Suncorp Group
Recommendation
Suncorp has taken a huge step towards eliminating its remaining $2.8bn portfolio of risky property development and corporate loans harking back to the GFC. Goldman Sachs has paid 60 cents on the dollar for a $1.6bn portfolio of loans, crystallising an after-tax loss of almost $500m for Suncorp. Further sales and maturities should reduce the outstanding amount to a very manageable $500m by July, though despite 50% provisions for impaired loans there could still be further losses. With its insurance business firing on all cylinders, the timing of media-shy chief executive Patrick Snowball appears perfect, as management can now focus on improving the underlying profitability of the business in a slowing economy.
The share price has fallen 1% on the news, but that likely reflects the market’s general fall rather than discontent about the transaction. To soothe shareholders chairman Ziggy Switkowski reiterated the board’s intention to return surplus capital to shareholders and is considering paying dividends over and above the normal range of 60-80% of cash earnings this financial year. We’ve now got more confidence in this business than we’ve had for many years, and with the share price falling slightly since Suncorp: Interim Result 2013 from 21 Feb 13 (Hold – $11.74) we’re sticking with HOLD.