Recently, Suncorp and QBE Insurance, which deliver high quality products in the insurance sector, have come under a lot of scrutiny considering the headwinds prevailing in the sector and the way the companies operate.
Both SUN and QBE have been said to have encountered scepticism with regards to the managements’ ways of executing appropriate strategies along with a threat to their business models considering disruption from other financial digital platforms. It is worth noting that SUN has slipped about 10% in last three months while QBE has plunged about 20% (as at September 06, 2017). The stocks are now estimated to have lost a combined market value of about $8 billion since June 2017.
Suncorp (up about 0.56% on September 07, 2017), had reported about 4% growth in its FY17 Net Profit After Tax. Keeping the investors’ interests, SUN declared a final dividend of 40 cents per share (cps) fully franked that resulted in bringing the total dividend to 73 cps against FY16 figure of 68 cps. Top-line growth and lower claims supported the Insurance business. However, the Banking & Wealth business was impacted by investment in the Core Banking and Wealth platforms to support the Company’s strategy. The group has indicated about its intention to spend approximately $140 million pre-tax on a new marketplace platform for financial services (in an effort to reverberate the Amazon kind of a model). SUN’s version of the expense is highlighted as a one-off while related costs of the business have seeded a concern in investors’ minds.
Looking at QBE, the shares were rocketing quite high earlier this year with a boost from the economic growth expected under Trump’s administration. However, the company’s announcement on its profit downgrade at the back of the issues in emerging markets business has offset the momentum. Further, exposure to catastrophes and no respite with regards to inflation scenario has led the stock continue to move in the red zone. Interestingly, the group had booked a 30% rise in net profit of $345 million for HY17 on the prior corresponding period. To the likes of QBE, natural calamities this year and the overall challenging macro environment may pose some pressure on the margins for Suncorp as well.
On the other hand, the update on temporary extension of the US government’s debt limit has eased the pressure which the financial sector has been facing for the last couple of days. Amidst the volatile scenario, it will be prudent to watch out the trends of the two stocks along with the peers for future developments.
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