Suncorp Group Limited
SUN Details
Earnings impacted by the Kaikoura earthquake and additional claims: During FY17, Suncorp Group Limited (Suncorp) reported NPAT of $1,075 million (FY16: $1,038 million) for the 12 months to 30 June 2017, an increase of 3.6%. Insurance (Australia) NPAT up 30% to $723 million (FY16: $558 million) with 3.9% increase in gross written premium (GWP to $8,111 million (FY16: $7,803 million), while Banking & Wealth NPAT was $400 million (FY16: $418 million). Net Interest Margin (NIM) stood at 1.83% (FY16: 1.86%) and Cost to Income ratio was 52.7% (FY16: 52.5%). Earnings from New Zealand division were impacted by the Kaikoura earthquake and additional claims from the 2010/11 Canterbury earthquake. For the period, General Insurance underlying insurance trading ratio (ITR) was 11.5% (FY16: 10.6%). Moreover, Capital levels remain strong with Bank Common Equity Tier 1 (CET1) capital ratio of 9.23% and General Insurance CET1 of 1.32 times the Prescribed Capital Amount (PCA), both above the top end of their target ranges.
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FY17 Financial summary; (Source: Company reports)
Suncorp’s additional reinsurance aggregate cover purchased for FY17 increased its resilience to natural hazards. Given the success in FY17, a similar cover has been purchased for FY18. The new cover provides $300 million of cover once the retained portion of natural hazard events greater than $10 million exceeds a total of $475 million. Further, the retained natural hazards allowance has increased to reflect the higher natural hazards costs experienced in recent years. The upper limit on Suncorp’s main catastrophe program, which covers the Group’s Home, Motor and Commercial Property portfolios for major events, will remain unchanged at $6.9 billion for the 2018 financial year. Suncorp remains focused on improving underlying NPAT, with sustainable ROE of at least 10%, which implies an underlying ITR of at least 12%. The company has determined a final dividend of 40 cents per share fully franked, bringing the total dividend to 73 cents per share (FY16: 68 cents) which represents a payout ratio of 81.9% of cash earnings. We give a “Hold” recommendation on the stock at the current market price of $13.57
SUN Daily chart; (Source: Thomson Reuters)
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