Investment Matters

Suncorp

Suncorp released a result that was in line with expectations (which were downgraded in mid December), although we were a little disappointed with the dividend. (But Suncorp does tend to weight its dividend more to H2.)

In relation to the general insurance business, the result was impacted by excess natural hazards claims (a large number of minor events, such as the NSW storm and the Great Ocean Road bushfire), and high claims rectification costs.  Parts costs for cars (given the AUD) is an example of the latter.  This resulted in an underlying insurance margin of 10.1%, below the company's target of 12.0%. The company is actively addressing the claims management issues, although at this stage would not provide a time-frame for rectification.

Suncorp bank performed well, with net profit up 10.2%.  The company retains its conservative home leading positioning, and impairment losses were low.

The Life division continued its turnaround.  Underlying profit (before the impact of market movements on investments) increased 11.5%.

More broadly, the company is moving to platform based customer interaction.  Digitising the customer interface in this way will allow centralised viewing / management of all their Suncorp products (bank accounts, mortgage, various insurances, etc), as well as allowing customers to easily purchase additional products from any of the Suncorp brands.  We view this as a positive development, as it is expected to result in a higher number of products per customer, without a significant IT development spend (within the normal development budget).

Suncorp is a large cap exposure in the equity portfolio, with an attractive yield (forecast 8.7% for FY16 including franking), and it is expected to improve its profit over time.

Suncorp H1 2

Next week reporting season ramps up - so prepare for an extended version of Investment Matters!