Is Suncorp Spin-Off News A Speculation?

  • May 07, 2019 AEST
  • Team Kalkine
Is Suncorp Spin-Off News A Speculation?

Suncorp Group Limited (ASX: SUN) is an insurance major, including segments such as personal insurance, commercial insurance, general insurance, banking products and life insurance. The company provides services to the retail, commercial and corporate sectors in both the regions of Australia and New Zealand.

As per the market speculation, the Board of Suncorp is involved in the conversations with the investment bankers to help consider a drastic overhaul of the $17.8 billion financial services company.

As per the sources, the Head of Suncorp was supportive of the potential move, while the Board remained more cautious. The company is currently working with a team of UBS bankers in close proximity to review a spin-off of the banking unit. This will help Suncorp to be a core insurance player and create a separate bank estimated to be worth about $4 billion.

The company has recently published its Investor Presentation. The key financials include New Zealand profit after tax of NZ$120 million in H1 FY19, an increase of 79.1% on the prior corresponding period.

The company exhibited strong top line growth combined with favourable natural hazards and working claims experience in the GI business, which contributed to the strong results. As of 31st December 2018, the general insurance business delivered a half-year results with a profit after tax of $103 million, up 106% when compared apples-to-apples.

The gross written premium (GWP) grew 8.2% to $831 million, driven by premium increases across all portfolios and supported by unit growth across the direct business and intermediated channels. The net incurred claims were $340 million, down 2.3% on the prior comparing period, on the back of favourable natural hazard experience and improved working claims.

The operating expenses increased by 9%, driven by increases in total commissions paid as a function of strong premium growth. On the Life business performance front, as at 31st December 2018, the New Zealand life insurance business delivered a half year result with a profit after tax of $17 million, in line with the prior comparing period. In-force premium grew by 4% to $262 million. The underlying profit increased by 14.3% driven by the continued growth of in-force premium and underlying investment performance.

The company is of the view that the growth in the gross written premium will return to mid-single digit levels, driven by the transition of the industry participants from a rate driven growth to unit growth. The company is focused more on the growing emphasis by the industry on risk address-based pricing, specifically in high risk, natural hazard areas, e.g. Wellington.

On the price-performance front, at market close on 7th May 2019, the stock of Suncorp Group Limited was trading at $13.610, an increase of 0.964% during the day’s trade with a market capitalisation of $17.5 billion. The stock has yielded a YTD return of 9.52%, with returns of -3.15%, 0.81% and 1.81% over the past six months, three months and one-month period, respectively. Its 52-week high and low price stands at $15.785 and $12.050, respectively, with an average trading volume of ~3.31 million.


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