The group is split up into three main divisions:
|>>||General Insurance, which offers personal and commercial insurance products in the motor, home and contents, travel, boat, and workers’ compensation segments.|
|>>||Suncorp Bank, which offers banking services to personal, agribusiness, small business and commercial customers.|
|>>||Suncorp Life, which offers life insurance and superannuation products.|
SUN revealed a 32.2% drop in FY13 net profit, but that was due to losses booked from the sale of its non-core bank. Underlying earnings were up 19.3%, driven by strong growth from General Insurance.
This division saw its underlying insurance margin jump from 12.1% in FY12 to 13.5% in FY13. This occurred amid price and volume growth in the motor and home insurance product categories.
Importantly, the group has flagged further premium increases in FY14, which should help support further underlying margin growth.
Suncorp Bank’s net profit was unchanged at $289 million, but in a positive, the net interest margin of 1.89% was above the 1.75% – 1.85% target range.
FY14 interest margin was likely to be impacted by the consolidation of the remaining non-core assets into the core bank. However we expect a significant improvement in FY15 once these legacy issues are fully resolved.
A key concern remains Suncorp Life, which reported a 76.1% slide in FY13 net profit. Higher claims and policy lapses weighed on the division, but as with AMP, these problems are affecting the entire industry.
SUN appears attractive on a valuation basis, trading on a forward P/E of 12.5x. This is cheaper than its rivals Insurance Australia and QBE, which trade at 13 times forward earnings.
Whilst the discount is not too great, we think SUN should be trading on higher multiples given the potential capital return on offer for shareholders following its non-core asset sale.
A final dividend of 30 cents was declared in FY13, along with a special dividend of 20 cents. With the group looking to reduce its surplus capital, more special dividends are expected to follow over FY14 and FY15.
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