Stocks’ Details

Suncorp Group Limited

Robust Results Amidst Challenging Conditions: Suncorp Group Limited (ASX: SUN) provides insurance, banking and wealth products and services in Australia and New Zealand.

Half Year Performance Highlights: The company released the results for the half year ended 31^st December 2019. Group NPAT for the period was reported at $642 million, representing an increase of 156.8% on the prior corresponding period. The increase came on the back of profit on the sale of Capital SMART and ACM Parts. Moreover, the company witnessed improved growth in the Australian Consumer Insurance units, strong new business growth through digital distribution channels, and improved flexibility from a strong balance sheet. Profit after tax from ongoing functions was reported at $396 million, up 6.2% on the prior corresponding period PAT of $422 million.


1HFY20 Results (Source: Company Reports)

FY20 Outlook: The company is targeting for at least flat unit growth in Australian Consumer Insurance for FY20. Impairment losses for the period are expected to be at the bottom end of the range of 5 -15 basis points of gross loans and advances. The company expects regulatory project costs to increase during the year, with a gradual decline afterwards.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated negative returns of 5.73% and 7.47% over a period of 1 month and 3 months, respectively. Currently, the stock is trading below the average of its 52-week trading range of $11.930 - $14.155. The company’s strategic focus for 2HFY20 will be on improving the performance of core businesses, aligning the business with regulatory changes, improve operational efficiency by leveraging the investment in digital and data, and reduce costs. We have valued the stock using Price to Earnings based relative valuation method and for the purpose, have taken the peer group - Insurance Australia Group Ltd (ASX: IAG), QBE Insurance Group Ltd (ASX: QBE), NIB Holdings Ltd (ASX: NHF), etc. Therefore, we have arrived at a target price offering an upside of single-digit (in percentage terms). Hence, we give a “Hold” recommendation on the stock at the current market price of $12.350, down 1.279% on 11^th February 2020.

Challenger Limited

Decent Outlook for FY20:Challenger Limited (ASX: CGF) is an investment management firm focused on providing financial security for retirement.

First Half Highlights: During the six months ended 31^st December 2019, the company reported normalised net profit after tax amounting to $191 million, down 4% on pcp. Statutory NPAT came in at $220 million, as compared to $6 million reported in the prior corresponding period. Total life sales for the period went up by 15% to $3.1 billion, backed by the Japanese partnership and Australian institutional sales.


Key Performance Metrics (Source Company Reports)
 
FY20 Guidance: In FY20, the company expects normalised net profit before tax inclined towards the top end of the guidance range of $500 million - $550 million. Dividend for the year is expected to be same as FY19 at 35.5 cents per share, higher than the targeted pay-out of 45% - 50% of normalised NPAT.

Valuation Methodology:P/BV based relative valuation

P/B based relative valuation (Source: Thomson Reuters)

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

Stock Recommendation:The stock of the company generated returns of 6.35% over a period of 1 month. The company is investing in growth initiatives to reshape its Life business for the wealth management market. Dividends above the targeted pay-out represent the company’s strong capital position and confidence in future growth. We have valued the stock using Price to Book based relative valuation method and for the purpose, have taken the peer group - AMP Ltd (ASX: AMP), QBE Insurance Group Ltd (ASX: QBE), IOOF Holdings Ltd (ASX: IFL), etc. Therefore, we have arrived at a target price offering an upside of single-digit (in percentage terms). Hence, we give a “Hold” recommendation on the stock at the current market price of $10.100, up 13.867% on 11^th February 2020, taking cues from the half year results.

WAM Global Limited

Inaugral Interim Dividend Up by 50%: WAM Global Limited (ASX: WGB) is an investment company based in Australia.

Financial Highlights for 1HFY20: During the half year ended 31^st December 2019, the company reported operating profit before tax amounting to $38.8 million, up 185.7% on prior corresponding period.The Board declared an inaugural interim dividend amounting to 3.0 cents per share, up 50% on the inaugural final dividend for FY19. This increase came in as a result of the success of the investment portfolio and the company’s profit reserve.

Over the past one year, the company’s investment portfolio delivered returns of 28.2%, outperforming the MSCI World Index by 0.3% and  MSCI World SMID (Small/Mid)Cap Index by 1.2%.


Portfolio Performance (Source: Company Reports)
 
Stock Recommendation: The stock of the company generated returns of 9.85% over a period of 6 months. In 1HFY20, the company delivered decent results on the back of strong portfolio performance. Going forward, the company is optimistic about the conditions in the global equity markets and is focused on delivering value to its shareholders through a diversified portfolio of growth companies. Considering the performance in 1HFY20 and a decent outlook, we give a “Hold” recommendation on the stock at the current market price of $2.265, up 1.57% on 11^th February 2020.

Macquarie Group Limited

 
MQG Releases 3QFY20 Update:Macquarie Group Limited (ASX: MQG) provides banking, financial, advisory, and funds management services to its customers.
 
Recent Update: The company through a recent market announcement, conveyed its intention to raise $400 million through the offer of Macquarie Bank Capital Notes 2, which are expected to trade on the ASX under the code MBLPB. The securities will be issued at a price of $100 each, with the offer expected to open on 19^th February 2020.
 
3QFY20 Business Update: The company reported that the net profit contribution from the markets-facing businesses went down on the prior corresponding period. Due to lower investment-related income in Macquarie Capital, YTD net profit contribution also went down on the pcp. Group capital surplus at the end of the period stood at $5.8 billion, as compared to $6.7 billion as at 30^th September 2019. 
 
Financial results for 1HFY20 are depicted in the image below:
 

1HFY20 Results (Source: Company Reports)
 
Outlook: The company expects FY20 results to be slightly down on FY19, as a result of market conditions, impact of geopolitical events, impact of foreign exchange, tax uncertainties, etc.
 
Valuation Methodology: P/B Multiple Approach

P/B Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company generate returns of 19.97% over a period of 1 year and is currently trading very close to the 52-week high level of $147.550. We have valued the stock using Price to Book based relative valuation method and have arrived at a target price offering a correction of high single-digit (in percentage terms). Hence, considering the outlook, valuation and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of $145.530, down 0.554% on 11^th February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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