Suncorp: Interim result 2012
Recommendation
Despite increasing the dividend, Suncorp’s share price has fallen 2% after announcing its interim result. Compared to the same period last year, underlying net profit increased 12% to $397m. An interim 20-cent fully franked dividend was declared (ex date unknown), up from 15 cents. Despite holding $1.2bn of surplus capital, Suncorp is reluctant to initiate any shareholder friendly moves due to its volatile profits.
Like rivals QBE Insurance and IAG, Suncorp’s general insurance business suffered from a record year of natural disasters. Net profit after tax fell 45% to $162m. A 121% increase in investment income to $373m failed to offset the 24% surge in insurance claims to $2.8bn.
Suncorp’s ‘good bank’ produced a $156m net profit, up 42%. Compared to the previous six months the increase was a more pedestrian 5%. Losses from the company’s ‘bad bank’ fell 50% to $54m, with outstanding loans falling from $7.7bn to $5.7bn. Though it’s difficult to quantify, there are more losses to come. The life insurance business also produced an underlying net profit of $69m, down 3%.
We still prefer IAG and QBE in the insurance space, and Commonwealth Bank and Westpac in the banking sector (though they are both Hold recommendations). The share price has increased 3% since the update on 2 Sep 11 (Avoid – $7.98), and we’ll take a closer look at Suncorp when the share price falls below $7.00. AVOID.