Slow growth eclipses Suncorp

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%, 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% from almost 10% in the first half. Pittaway has lowered his earnings per share forecast for the company in fiscal 2014 by 4%, and by 1% in 2015. He has also cut his rating on Suncorp shares to neutral, with the stock up only 21% in the half compared to 45% in the year, according to Bloomberg data.

“Suncorp reiterated its commitment to meet or beat an underlying margin of 12% in future, but given it achieved both reported and underlying insurance margins above 13% 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."