Is the Suncorp (ASX: SUN) share price a buy after the financial business gave a COVID-19 update?
What is Suncorp?
Suncorp is a insurance and banking company. It has its own brand of products but also operates under names like AAMI, GIO, Apia and Shannons. It also operates a regional banking division called Suncorp Bank.
What was in Suncorp’s update?
The company said that it entered the COVID-19 period with a sound financial position. it had total excess (CET1) capital of $682 million at 31 March 2020. Suncorp said it had a conservative investment portfolio with more than 94% of investments in cash and fixed income securities.
Suncorp had strengthened its reinsurance and natural hazard allowance for FY20.
In terms of the early effects of COVID-19 the company said that Suncorp Bank’s collective provision is $133 million, which is 0.23% of gross loans and advances.
Suncorp expects lower consumer motor claims because we aren’t driving as much. It’s also expecting increased landlord loss of rent claims and negative movements of the investment portfolio. However, Suncorp said that if landlords and tenants agree a rent reduction, it won’t count as a defaulting tenant and does not trigger a claim.
Gross written premium is expected to be impacted by lower economic activity.
A review of Suncorp’s pay and leave entitlements has identified some incorrect payments to some employees, initial estimates for fixing this is between $40 million to $70 million.
Total FY20 costs are now expected to be just over $2.7 billion including the pay remediation. An impairment charge of around $90 million will also be recognised for the deposit and transaction modules of the banking platform.
Is the Suncorp share price a buy?
Suncorp expects natural hazard costs to be within the allowance whilst its lending portfolio is expected to contract in the final quarter of FY20 – the net interest margin (NIM) will be “towards the top end” of the 1.85% to 1.95% range.
The board will consider the final dividend through the year end process.
The Suncorp share price is up 1.8% today and down 27.5% since the ASX started falling. Perhaps there’s value at this lower Suncorp share price, particularly with the insurance side of things likely to do quite well. But I’d rather buy these technology shares with better growth prospects:
Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.