Investment Matters

Portfolio update: Suncorp

Suncorp has been sold in full from your equity portfolio.  The basis of the sale is that it did not represent compelling value any more. 

It is of note that for the H1 FY-18 results Suncorp continued its disappointing breaches of natural hazard re-insurance allowance.  Whilst the impact on profit was not disastrous (circa 5%), over the last 12 years the company has repeatedly breached this allowance.  In our view, this points to a company that has not appropriately managed its risk exposure.  Australian insurance pricing (the ability to get pricing increases) seems to be under pressure, regulatory costs (e.g. in response to the Royal Commission) are increasing, and we see limited growth in the banking business (with the general benign credit environment and increasing competitive pressures e.g. NIM [net interest margin] declining).

With a share price that was quite expensive (such as a forward P/E of 15.5 at the price we sold and consensus FY-19 EPS of 0.83cps), we assessed that this investment did not meet our investment goal of limited downside, along with meaningful upside potential.

Long term clients invested in Suncorp in Apr-12, at a price of $8.22 per share.  It has subsequently delivered strong dividends (including special dividends), as well as capital growth.  As a result, an annualised return of 16.0%p.a. was achieved - a good outcome.

- Fleur Graves