Suncorp Group provides insurance and banking products and services to retail, corporate, and commercial customers in Australia and New Zealand. The company operates through Insurance (Australia), Suncorp Bank, and Suncorp New Zealand segments.
Suncorp Group (SUN) is a current holding within the ASX Blue Chip portfolio and announced its latest earnings report for the first half-year, with the market reacting positively with the shares up +3% today.
For the first half-year, Suncorp reported a revenue of $9.65 billion, up 17% on the previous year and above estimates of $5.618 billion, with cash profit rising +14 on the year to $660 million. The company announced net income had increase by +5.4% to $582 million, topping analyst forecasts of $563 million and expects its net interest margin to be around the bottom of its 1.85% and 1.95% target range, as competition in both lending and deposits has persisted. SUN recorded a net investment income of $395 million compared to $167 million in first half fiscal 2023, with Suncorp accrediting this increase to “Strong equity market performance, higher running yields and favourable mark-to-market movements across the General Insurance business.” However, the company expects investment yields to moderate as market forecasts for interest rate hikes ease, given a stabilisation in inflation and a pause in monetary tightening.
The company recorded an underlying insurance trading ratio, the insurance underwriting result plus investment income expressed as a percentage of the net earned premium, of 10.2%, a slight improvement on the previous reading of 10% a year prior. SUN have claimed that its insurance trading ratio is supported by strong premium momentum, offset by reinsurance and natural hazard costs, and claims inflation. An interim dividend of $0.34 is expected, up from $0.33 for the same period last year, with management targeting a dividend payout ratio of 60-80%.
The company is currently in the process of selling its banking department to ANZ Group in a $4.9 billion sale, with the acquisition getting a major boost after the Australian Competition Tribunal allowed the deal to proceed. Suncorp estimates its insurance businesses gross written premium to be in the low to mid-teens for fiscal 2024, maintaining its target for an underlying insurance trading ratio between 10% to 12% for remaining fiscal 2024. With the company expecting to incur a $70 million post-tax bank separation costs in the second half of fiscal 2024.
As a reminder, SUN’s inclusion in the Blue Chip portfolio is based on its dividend yield, which currently sits at 5.67% and its inclusion will depend on how the stock trades between now and the next rebalance date of March 1st, 2024.
