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Suncorp – Sound FY21 result with special dividend and on-market buy back

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Suncorp Group Limited (ASX: SUN) is an Australian and New Zealand company that specialises in providing financial service to consumers (banking, insurance and superannuation). Suncorp has a market capitalisation of A$15 billion.

 

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What are the key features of Suncrop’s FY21 results?

Suncorp reported net profit after tax (NPAT) increased by 13.1% to A$1,033 million compared with FY20. Cash earnings increased by 42.1% to A$1,064 million compared with FY20. Suncorp will pay a final dividend of 40 cents per share and a special dividend of 8 cents per share (fully franked) to investors. Suncorp also announced an on-market buyback up to A$250 million.

 

This result was largely driven by Suncrop’s Insurance (Australia) business, which reported NPAT increased by 42.4% to A$547 million. Higher growth, investment returns and reserve releases contributed to this result. Suncorp’s Banking and Wealth business reported NPAT increased by 69% to A$417 million. Improved net interest margins and a net impairment release contributed to this result. Finally, Suncorp New Zealand NPAT decreased by 17% to A$215 million. Higher natural hazard costs, lower investment income and normalisation of working claims contributed to this result.

 

What is the outlook for Suncorp?

The outlook for Suncorp is uncertain. The short-term operating environment has improved since the peak of COVID-19. However, continued flare ups and lockdowns may negatively impact the company’s following results. The company’s management noted their FY23 plan aims to deliver sustainable returns on equity above the through-the cycle-cost of equity. This aimed is to be achieved through 12 strategic initiatives, where the benefits should be released in HY22. Management is maintaining its commitment to a 60%-80% dividend payout ratio.

 

What is the market reaction to Suncorp FY21?

The market reaction to Suncorp’s FY21 profit result is positive. Suncorp’s share price is up around 8% and is currently trading at A$12.64. This positive reaction is due to Suncrop’s NPAT beating market expectations, special dividend and on-market buy-back. Suncorp has a forward P/E ratio in the high-teens and has an annual dividend yield of around 3% (fully franked).


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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