sunrise

ANALYSIS OF SUNCORP

Only Australian listed company with significant business in wealth, insurance and banking.

Slightly over 50% of revenue from insurance, significant negative impact on share price due to storms in NSW both this year and last year. Expected financial impact of no more than $200M (net of provisions) already well and truly priced into the current share price. Suncorp is reinsured for events exceeding $200M.

31% of revenue from banking, negative share price impact from the now standard justification of “sub prime fears.” In real world financial terms, Suncorp is looking at a margin hit of $20M or so on their loan books. Not exactly dramatic stuff for a company that netted over $1B last time around. Liquidity concerns across all banks are the proverbial jumping at shadows. Australian banks have no real exposure and those with a decent deposit base actually stand to benefit (by claiming business off the non bank lenders).

About 14% of revenue from wealth, departure of key staff has had a negative impact on the share price. No actual impact on financials as yet, potential for flat fee income due to a slowdown in FUM growth.

In my view, Suncorp is currently priced at a level lower than the worst case scenario.

Key Points:

Core banking position in the booming state of Queensland

Promina acquisition efficiencies not yet reflected in financials

Key general insurance brands including GIO, AAMI, APIA and Shannon’s

Currently trading at a bargain PE of 10 and yielding a dividend of 6.7%

Aspect-Huntley has Suncorp a Buy

My story:

Have held both Suncorp and Promina (until takeover) for a number of years now. Buying more now, consider Suncorp the best value in the banking sector at the moment, even better than my own employer (I’m an internal auditor for a big 4 bank). Suncorp is littered with short-term bad news driving down their price, an ideal buying environment in my view.
I don’t care for charts, graphs only show the past, only fundamentals suggest the future. Enjoy your shorts while they last, try not to lose them when the market turns.