Investment Matters

Company profit reporting season: Suncorp

Company profit reporting season started for your equity holdings this week, with Suncorp being the first.

The bulk of companies will release their results in the last two weeks of August.

Suncorp's result was solid - revenue +12.3% (assisted by reinsurance income, insurance premium income +4.5%), and net profit +3.6%.  It was slightly below market expectations, and there was quite a bit of variation at a divisional level.

The company's main General Insurance division delivered good performance.  Net profit increased 40.6% to $689m.  ITR margin - a key performance metric - is trending in the right direction, but it is not consistently meeting the 12% target yet (underlying 10.6% for FY-16, and 11.5% for FY-17, with 12.0% for H2 FY-17).  The company's reinsurance program has been providing benefits and has been expanded into FY-18. 

Life Insurance (including income protection, etc) remains challenging for Suncorp, and for the industry more broadly.  Underlying profit was flat at $53m, however it fell 50% after market adjustments.  A strategic review is continuing.  

The Banking division released a subdued result, with negligible growth in banking, and a fall in profit from wealth related services.  Net profit fell 4.3% to $400m.

NZ insurance results were impacted significantly by the Kaikoura earthquake, and there were increased motor claims costs.  Net profit fell 56.5% to $87m.

Suncorp remains well capitalised - in fact, its capital position (both CET1 (or tier 1) and total capital) have meaningful excess positions.  This afforded Suncorp the opportunity to increase its dividend payout ratio a little.  It remains to be seen what the company intends to do with the excess capital, which is expected to continue to increase over coming years (additional dividends, and/or acquisitions are the main possibilities).

And finally, Suncorp is investing in an online / app offering for customers.  Based on initial success, it is going to bring forward $100m of investment, to more aggressively roll out its digital strategy.