Suncorp Group Limited

SUN Details

Recent Updates: Suncorp Group Limited (ASX: SUN) is engaged in providing insurance, banking, and wealth products to its customers. SUN was listed on ASX in July 1988.

• Dividend Distribution: Recently, the company informed the market that it plans to distribute AUD 0.5127 dividends on SUNPI securities with an ex-date of 2 March 2022, and a payment date of 17 March 2022.
• Warping up the sale of RACT Insurance: As per a recent update, the company has announced that it has finalised the sale of its 50% interest in RACT Insurance to the Royal Automobile Club of Tasmania Ltd (RACT), SUN’s joint venture partner. The deal was previously declared on 2 July 2021, for a cash consideration of $83.75 million. Notably, SUN witnessed a pre-tax profit of $65 million with this sale.

A Quick Look at FY21 Performance Update: The company delivered a resilient performance during the period with a net profit after tax of ~$1.03 billion, depicting an increase of 13.1% on a pcp basis. The rise in the bottom line was primarily due to higher profit in the Australian insurance business and Suncorp Bank. The company reported a 42% increase in cash earnings to ~$1.06 billion, driven by higher earnings across all businesses.

FY21 Financial Performance (Source: Company Reports)

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. The company’s line of business also exposes it to natural hazards risk and excessive claims in the process.

Outlook: The company remains on track to invest in analytics to improve its insurance business's pricing and risk selection. SUN projects ~$980 million natural hazards allowances for FY22, depicting net growth in the underlying profits. The company is set to report its 1HFY22 results on 8 February 2022.

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 stock of SUN delivered a positive return of ~5.8% in the past nine months. The stock is trading slightly lower to the average of the 52-week low price of $9.67 and the 52-week high price of $13.255. The stock has a support and resistance of $9.7 and $12.5, respectively. The stock has been valued using the P/B multiple-based illustrative relative valuation method and arrived at a target price with a correction of mid-single-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the impact of the claims due to natural hazards and COVID-19 related impacts, etc. For this purpose of valuation, peers such as AMP Ltd (ASX: AMP), QBE Insurance Group Limited (ASX: QBE), Challenger Ltd (ASX: CGF) have been considered. Given the rally in stock price, valuation indicating correction, improved NPAT in FY21, natural hazards risk and excessive claims in the process, and key risks associated with the business, we recommend investors to book profit and give a “Sell” rating on the stock at the current market price of $11.10, as on 31 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SUN Daily Technical Chart, Data Source: REFINITIV

WAM Capital Limited

WAM Details

Shareholder’s update: WAM Capital Limited (ASX: WAM) is a leading investment company operated by Wilson Asset Management. Recently, the company informed the market that WAM, a substantial holder in PM Capital Asian Opportunities Fund Limited, has increased its voting rights from 83.26% to 84.69%.

Takeover Bid Highlights:

• On 24 January 2022, WAM stated it now holds ~82.24% interest in PM Capital Asian Opportunities Fund Limited (ASX: PAF) shares. Consequently, PAF shareholders who accept WAM’s takeover bid options, will be eligible to obtain scrip for scrip CGT rollover relief.
• Going forward, WAM plans to proceed with the compulsory takeover of the remaining PAF shares, subject to the Corporation Act. The offer is expected to close on 18 February 2022.
• Under the offer made by WAM, PAF shareholders will obtain 1 WAM capital share for each 1.95 PAF share.

December 2021 Investment Update: 

• Increase in NTA after tax: WAM Capital Limited reported 191.78 cents per share of NTA after-tax in December 2021 versus 189.98 cents per share of NTA after-tax in November 2021. WAM also reported an increase in the investment portfolio for December 2021 contributed by the significant performance of Australian Clinical Labs (ASX: ACL) and Virtus Health (ASX: VRT).
• Investment Performance & Enhancing Shareholder’s value: Since inception, the WAM capital investment portfolio managed to deliver a return of 16.4% per annum.  Also, the company has paid a dividend of 269.5 cents per share since its inception.

Cash Highlights (Analysis by Kalkine Group)

Key Risks: The company is exposed to risks such as COVID-19 led uncertainties, liquidity risk, credit risk, fluctuations in the value of an instrument as a result of changes in market prices, technology risks, etc.

Outlook: The company is optimistic about the global economic growth in the short term, recovery in the monetary policy, and local economy. WAM remains on track to invest in exciting, undervalued growth prospects in the Australian market. It expects to deliver decent returns on its portfolio holdings, aided by the improved macroeconomic conditions. 

Stock Recommendation: The stock of WAM gave a negative return of ~3.1% in the past one month and a negative return of 5.7% in the three months. The stock currently has a 52-week high and low level of $2.4 and $2.06, respectively. On a technical analysis front, the stock of WAM has a support level of ~$2.00 and a resistance level of ~$2.39. On a TTM basis, the stock of WAM is trading at a price to cash flow multiple of 35.2x, higher than the industry (Investment Banking & Investment Services) median of 6.4x, thus seems overvalued. Considering the valuation on TTM basis, current trading levels, and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the closing market price of $2.16, as on 31 January 2022.

WAM Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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