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Suncorp posts profit as bank, insurance earnings rise

Nicki Bourlioufas  |  09 Feb 2017Text size  Decrease  Increase  |  

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Financial services company Suncorp (ASX: SUN) has unveiled a modest rise in its first-half net profit of 1.3 per cent to $537 million, but the company has enjoyed strong revenue growth, helped on by its general insurance and banking division.

The company's revenue rose 10.8 per cent to $8.64 billion for the half year to 31 December, compared to the same period a year earlier.

Suncorp's Banking & Wealth business delivered net profit after tax (NPAT) of $208 million, steady from $207 million a year earlier, reflecting improved operating expenses and strong credit quality.

In its insurance division, NPAT jumped 42.5 per cent to $369 million due to "top-line growth, lower claims costs and disciplined expense management," the company said.

Chairman Ziggy Switkowski said shareholders will receive an interim dividend of 33 cents per share fully franked, representing a payout ratio of 72 per cent of cash earnings. 

"The increased interim dividend reflects the group's strong capital position, improved cash earnings and confidence in the earnings outlook," Dr Switkowski said.

Suncorp CEO Michael Cameron said that over the past 12 months, Suncorp's business has been significantly repositioned to maximise revenue from its banking and insurance divisions.

"We have achieved a lot, and the next 12 months will be about settling into a different way of working, and fully embedding the plan into the organisation to enable disciplined execution of our strategy," Cameron said.

"Our turnaround program in claims is seeing some success, but there is clearly more to do. In both Home and Motor, we have reduced the number of active claims to more normal levels.

"The underlying Insurance Trading Ratio has improved from 10.1 per cent to 11 per cent, and we are on track to achieve 12 per cent."

Suncorp expects its banking margins to improve in 2017, which helped to lift its share price on Thursday.

"Suncorp Bank's recent increase in mortgage rates, combined with less aggressive competitor behavior, is expected to deliver an improved second half net interest margins," the company said.

"Following a targeted campaign in December, the housing loan portfolio is expected to grow in the second half."

The bank's net interest margin (NIM) of 1.78 per cent was just within the company's target range of 1.75 per cent to 1.85 per cent, impacted by the lower cash rate and aggressive competition.

Gross non-performing loans improved by 14.3 per cent over the past six months, resulting in impairment losses of $1 million (less than 1 basis point), well below the target range of 10 basis points to 20 basis points of gross loans and advances.

In life insurance, margins are expected to remain stable, however, lapse and claims experience will continue to be impacted by volatile industry trends, the company said.

Suncorp is Australia's second-largest general insurer by market share. Its brands include AAMI and Apia and growth in home and contents and car insurance revenue, and its successful entry into the South Australian market, helped protect against a slowdown in life insurance.

That division was "impacted by an industry deterioration in lapse and claims trends, however, Suncorp's conservative approach to setting assumptions has resulted in minimal impacts to experience," the company said.

As at February 4, 2017, the 14 analysts surveyed by Thomson Reuters offering 12-month price targets for Suncorp had a median target of $14.00, with a high estimate of $15.20 and a low estimate of $11.00.

The consensus forecast of analysts was that Suncorp would outperform the market.

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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