Suncorp Group Limited (SUN)
BUY

Outlook improving

 8 Feb 2023
Sector: Financials

1H23 RESULTS

Need To Know

  • In-line result at both an earnings/dividend line
  • FY23 outlook maintained. Expect market earnings revisions to be flat 
  • Pending sale of SUN Bank, and capital management the focus in 2H

The result benefited from strong insurance premium growth, and market share gains, whilst improved margins within the Bank along with a continuation of cycle-low bad debt charge also assisted. Cost control was also a feature.

Disappointingly the dividend did not get a boost from the release of the $150m Business Interruption provision. Ordinary DPS of 33cps equates to a 71% payout ratio – the midpoint of the 60-80% range. The group remains in a position of surplus capital.

Guidance was maintained for FY23, with the Group stating that the pricing environment is expected to remain strong, whilst claims inflation looks to have peaked.

No update on the timing (2HCY23) or progress of the sale of the Bank asset to ANZ – which requires regulatory approval to proceed. 

Investment View

SUN is the cleanest way to play the recovery in the domestic insurance industry, where profitability has halved in recent years. The industry has been through a rough couple of years following COVID and several large claim events, including the ongoing La Nina weather event.

Rising domestic inflation is giving the industry the ability to put through strong pricing gains to help offset rising claim and reinsurance costs. History suggests that the industry can hang on to these price gains once inflation fades. Higher interest rates on SUN’s investment portfolio are likely to be beneficial to earnings in FY23E. 

SUN has held market share relative to IAG which has been caught up in a range of company-specific issues, many of which remain work in progress.

Upside risk to market earnings estimates for FY24E looks increasingly likely, with premium growth and earnings growth of just 4%. The key catalyst in 2023 is the pending sale of the Bank asset for ~$4bn, which would open the door for capital management.

With earnings and dividend recovery expected in FY23E, SUN trades on PER multiple of 12x, one standard deviation below its long-term average. We maintain our BUY rating on SUN.

Figure 1: SUN has been lifting premiums in ahead of inflation over the last 3 years. 

View the latest Research Report

Stock Overview

Share Price

Company Overview

SUN is an Australia-based company that provides insurance, banking, wealth products and services through various brands in Australia and New Zealand.

Disclaimers and Disclosures

Issuer

The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").

Reliance

Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

General Advice

Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs. 

General Disclosures

This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au. 

Currency of Research

The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.

Access and Use

Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.

Equities Research Methodology

Please click here for information about MST equities research methodology.