Suncorp Group Limited

Strong Base for FY20:Suncorp Group Limited (ASX: SUN) is engaged in the provision of insurance, banking and wealth products & services.

Organisation and Key Personnel Changes: The company recently announced the establishment of new Customer and Digital function, which will help to develop innovative, digital-first customer propositions. The new function will entail responsibilities including Digital Distribution, Customer and Digital Strategy, Brand and Marketing, and management of Enterprise Portfolio Management Office. Pip Marlow, the company’s CEO for Customer Marketplace has decided to leave the business, effective from the end of August.

FY19 Financial Highlights: During the year, the company reported NPAT amounting to $175 million, as compared to $1,059 million in the previous year. Insurance (Australia) accounted for the highest NPAT from ongoing functions amounting to $588 million followed by $364 million for Banking & Wealth, and $245 million from New Zealand business. New Zealand business reported outstanding performance with record profit owing to premium growth, claims improvements, and benign natural hazards.


FY19 Financial Summary (Source: Company Reports)

Cash earnings for the period were reported at $1,115 million, as compared to $1,098 million in the prior corresponding year. The company reported a final ordinary fully franked dividend of 44 cents per share.

The full year performance for FY19 was not as strong as expected, but the company exited the year with a solid foundation to build on in the next financial year. The company witnessed good progress on its Business Improvement Program that exceeded the increasing target number of customers interacting digitally.

Outlook: In FY20, the company is focused on delivering performance improvement across all three businesses. All programs of work will be aligned towards development of the core insurance and banking businesses. The company upgraded FY20 net Business Improvement Program benefits target from $329 million to $380 million.

Stock Recommendation: The stock of the company generated returns of 1.21% and 3.68% over a period of 1 month and 6 months, respectively. Although the company did not perform as strong as was expected in FY19, it laid a strong foundation for growth in FY20. The company has improved on its immunity through various measure including natural hazard allowance, reinforcement of high-quality investment book, a strong balance sheet and a disciplined approach to portfolio performance. Given the aforesaid factors, we give a “Hold” recommendation on the stock at the current market price of $13.090, down 2.167% on 15 August 2019.
 

Insurance Australia Group Limited

Decent Performance in FY19:Insurance Australia Group Limited (ASX: IAG) is engaged in the underwriting of general insurance and related corporate services and investing activities. The company recently updated on the appointment of Christine Stasi as the Group Executive People, Performance and Reputation, who will significantly add to the leadership team at Insurance Australia Group. The company with the help of a release dated 12^th August 2019 announced the appointment of Peter Horton as Group General Counsel. Mr. Peter Horton is expected to join the company by the end of 2019 from TransGrid, where he is Executive Manager Legal, Governance and Risk.

During the year ended 30 June 2019, the company reported gross written premium (GWP) growth of 3.1% along with FY19 GWP at $12,005 million, as compared to FY18 GWP of $11,647 million. GWP was mainly driven by higher rates and favourable foreign exchange effect against the New Zealand currency. Insurance profit for the period stood at $1,224 million, down 13.0% in comparison to FY18 profit of $1,407 million. Net profit after tax amounted to $1,076 million, up 16.6% on pcp NPAT of $923 million.


FY19 Performance (Source: Company Reports)

On the other hand, the company has been into discussions with external parties for the potential sale of its 26% holding in SBI General Insurance Company. In another update, the company talked about the uncertainty on the amount of hybrid security distribution scheduled to be paid in March and September on the distribution payment date for the previous quarter. The company could not ascertain the amount as it was not aware of the franking rate applicable to those distributions at that time. This came on the back of an announcement on August 2018 that security distributions may not be fully franked from the second half of CY2019. In the month of April, the company saw a filing of proceeding by Johnson Winter & Slattery against itself and a subsidiary, Swann Insurance (Aust) Pty Ltd.

FY20 Outlook: The company expects to deliver a low single-digit growth in GWP along with a reported insurance margin in the range of 16% - 18%. Underlying margin is expected to improve further in FY20, owing to increased optimisation-related benefits along with partial offset by increased regulatory costs.

Stock Recommendation: The stock of the company generated returns of -7.24% and 4.41% over a period of 1 month and 6 months, respectively. In FY19, the company improved on its underlying performance. The company performance well in Australia and maintained strong profitability in New Zealand. The company continued to improve on its underlying insurance margin, while the reported margin level was affected by higher costs from lower prior period reserve releases and natural disasters. Currently, the stock of the company is trading slightly below the average of 52 weeks high and 52 weeks low price of $8.74 and $6.53, respectively. Based on the mixed scenario, we have a wait and watch stance on the stock at the current market price of A$7.860 per share (up 0.512% on 15 August 2019).

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