Suncorp released their 1H15 results on 12 February with a headline net profit after tax of $631m, despite a $250m hit from the Brisbane hail storm in late 2014. While the results were slightly below consensus estimates, they were up 15.1% on 1H14.
For bond investors the results were a continuation of a run of solid half yearly figures and the maintenance of relatively strong capitalisation levels across both the insurance and banking divisions.
We remain comfortable with Suncorp Bank and Suncorp Insurance (aka Vero or AAI) credit risk. Further, we continue to expect Suncorp to call all “old style” subordinated bonds with a step-up margin, including the 2025 (callable 2015) and 2026 (callable 2016) bonds and believe these bonds are fairly priced at current levels.
To view a copy of the company’s results presentation and highlights from the results click here.
Financial Results
- Group net profit after tax (NPAT) of $631m (HY14: $548m), an increase of 15.1%
- Cash earnings after tax of $660m (HY14: $587m), up 12.4%
- Common Equity Tier 1 (CET1) capital ratio for the Bank improved to 8.82%, the second highest ratio of the Australian major and regional banks. Further, the company has announced an increase in the Bank’s CET1 target to 8.5% to 9.0% (up from 8.0% to 8.5%)
- The General Insurance business CET1 was a solid 1.44x the Prescribed Capital Amount (PCA)
- After payment of the dividend and following the increase in the Bank’s capital target by 0.5%, the Group will still be holding $627m of CET1 capital above its operating targets
- General Insurance Division - NPAT of $419m (HY14: $470m)
- Bank Division - NPAT of $176m (HY14: $105m)
- Life Insurance Division - NPAT of $86m (HY14: $22m)
- Natural hazard costs of $470m, including the $250m impact of the Brisbane Hailstorm ($172m above the long-run allowance)
- Bank net interest margin increased materially to 1.86% (HY14:1.66%)
- Bank gross non-performing loans were down 15%
Outlook
- The company have reduced their expectations for growth, resulting in a circa 2.2% fall in the share price following the results, however the minor reduction is not material for bond investors
- Lower growth across Suncorp’s key markets, particularly mortgage lending, has reduced top-line growth target to ‘low single digits’ from 4% to 6%
- Underlying insurance trading ratio ‘to be well ahead of 12%’ for FY15 (was 14.8% for 1H15)
- Ordinary dividend payout ratio target of 60% to 80% of cash earnings