Ann: FY20 Responsible Business Report, page-8

Broker GS rated SUN as Buy with TP=$10.86 after the result was released.

SUN FY20 cash earnings of A$749m were largely in line with GSe
(A$747m) though well above company compiled consensus
(A$700m). Compositionally underlying trends within the insurance
business were tracking ahead of estimates, while the bank result
was also strong, with NPAT 8% ahead of GSe in 2H20 despite
some additional provisioning booked in 4Q20 (related to VIC), with
2H20 underlying earnings landing 10% ahead of GSe. The final DPS
of A10c was below GSe (A20c), equating to an FY20 payout ratio of
60% and understandable in light of current regulatory oversight.
Capital remains solid, with SUN’s group excess CET1 capital post
dividend at A$823mn (from A$691mn in 1H20).
Solid underlying momentum and clear strategy; retain Buy
The key highlight in SUN’s result was solid momentum in its 2H20
underlying margin which was +1.8% sequentially to 11.1%
(ex-COVID), or 12.9% including COVID (relative to the 11.5% we had
forecast). While the 2H20 result benefited from a much stronger
2H20 underlying investment yield than expected (c.2%), the result
included a +1.8% sequential benefit from a range of ‘cycle benefits’
in domestic home, CTP, workers comp, commercial and NZ working
claims. To this end there appears to be more convincing evidence of
underlying momentum in the franchise, particularly relative to IAG
where we saw limited evidence of underlying momentum through
2H20. Beyond, we were also encouraged by 1) SUN’s commitment
to its long held 1.5% normalised reserve release assumption for
FY21+, 2) group costs finally appearing to be under control (where
the group landed below its A$2.7bn target and there were no
negative surprises on the outlook), 3) what appeared to be good
control of volume/margin dynamic in GI through the year, 4) despite
loans falling through the period, SUN’s NIM result was solid and it
still grew net interest income, whilst its experience in customers