Suncorp Group Limited

SUN Details

Claim Assurance in the Midst of Calamity: Suncorp Group Limited (ASX: SUN) provides insurance, banking and wealth products to its customers. The market capitalisation of the company as on 23 March 2021 stood at ~$12.70 billion. As per a recent update, the company has announced that it will assist the insurance and banking customers after the heavy rainfall and flooding across New South Wales and South East Queensland region. It has received around 1,300 claims as of 22 March 2021, and it is expected to rise over the next few days.

H1FY21 Performance Update: The company delivered a resilient performance during the period, with Insurance (Australia) reporting profit after tax from continuing operations at ~$258 million, compared to ~$123 million during the previous corresponding period. The Gross Written Premium grew by 4% to ~$4,344 million in H1FY21. The Banking & Wealth division delivered a profit after tax from continuing operations to ~$190 million, compared to ~$171 million on the pcp. There was an improvement of 4% in the net interest income to ~$618 million.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company will continue to reassess its capital position taking into account the business needs and the economic business scenario. It will look to invest in analytics to improve the pricing and risk selection in its insurance business.

Key Risks: The company operates in a sector that is exposed to the risk of any event which may give rise to natural calamity or the onset of pandemics like the present one in the form of COVID-19.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The cash position of the company is at $1,234 million as of 31 December 2020. As per ASX, the stock of SUN is trading above its average 52-weeks’ levels of $7.30-$11.110. The stock of SUN gave a positive return of ~17.47% in the past six months and a positive return of ~0.81% in the past one month. On a technical analysis front, the stock of SUN has a support level of ~$9.657 and a resistance level of ~$11.106. We have valued the stock using a P/BV multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer median P/BV (NTM Trading multiple), considering the resilient performance in a difficult time of operation and increase in GWP across all key channels. For the purpose, have taken peers such as QBE Insurance Group Limited (ASX: QBE) Steadfast Group Limited (ASX: SDF) AUB Group Limited (ASX: AUB), to name a few. Considering the expected upside in valuation, decent financial performance in H1FY21 and an increase in GWP, we recommend a ‘Buy’ rating on the stock at the current market price of $9.880, down by 0.404% as on March 23, 2021.

SUN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

WAM Capital Limited

WAM Details

Takeover Update: WAM Capital Limited (ASX: WAM) is a listed investment company and invests in equities on the Australian Securities Exchange. The market capitalisation of the company as on 23 March 2021, stood at ~$1.83 billion. As per a recent update, the company has succeeded with its off-market takeover bid for Concentrated Leaders Fund Limited (CLF) and achieved over 90% interest in it as of 18 March 2021. The offer is scheduled to close on 26 March 2021.

H1FY21 Results Update: The company delivered decent financial performance during the period with an increase in operating profit after tax to $166.49 million, compared to $70.35 million in the previous corresponding period. The improved performance reflects the Group’s decent investment performance during the six months to December 2020, and gave a portfolio return of 22.8% during the period.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company invests in compelling undervalued growth opportunities in the Australian market. It expects to deliver decent returns on its portfolio holdings, aided by the improved macro-economic conditions. 

Stock Recommendation: The company has declared a dividend of 15.5 cents per share on an annualised fully franked interim basis. As per ASX, the stock of WAM is trading above its average 52-weeks’ level of $1.465-$2.370. The stock of WAM gave a positive return of ~1.402% in the past six months and a positive return of ~0.93% in the past one week. On a technical analysis front, the stock of WAM has a support level of ~$2.056 and a resistance level of ~$2.303. On a TTM basis, the stock of WAM is trading at a P/BV multiple of 1.5x, lower than the industry average (Financials) of 2.8x. Considering the valuation on TTM basis, robust financial performance in H1FY21, improvement in key financial metrics and expectation of further macro-economic recovery, we recommend a ‘Hold’ rating on the stock at the current market price of $2.170, up by 0.930% as on March 23, 2021.

WAM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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