KEY POINTS:
Tower Australia is to pay a dividend later this year, despite struggling amid tough competition in its first few months as a standalone company.
The company, Australia's only listed specialist life insurer since splitting from its smaller New Zealand parent late last year, will pay out 25 per
cent of net profit to shareholders at the full year, said chairman Keith Barton.
Last year, as a division of Tower Group, Tower Australia achieved a net profit of $48.7 million.
Assuming a flat full-year performance this year, shareholders would see a dividend of about 3.6c a share.
Managing director Jim Minto confirmed the payout would not be significantly above that level.
"It's quite a modest amount, but it's a start," he said.
"We have been investing more money into the business.
"We'd prefer investors saw Tower as a growth stock rather than an income stock."
However Tower Australia's shares sank to their lowest level since listing in late November after the company announced a 3 per cent decline in interim net profit to A$17.1 million ($19.2 million).
The shares recovered to close unchanged at A$2.30, having fallen as low as A$2.16.
But that's still a far cry from the A$3.20 the shares achieved within weeks of listing.
Credit Suisse analyst Arjan van Veen believed the underlying numbers, including a 16 per cent increase in operating earnings, were good but the bottom line was distorted by some big abnormal non-cash items which resulted from the implementation of IFRS (international financial reporting standards).
"The A$17 million headline is actually A$25 million if you adjust for a couple of big abnormals - not even all of them."
However, given Tower's history early in the decade of producing results marred by significant one-off costs, the market was unwilling to look past those factors, and it also had a prevailing view that intense competition in the group or corporate life insurance sector was driving down profit margins.
Van Veen believed the impact of that competition on Tower's trading was being overestimated and the market reaction was overdone.
"Take all those things out, we think it presents an interesting investment opportunity for longer-term investors."
Although the initial market reaction was disappointing, Minto said he was pleased with the result overall.
"There is some good underlying growth coming through."
Personal life insurance business was still growing strongly in spite of the market's negative view of the industry and Tower was holding market share in the group sector even after the well-anticipated loss of a mandate with Commonwealth Bank of Australia's funds management arm Colonial First State worth about A$40 million a year in premiums.