Suncorp Group Ltd jumps on full year result: Is it time to buy?

Its full year result and special dividend failed to surprise on the upside, but Suncorp Group Ltd (ASX:SUN) is well placed to meet or beat consensus earnings forecast for 2015-16. Here's why…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The market is warming up to Suncorp Group Ltd's (ASX: SUN) full year result with the stock bouncing back into the black after suffering early falls.

Shares in the insurance and banking group slipped 1.5% to $14.11 at the open on profit taking as its 55% surge in net profit was largely in-line with market expectations and failed to surprise on the upside.

But the stock staged a turnaround to jump 1.7% to a three-month high of $14.58 as investors soon realised that Suncorp is well placed to meet or beat consensus forecasts of a 16% lift in net profit for the current financial year.

Earnings growth for 2015-16 will be bolstered by further cost savings of $265 million from its "simplification initiatives" that have already shaved $225 million off its cost base in 2014-15, and a normalisation of natural disaster claims.

The previous year was Suncorp's worst year for natural hazard event claims. These claims surged to $1.07 billion, which is nearly double what the group had budgeted.

This meant its general insurance business had to book a 25.2% drop in net profit to $756 million, although we should see a nice rebound in 2015-16 unless we get a number of wild weather events. General insurance is the largest profit contributor to Suncorp.

But Suncorp's other divisions, which include banking and life insurance, posted good growth that was enough to see the group deliver a net profit of $1.13 billion for the year ended June 30, 2015, up from $730 million in 2013-14.

Management also declared a final dividend of 38 cents a share to take its full year ordinary dividend to 76 cents a share, or 1 cent ahead of last year, and said it will pay a special dividend of 12 cents a share.

Suncorp has also managed to settle a dispute with its reinsurers that relate to its 2011 catastrophe reinsurance program. The impact of this dispute has been reduced to $20 million after tax from $118 million and management said it has purchased additional reinsurance cover for 2015-16 at "favourable terms" relative to 2014-15.

The stock looks good value to me even though it has jumped nearly 10% over the past three months as it is sitting on a consensus price-earnings (P/E) multiple of under 14x for the current financial year.

This puts the stock at the low end of its five-year P/E range and its forecast dividend yield of around 8.5% (when franking credit is included) should lend additional support to the stock.

While management has not provided earnings guidance for the current financial year, it has indicated that it will achieve close to $100 million in additional cost savings on a net basis in 2017-18 and can achieve a sustainable return on equity of at least 10%.

Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter - https://twitter.com/brenlau The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »