The Suncorp Group Ltd (ASX: SUN) share price rose around 1% as investors learned of a plan to do a spin-off.
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.
What Suncorp Is Thinking About
According to the Australian Financial Review’s Street Talk the part-insurer, part-bank is thinking about divesting its banking division into its own separate business with the help from investment bank UBS.
The AFR was told by sources that Suncorp CEO Michael Cameron likes the idea but the Suncorp Board is less supportive of the idea.
One of the main reasons that Suncorp is considering this move is the fact that Suncorp is valued at a much lower level compared to Insurance Australia Group Ltd (ASX: IAG). This line of thinking would be particularly applicable if Suncorp, as just an insurer, were to be valued at a similar price to earnings ratio afterwards.
However, at this stage no decisions have been made. Suncorp and UBS are just at the hypothetical consideration stage.
Suncorp has a bit of work to do to improve things and its profit. In the recent half year report the reported net profit after tax (NPAT) fell by 44.7% to $250 million with a write down of Life goodwill of $145 million. Suncorp also suffered from a 12.5% decrease of cash earnings to $413 million.
The growing costs of storms has been a real negative for Suncorp, which is why it said it would increase its natural hazard allowance from $720 million to $820 million in FY20 and purchase an additional $200 million of natural perils reinsurance cover to sit on top of the allowance.
A cynical investor might also say that Suncorp may be worried about the banking sector with Australia’s falling house prices. That’s why I would prefer to own the proven ASX shares in the free report below.
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