Suncorp Group Ltd
(ASX: SUN) released its FY19 results this morning showing the full impact of the Royal Commission on the financial year. Here’s what you need to know.
About Suncorp
Suncorp Group is a $17 billion insurance and banking company. It has its own brand of products but also operates under names like AAMI, GIO, Apia and Shannons. Further, it owns a regional banking division called Suncorp Bank.
Here Are The Five Key Points
- Cash earnings increased 1.5% to $1,115 million
- Net profit after tax (NPAT) fell 83.5% to $175 million
- Total FY19 ordinary dividends of 70 cents per share, representing an 81.2% payout ratio
- New Zealand profit after tax increased by 81.5% to $245 million
- CEO of Customer Marketplace Pip Marlow will leave Suncorp effective from the end of August
Other Points
Suncorp is doubling down on its digital capabilities and establishing a new dedicated Customer and Digital function, which will have responsibility for areas such as Group and Customer Strategy, Digital Strategy, and Distribution.
Pip Marlow, CEO Customer Marketplace, has decided to leave the business as a result of these changes.
The Insurance segment took the biggest hit during the year, with profit after tax down 13.7%, while Banking and Wealth profit after tax fell by 1.4% and New Zealand profit after tax increased by 81.5%.
Analyst Estimates
According to Bloomberg estimates, analysts were expecting NPAT of $1.1 billion and a dividend of 39.5 cents per share.
Suncorp beat the dividend estimates with a fully franked ordinary dividend of 44 cps, as well as a proposed capital return of 39 cps (more on this in a minute). For a run down on what franking credits are, consider watching the video below.
With regards to NPAT, Suncorp appeared to come in well below estimates. The Group NPAT result of $175 million includes a $910 million after-tax non-cash loss on the sale of the Australian Life Insurance and Participating Wealth Business. Without this loss, the NPAT result would have been $1.085 billion, much closer to estimates.
While NPAT was down, total cash earnings did increase by 1.5% to reach $1.1 billion for the year.
Share Consolidation
Following the sale of the Australian Life Insurance and Participating Wealth Business, Suncorp paid a dividend of 8 cps. The Board now proposes to distribute the remaining surplus capital from the sale in the form of a 39cps capital return with a related share consolidation. This is a total capital return of approximately $506 million.
The share consolidation would see the number of shares on issue reduced by approximately 2.9% by replacing every 1,000 shares with 971 shares. This is subject to several approvals, including shareholder approval and court approval.
Management Commentary
Acting CEO Steve Johnston described FY19 as a watershed year but said the core business remains resilient.
“In a watershed year for the industry, dominated by the Financial Services Royal Commission, Suncorp’s purpose has never been more relevant,” he said.
“Despite higher natural hazards and a significant increase in regulatory costs, the core business remains resilient.”
“We are embracing regulatory change to strengthen trust and improve customer outcomes, leveraging our investments in digital and data, and driving efficiencies to optimise the Group’s cost base.”
Summary
There is a lot to unpack in Suncorp’s FY19 results but it’s clear that the Royal Commission and the sale of the Australian Life Insurance business had a huge impact on results.
While the dividends look tempting, it seems that Suncorp’s core areas of Insurance and Banking and Wealth have struggled this year. I’d be waiting to see improvements in those areas before thinking about investing.
For now, I’d rather invest in the businesses mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
