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In today’s daily we have covered stock research on Suncorp (Expensive).
The S&P 500 was down by 29.95 points or 1.44% on Tuesday and closed at 2048.77 points. U.S. stocks fell on Tuesday as the dollar rose to a nearly 12-year high against the euro and bond yields in Europe hit record lows. The Dow Jones Industrial Average dropped 276 points, or 1.5%, to 17720. The S&P 500 index fell 29 points, or 1.4%, to 2050, and the Nasdaq Composite lost 69 points, or 1.4%, to 4873. Nine out of the S&P 500’s 10 sectors were posting declines, with utilities stocks the only sector posting gains.
Barnes & Noble fell 9.1% as its fiscal third-quarter earnings fell short of expectations amid a sharply higher income tax expense. American Airlines Group Inc. shares fell 1.1 % as the airline said passenger traffic declined in February. Rival airline United Continental Holdings Inc.’s shares also declined, down 2.1%, as its capacity fell slightly in February from the year-ago period while passenger traffic was unchanged. The CBOE Vix equity volatility index — often called Wall Street’s “fear gauge” — was up 12 per cent at its highest level in nearly a month.
Barnes & Noble Daily Chart (Source – Thomson Reuters)
S&P ASX 200 was up by 2.9 points or 0.05% on Tuesday and closed at 5824.2 points.Commonwealth Bank of Australia was up 0.2 per cent to $90.68, while Westpac Banking Corporation was up 0.8 per cent to $37.67, ANZ Banking Group gained 0.4 per cent to $35.30, and National Australia Bank was up 0.4 per cent to $35.30. Telstra was up 1 per cent at $6.20. Biotechnology giant CSL was up 1.3 to $93.52 and Amcor gained 1.6 per cent at $14.57.
The supermarkets were mixed. Woolworths lost 1.5per cent to $29.36, while Wesfarmers, owner of Coles, was flat at $43.60. Sundance Energy was the best-performing stock in the ASX 200, climbing 6.9 per cent to $0.54. BC Iron was the worst-performing stock in the ASX 200, losing 7.4 per cent at 38¢, as the tumbling iron ore price took more casualties. QBE joined the miners in dragging the sharemarket down, losing 3.7 per cent to $13.30.
Sundance Energy Daily Chart (Source – Thomson Reuters)
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Stock Of the Day - Suncorp (Expensive)
Suncorp’s (SUN) financial results for the half year ended 31 December 2014 indicated a better than expected net profit after tax (NPAT) of $631 million illustrating an increase of 15.1% over HY14; and profit after tax from business lines of $681 million indicating a rise of 14.1% over HY14. The interim dividend of 38 cents per share fully franked is slightly more than that of HY14 of 35 cents. The return on equity rose to 9.4% in comparison to 7.9% of HY14. The New Zealand operations contributed to around $95 million. The operating expenses shot up by less than 1% to $1,366 million.
HY15 Result Overview ($m) (Source – Company Reports)
In terms of divisional results, general insurance NPAT of $419 million was also slightly above that of HY14. There was a 0.3% reduction in gross written premium (GWP) excluding fire service levies (FSL) to $4,288 million. Reserve releases were reported to be of the order of $214 million owing to claims management and a benign inflationary environment and were $155 million above expectation of 1.5% of Net Earned Premium (NEP). With regards to bank division, SUN reported the NPAT to be of the order of $176 million in comparison to $105 million of HY14. An increase to 1.86% was noted for bank Net Interest Margin (NIM) from that of HY14. However, gross Non-Performing Loans were down 15%. Life NPAT of $86 million as opposed to $22 million of HY14 with positive claims and lapse experience was noted.
Bank Lending Portfolio (Source – Company Reports)
Going by the above, pressure in terms of GWP and weakening of underlying margin is further expected. Nonetheless, we see that bank and life divisions have illustrated an improvement in results and both may yield earnings growth in the near term.
Top line Growth (Source – Company Reports)
Quite recently, SUN announced about the financial impact of Tropical Cyclone Marcia and associated flooding in Queensland that entail claims of about 10,000 across insurance brands including Suncorp, AAMI, Apia, GIO and Vero. Primarily, the claims relates to damaged homes in the Central Queensland towns of Rockhampton, Yeppoon, Biloela and Maryborough; and a cost between $120 million to $150 million (pre-tax), net of the 30% proportional quota share arrangement covering the Queensland home portfolio has been estimated. In view of the above, SUN expects the natural hazard expenses for the financial year to date to be in the range of $690 million to $720 million which is well above the Company’s yearly allowance of $595 million. SUN reported that the return on equity target of 10% for FY15 looks out of reach given the Brisbane Hailstorm in November 2014 and Tropical Cyclone Marcia in February 2015. These events are not expected to alter the stance for the margins in the near future in favor of SUN. The cyclical impact on commercial insurance along with shaky high margins in personal lines given market share losses in home and motor indicate a bearish outlook.
Suncorp Daily Chart (Source - Thomson Reuters)
The Company may still be able to pay a special dividend of 15cps in 2H15 in support from excess capital of about $627 million and franking credits of about $168 million. However and as per the Company’s outlook, condensed growth across the general insurance division with moderate lending growth in the Bank has been indicated that made SUN to bone down the target FY15 growth to a low single digit (from 4-6%).
Accordingly, we believe that the stock is EXPENSIVE at the current price of $13.33.
Team Kalkine
Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147
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