ASX code: SUN
Share price: $13.55
Industry: Insurance
Forecast FY2016 Dividend: 91c
Suncorp Group (ASX Code:SUN) is a top 20 ASX listed company generating the majority of its earnings from General Insurance (~60%) via household names such as AAMI, GIO and APIA, followed by Banking (~30%) and Life Insurance (~10%) with the business coming a long way under the stewardship of Patrick Snowball who took over as CEO and MD in 2009. Patrick has since passed the baton on to Michael Cameron (previously CEO of GPT) as SUN enters the next phase of its strategy of optimising the platform.
The benefits to be realised in optimising the platform equate to $170m and are expected to be realised by FY18. The focus will be on unlocking value of their 9 million customers by digitising and improving on customer’s experiences resulting in the Group generating a 10%+ sustainable long-term ROE.
Further to the optimisation strategy, the weakness seen in the most recent results around the General Insurance division (earnings falling 9% to $1.2bn) appear to be behind them with signs of a stabilisation in insurance premiums and across some insurance lines, premium rate increases which should lead to an improvement in earnings.
As a result of this, the improving momentum in both SUN’s Banking and Life Insurance businesses and lower levels of capital post the payment of 77cps in special dividends over the past 4 years further adds to an improving ROE trend.
There also remains scope to pay a further special dividend with SUN remaining well capitalised even after taking into account the most recent dividend (38cps final dividend and 12cps special dividend) with $570m in excess CET1 capital, amounting to ~44cps.
Consensus is currently forecasting a fully franked dividend of 91cps equating to a 6.7% dividend yield.
Whilst trading at or around our assessment of fair value, SUN continues to trade at an attractive dividend yield and is relatively well positioned in the current volatile equity markets.
Written by Stephen Wood, Senior Analyst