Today it was Suncorp Group Ltd (ASX: SUN) who had its turn to report its half-year results to investors. With that report came some interesting figures and an insight into the impact of the natural hazards that occurred during the period.
Suncorp Group is a $17 billion insurance and banking company. It has its own brand of products but also operates under other familiar names like AAMI, GIO, Apia and Shannons.
Here Are the 5 Key Points
- Net profit down 44.7% to $250 million
- Cash profit/earnings down 12.5% to $413 million
- Underlying insurance trading ratio up from 9.4% in 1H18 to 12.2%
- Top-line growth of 3.2%, including 2.4% growth in bank lending
- A dividend of 26 cents per share was declared
Analyst Targets
Bloomberg’s analyst profit target for Suncorp was $603 million and the dividend target was 34.8 cents per share, so Suncorp missed the mark.
Management Commentary
Suncorp Chief Executive Officer and Managing Director Michael Cameron said that the large reduction in profit was a result of additional natural hazard costs and volatility in investment markets.
Despite this, he remained positive on the outlook of the business. He stated, “While the interim result includes natural hazard costs significantly above our allowance, as well as the impact of volatile investment markets, our underlying business remains resilient.”
He noted the top-line growth of 3.2% and a reduction in operating expenses as some positives for the half.
Going forward, he stated, “Natural hazards, investment performance and unforeseen regulatory costs will impact our full year Cash ROE. However, the business is well-placed on an underlying basis to perform in-line with our original expectations.”
Outlook
Suncorp is saying that its underlying operational performance is tracking in line with expectations. This can be observed by breaking down the sectors. In banking and wealth, profit was down only 1.1% to $183 million. This is in part to do with the banking royal commission.
Operations in New Zealand saw very strong growth of 82% to $111 million. The losses came almost solely from the insurance business, down 43.2% to $133 million. Suncorp is putting in place extra measures for FY20 to ensure the insurance business doesn’t hurt performance like it did in this half.
In FY20, Suncorp expects to increase natural hazard allowance from $720 million to $820 million and will purchase an additional $200 million in natural perils reinsurance cover.
My Take
I believe CEO Michael Cameron is correct in saying that Suncorp has a strong underlying business. The banking division performed reasonably well through a particularly difficult half for that sector.
However, the nature of insurance is that it can be unpredictable. Although Suncorp will be ramping up precautionary measures next year, you can never predict when the next natural disaster will hit. For me, I don’t see enough consistency in their profits to want to invest.
If you’re considering investing in Suncorp, you may also want to consider one of the other Australian banks. Here are some we’ve written about previously:
- Westpac (ASX: WBC) – The Westpac Share Price is Going Absolutely Bonkers
- CBA (ASX: CBA) – 1 Easy Way to Value the CBA Share Price Using Its Dividend
- NAB (ASX: NAB) – Here’s Why NAB Shares Could Flop
Our #1 ASX ETF Idea Of 2019
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
