Suncorp Group Ltd (ASX: SUN)

Cost management is crucial: Insurance group, Suncorp seems to be gaining some attention with the expectations of yielding better profits at the back of expected rise in premiums in the upcoming period. The diversification strategy of the banking business seems to be an added advantage. However, the rise in operating expenses (opex) over the past six months at the back of the Marketplace strategy is pointing towards some concerns. Nonetheless, insurance margins might still be sufficient for earnings growth. While group’s 1H18 result was mixed with top-line growth of 2.5% driven by solid growth in Consumer General Insurance and Banking, and net profit after tax (NPAT) impacted by natural hazard events in December 2017 and the investment made in both the Business Improvement Program (BIP) ($50 million) and accelerating the Marketplace ($36 million); SUN still announced for a good dividend payment and a positive outlook for FY19. SUN declared a fully franked interim dividend of 33 cents per share, representing a dividend payout ratio of 90.1% of cash earnings above the top end of the Group’s 60% to 80% dividend payout range, and the group is well capitalised with $381 million in CET1 capital held above its CET1 operating target. For FY19, SUN expects group top-line growth of 3% to 5%, driven by strategic initiatives and targeted growth in selected product classes leading to a cash ROE of 10% with support from other efforts and targets. It will be potential to see the benefits from SUN’s cost savings program, while we give a “Hold” on the stock (with annual dividend yield of 5.3%) at the current price of $13.89
 

Scentre Group (ASX: SCG)

Strong fundamentals: Lately, Scentre Group notified about its credit rating following a review of Moody’s Investors Service (Moody's) guidelines, and the Company moved to managing its financial ratios consistently with what the Group understood to be required for a Moody’s A2 long term rating. Moody’s Investors Service has lowered the long-term rating assigned to the Company from A1 (review for possible downgrade) to A2 (stable). As previously announced, the Group believes that debt capital market investors consider Moody’s A2 long term rating to be equivalent to the Group’s existing A long term rating from Standard & Poor’s Ratings Services. Meanwhile, the full year results for the 12 months to 31 December 2017, entailed Funds from Operations (FFO) of $1.290bn representing 24.29c per security, up 4.25%, and a distribution of 21.73c per security, up 2%. The Group has grown the value of its portfolio by more than 30% to $36.2bn. The Company has financial position with total assets of $37.5bn, gearing of 32.1% and liquidity of $2.7bn as at 31 December 2017. The group has the capability to maintain good returns and its ROE has been above the industry average in the last one year. SCG has also witnessed a good uplift in property valuations. We have a “Buy” recommendation on the stock (with annual dividend yield of 5.54%) at the current price of $3.92
 

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