Stocks’ Details

Suncorp Group Limited

New Operating Model: Suncorp Group Limited (ASX: SUN) is engaged in the provision of banking, insurance, wealth and other financial solutions to retail, corporate and commercial sectors. The market capitalisation of the company stood at $11.32 Bn as on 14^th July 2020. Recently, the company announced a new operating model and leadership structure in order to further improve its core insurance and banking businesses as well as to accelerate the Group’s digital and data-driven transformation. This mainly includes accountability for the performance of Insurance (Australia) to be assumed by two executives, wherein one will be focused on underwriting, distribution, brands, marketing, product design and innovation; and the other would be responsible for all aspects of claims management and operations; creating streamlined operations; and aligning group strategy and technology to fast-track digital and automation capabilities and opportunities. At the end of the March 2020 quarter, the Group’s Excess common equity tier 1 (CET1) stood at $682 million.

Excess CET1 (Source: Company Reports)

Increase in Natural Hazard Allowance: For FY21, the company expects a rise of $90 million in natural hazard allowance to $130 million. Sun anticipates a neutral impact on its FY20 P&L due to COVID-19, excluding investment market movements and bank impairment losses. The company is likely to release its FY20 results on 21^st August 2020.

Key Risks: The company’s business is sensitive to shift in customer expectations, technology and increasing competition. However, SUN’s customer strategy and business improvement plan focus on making it easier, faster and more convenient for customers. The company is also exposed to economic risk influenced by changes in investment markets and economic conditions across the globe.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: In the month of April 2020, the company experienced a significant rebound in some of its market indicators which resulted in net Mark to Market (MTM) gains of around $40 million. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Insurance Australia Group Ltd (ASX: IAG), QBE Insurance Group Ltd (ASX: QBE), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the new operating model to improve core insurance and banking businesses, MTM gains in April 2020 and neutral impact of COVID-19, we give a “Buy” recommendation on the stock at the current market price of $8.930 per share, up by 0.904% on 14^th July 2020.

Pendal Group Limited

Decent Growth in Funds Under Management: Pendal Group Limited (ASX: PDL) is a global asset management company with a market capitalisation of $1.86 Bn as on 14^th July 2020. For the quarter ended 30^th June 2020, the company reported a rise of 4% in funds under management to $89.4 billion. The company added that the June quarter witnessed a significant rebound in global equity markets from their March lows which generated growth in FUM. The company experienced a strong turnaround inflows into the US pooled funds with net inflows of $0.2 billion against outflows of $0.3 billion in the prior quarter.

Funds Under Management (Source: Company Reports)

Outlook: The company is continuing to invest in long-term strategic initiatives. PDL retains a decent balance sheet position and possesses a robust business model and management expertise, to deliver on growth initiatives.

Key Risks: Any change in price, interest rate, foreign currency due to investment and market volatility exposes the business to market risk. In addition, the group also deals with credit risk, which arises from the failure of counterparties in fulfilling contractual obligations.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company stated that its diversification strategy continues to provide resilience in the face of macroeconomic and market volatility. For the year ended 30 June 2020, the company has realized Pendal Australia performance fees, which helped in generating $13.6 million in revenue against $1.6 million in FY19. We have valued the stock using a P/CF multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Magellan Financial Group Ltd (ASX: MFG), Platinum Asset Management Ltd (ASX: PTM), Janus Henderson Group PLC (ASX: JHG), etc. Hence, considering the growth in FUM and revenue along with investment in long-term strategic initiatives, we give a “Hold” recommendation on the stock at the current market price of $5.870 per share, up by 1.91% on 14^th July 2020.

Genworth Mortgage Insurance Australia Limited

Growth in New Insurance Written: Genworth Mortgage Insurance Australia Limited (ASX: GMA) provides lenders with mortgage insurance in Australia. The market capitalisation of the company stood at $810.59 Mn as on 14^th July 2020. Recently, the company announced that its wholly owned subsidiary, Genworth Financial Mortgage Insurance Pty Limited, has agreed to issue $43,425,000 of new Floating Rate Subordinated Notes due in July 2030. During Q1 FY20, the company reported a growth of 18.5% in New insurance written and a Loss ratio of 47.1%. Business volumes and claims were supported by a recovery in housing markets and low-interest rates. The company reported a statutory loss of $125.6 million due to the impact of COVID-19.

Key Financials (Source: Company Reports)

Loss Mitigation Activities: The company continues to respond to market uncertainties with appropriate loss mitigation activities to work in tandem with the various stimulus packages, income support as well as home loan repayment deferrals. GMA seems well-positioned to work together with its lender customers to support Australian borrowers, with a strong capital base, leading market position, robust operational processes and an experienced team.

Key Risks: Risk of disruption to the lender market from a new or existing provider of mortgage risk transfer products can impact the company’s market share. GMA is exposed to business model risk, which arises from the inability of the company in responding to the business and economic cycle due to its monoline operating model. Moreover, concentration of the Gross Written Premium (GWP) with internal ratings-based (IRB) lenders, can adversely impact financial performance in the event of loss or partial loss of these lenders.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended Q1 FY20 with a prescribed capital amount (PCA) coverage ratio of 1.78x, which was well above the top end of the Board’s target capital range. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as AUB Group Ltd (ASX: AUB), PSC Insurance Group Ltd (ASX: PSI), etc., and arrived at a target price of low double-digit upside (in percentage terms). Hence, considering the decent performance in Q1 FY20, recovery in key markets and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.880 per share, down by 4.326% on 14^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.