Suncorp (SUN): reported its financial results for the first half of 2023, which were the best set of numbers that we have seen for SUN over the past 20 years.
- Profits UP: SUN reported a net profit of $560 million up +40% with every part of the business firing on all cylinders. SUN’s Australian general insurance business was the highlight benefited from a perfect storm of higher premium rates (home and motor), losses within tolerances and finally making a return on their float. Suncorp Bank was a solid contributor benefiting from net interest margin expansion, lending growth of 10% and low loan losses. If SUN’s bank is doing this well when the are halfway out the door being sold to ANZ, the CBA result should be a cracker! New Zealand insurance posted a modest 2.5% gain with higher claims offsetting premium rises.
- Rising Interest Rates: In the six months ending Dec 2021 SUN earned a meagre 0.94% on their $14 billon insurance float, however in 1H23 that had expanded to 4.98%, adding $190 million to profits.
- Show me the money: Interim dividend up +44% to 33 cents per share fully franked, with dividends likely to be higher in the second half.
- Why is the stock up: A very good result from SUN with solid momentum heading into the second half of FY23.
- Outlook: Confirmed guidance of an FY23 insurance margin of between 10-12% and continuing hardening of premiums. SUN are expecting $5B around June from ANZ for the Suncorp bank which will be returned to shareholders, likely in a combination of tax-exempt capital returns and share buy-backs.
Suncorp is held in several of the HNW portfolios and is a diversified insurance and banking group, but soon to be a pure domestic insurer. We are attracted to SUN as it gives the portfolio exposure to rising insurance premiums across Eastern Australia as well as higher interest rates. We have preferred SUN over IAG as our domestic insurance exposure as it is much cheaper, and we like the potential for further capital returns. SUN trades on an attractive valuation of 12x PE with a 5.8% yield in a market where insurance premiums are hardening. Atlas expects a special dividend of approximately $3.20 per share in 2023.
SUN finished up 4.6% to $13.04