Suncorp Group earnings results

CommSec CommSec

 

11 February 2020

Results 

Half Year 2020

Half Year 2019

Change

Australian Insurance Gross Written Premiums (GWP) ($m)

4,176.0

4,101.0

+1.8%

Net Incurred Claims ($m)

(2,861.0)

(2,854.0)

+0.2%

Australian Insurance NPAT ($m)

123.0

128.0

-3.9%

Banking & Wealth NPAT ($m)

171.0

183.0

-6.6%

Net Profit ($m)

642.0

250.0

+156.8%

Cash Earnings ($m)

365.0

413.0

-11.6%

Interim Dividend ($)

0.26

0.26

-

Suncorp’s (SUN) profits fall short of market hopes 

What happened?

  • Suncorp (SUN) - one of Australia’s largest insurance companies and seventh biggest bank – posted an 11.6% decline in Cash Profit to $365 million between July and December 2019. The result fell well short of what many analysts were hoping for.
  • SUN will still pay eligible investors a $0.26 per share fully franked dividend on March 31 (the same as 12 months earlier). The company will trade ex-dividend on February 19. This is the key date that acts as a cut-off for determining whether an investor receives the next payment. 
  • SUN also owns brands like AAMI, GIO, Shannons, Terri Scheer and Bingle. It is of a similar size to Insurance Australia Group on the sharemarket (the owner of NRMA).

Why did it happen?

  •  SUN partly blamed the softer result on a lift in regulatory costs and a contraction in its home lending book. Profits declined across both its Banking and Insurance arms.
  • The company generated close to 60% of its profits from insurance. Its Australian insurance business posted a 3.9% fall in profit to $123m following a large number of natural hazard events over the half. Most significant were the devastating bushfires in late 2019 across NSW, QLD, VIC, TAS & SA. The bad weather continued in January and February with heavy rain, hailstorms and additional bushfires. Despite this, the company’s substantial reinsurance program has kept costs largely contained for now.
  • Its New Zealand insurance business posted a 10% fall in profit to $108m due mainly to increased natural hazard costs and remediation payments. 
  • Banking & Wealth profit slipped by 6.6% to $171m. A high level of competition in the industry resulted in a contraction in lending growth (SUN’s lending book is heavily skewed towards residential home loans). A lift in one-off fees and elevating operating expenses also held back the result. Its business lending portfolio contracted, mainly due to a reduction in agribusiness lending as the drought continues. While its Net Interest Margin increased by 2bps to 1.92%, it is still below most other Aussie banks.
  • You might be wondering why Net Profit more than doubled over the half. This was mainly due to the sale of two car repair & parts businesses (Capital S.M.A.R.T and ACM Parts), which boosted profit by $293m. Analysts and investors often pay more attention to Cash Earnings for this exact reason, as it strips out these one-offs that can skew results.

Where to now?

  • Looking forward, SUN said that second half earnings are well protected by its reinsurance program. It remains confident that costs should remain within its $820m allowance for the year. It expects its bank margins to remain restrained within 1.85%-1.95% as interest rates are stuck at very low levels.
  • SUN is yet to make a decision on whether or not to return proceeds from the sale of its car repairs business back to shareholders. Group CEO Steve Johnston said the company will be better placed to make a decision following an annual planning process in May.
  • SUN has kicked off a strategic review of its Wealth Business.
  • SUN shares fell heavily following these results, which means the insurer continues to underperform the broader ASX 200 so far this calendar year. There have been no major broker upgrades or downgrades at the time of writing. 

 

 


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