Forsyth Barr broker Suzanne Kinnaird said Tower had indicated that its after-tax profitability is capped at $7.2million, given the reinsurance mechanisms it has in place for major events.
''In addition, [to Kaikoura] massive flooding has now cut Wellington off from Lower Hutt and the Kapiti Coast which is likely to eventuate in its own large claims profile,'' Mrs Kinnaird said yesterday.
Since September 6, Tower's shares have nosedived 44%, from $1.36 to 76c yesterday.
She said while Tower stock appeared relatively cheap versus comparative companies, given the risk of further Canterbury earthquake provisioning capital, returns are likely to be constrained and there was risk to Tower's capital positioning.
Mrs Kinnaird said Tower's target price had been downgraded 33% to 80c as the brokerage was no longer able to attribute value to surplus capital, due to the Canterbury provisioning concerns.
She maintained a ''neutral'' recommendation on the stock.
Mrs Kinnaird cautioned the key uncertainties ahead for Tower lay in the potential structural damage which had occurred in Wellington and the Hutt, and was still to be determined, and further aftershocks or earthquakes creating more damage.
Tower now has reinsurance contracts for about $750million pre-tax for major events, after accounting for the first $10million in claims itself, compared with original reinsurance ceilings of about $325million for the Canterbury earthquakes.
''The after-tax profit hit is likely to be limited to $7.2million,'' Mrs Kinnaird said.
