its dividend of more than 6%, boosted by a solid balance sheet, shares should also continue to spark interest, particularly on the part of pension funds in desperate need for yield.

The turning point is remarkably visible on the weekly chart.  Following a series of successive bearish waves, ZURN’s share price has formed a Double Bottom, typicaly a bullish reversal pattern. Shares recently broke above the downward trend line (in red) and the 200-day exponential moving average. The latter is also moving in upward, as indicated by the color change from orange to blue. It should be noted that the drop of almost 40% in 2015 is similar in magnitude to that of 2011, which could indicate that the shares have reached their lowest point. The Double Bottom is visible on the RSI, which today is clearly in bullish territory, above the median line, but still far from the overbought zone (RSI > 70).

The Plan: ZURN’s share price has recovered 38.2% of the drop between March 2015 and March 2016. This Fibonacci level around CHF 250, is an interesting entry point. The next resistance level is at CHF 275 between the 50% and 61.8% Fibonacci levels. Further down, the next support level is located at approximately CHF 230, the 23.8% retracement level.

BUY CHF 250
STOP CHF 228 (-8.8%)
TARGET ½ at 275 (+10%) and ½ at 330 (+32%)

 

 

Andreas Ruhlman
IG Bank Premium Client Manager / Market Analyst