Investment Matters

Reporting season: Suncorp

The first of the companies in your equity portfolio released its results this week.  Many more are reporting next week.

Suncorp’s FY-18 financial result was acceptable.  The headline revenue decline was driven by a decline in reinsurance recoveries, due to ongoing settlement for prior year natural hazard claims.  Considering this on a net basis (gives a better picture of performance), general insurance claim costs increased 2.2% versus FY-17, and net earned premium (sort of equivalent to revenue) was up 2.3%.

Investment in digital initiatives (as well as costs from regulatory changes) have resulted in higher costs.  The company is expecting earnings uplift in coming periods to result from this investment.

Suncorp’s smaller banking and wealth management division’s net profit was 2.8% lower than for FY-17.  Operating expenses grew faster than the benefits obtained from increased lending and a stable net interest margin.

Suncorp has tentatively sold its life insurance business (Heads of Agreement) for $725m.  It plans to implement a 20-year distribution agreement with the Japanese purchaser.

The company’s strong balance sheet further strengthened, allowing a special dividend to be paid.  The target for an FY-19 cash Return on Equity (RoE) target of 10% was retained.  It was 8.0% in FY-18, and so a meaningful uplift in results is implied for FY-19.

The result was positively received by the market (share price +4.7% on the day of the release).