Cash-rich Tower looks for buys

Tower is eyeing potential acquisitions after a strong financial result and earlier capital raising left it with more than $146 million in cash on its books.

The insurance and investment business yesterday announced a full-year net profit of $50.1 million, up 23.8 per cent on the previous year.

The market reacted positively with the share price rocketing up 12c to close on $1.94 - a new high for the year.

Chief executive Rob Flannagan said the result had been driven by growth across the business.

After-tax profits in Tower's health insurance business rose 88 per cent to $10.9 million while life insurance was up 5 per cent to $23.9 million. New business written in health and life was up 35 per cent, a move which Flannagan said was the fastest growth in the industry.

Its general insurance division was up 17 per cent to $17.3 million after it increased premiums and reduced the costs of claims.

Flannagan said claims had dropped by $3 million despite the Samoa tsunami which hit on September 30, the last day of the financial year, and cost Tower $5 million.

The investment business, the smallest part of the group, had also shown improvement with net profits growing 57 per cent to $5.8 million.

Flannagan said the division had cut costs by $6 million by reducing staff by 20.

He expected market conditions to continue to remain challenging for the next six to 12 months but said the company was well positioned for opportunities that would add shareholder value.

Flannagan said the business could stretch to an acquisition of $200 million and possibly more if it chose to raise more money.

"It's a question of what opportunities are out there. There are opportunities around but timing is always difficult because there is two parties."

Flannagan would not talk about acquisition potential but said Tower planned to stick to its core business.

"We will stick to doing what we are good at, it's easy to buy something but another thing to implement it."

But one analyst said it could be difficult for Tower to find acquisitions given the market was dominated by larger overseas players.

Market commentator Brian Gaynor said he did not expect Tower to make any quick moves under the helm of Flannagan.

"I think they will be very slow. My view on him is that he has always been a very careful manager. If Tower makes an acquisition it will be well thought out."

Gaynor expected any acquisition to be at the smaller end rather than a large business.

He said Flannagan had managed to trim costs at the business without damaging it.

"This is the best we have probably seen Tower in since it listed in 1989."