Markets: Slow growth eclipses Suncorp

Neither Citigroup nor investors are impressed with Suncorp's earning guidance after a disappointing second half.

Citigroup’s Nigel Pittaway says Suncorp’s earnings guidance is a disappointment – and investors agree. At 1053 AEST, Suncorp’s stock was down 55 cents, or 4.3 per cent, to $12.27.

Yesterday, the Brisbane-based bank and insurer said it expected to post a net profit of between $480 and $500 million for the 2013 financial year. Pittaway says that misses Citi’s forecasts a little on each of the divisions. Some reasons for the miss, he says, include the impact of higher bond yields on the company’s life insurance business, as well as adverse weather, a higher non-core bank loss and worse group expenses.

Citi says Suncorp’s profit growth slowed in the second half of the financial year to less than 7 per cent from almost 10 per cent in the first half. Pittaway has lowered his earnings per share forecast for the company in fiscal 2014 by 4 per cent, and by 1 per cent in 2015. He has also cut his rating on Suncorp shares to neutral. Suncorp shares are up 21 per cent this year and 45 per cent in the last 12 months, according to Bloomberg data.

“Suncorp reiterated its commitment to meet or beat an underlying margin of 12 per cent in future, but given it achieved both reported and underlying insurance margins above 13 per cent in 2013, this guidance is not particularly helpful,” says Pittaway.

“With Suncorp again exceeding its natural hazards allowance – this time by $80 million, meaning it was $193 million over in the second half – we expect to see a reasonable increase in its allowances alongside its full-year result."