Big payday for Suncorp investors

Suncorp will splash the cash as it hands out proceeds from its bank sale and bumper dividends, after hitting net profit of $1.1bn in the first half of the financial year.

Suncorp Group chief executive Steve Johnston has flagged further capital return to shareholders in the form of buybacks. Picture: Brendan Radke

Suncorp’s cash splash will deliver a $550m injection into the Queensland economy and the insurer has already flagged there’s more to come, with boss Steve Johnston keen to move excess capital on to shareholders, potentially by the end of the year.

All up, shareholders are in line for a cash handout in the coming weeks of $3.63 per share, comprising a $3 capital return and a 22c special dividend, both from the sale of Suncorp Bank to ANZ, along with a bumper 41c interim dividend after the insurer cracked the $1bn profit mark for the half.

Mr Johnston told The Australian the insurer was looking at on-market buybacks to further capital return to shareholders.

“We don’t propose to sit on this amount of excess capital, we recognise excess capital is beyond the needs of the business and should be returned to shareholders, and we’ll get on and do it as quickly as we can,” Mr Johnston said.

“We’ve got a very strong balance sheet with a very strong excess capital position, so we’ll sit down with the board and go through our forward view of what the macro risks might be. Once we complete that, we’ll relay to the market what the timing of any potential buyback would be.”

For the six months through to December 31, Suncorp reported net profit of $1.1bn, a 90 per cent surge on the prior corresponding period’s $582m. The result was well ahead of analyst expectations and helped drive Suncorp’s share price up more than 5 per cent to $21.40 shortly after the open.

The latest half-year result was boosted by the one-off gain of $252m on the bank sale to ANZ and supported by favourable natural hazard experience, positive investment returns and the non-recurrence of prior year reserve strengthening, which impacted the prior period.

Cash earnings, which strips out one-off items, came in at $860m, up from $660m.

Shareholders can expect the first tranche of the return of capital from the bank sale on March 5. This will be followed on March 14 with the fully franked special dividend and the interim ordinary dividend. All up the payouts will deliver a cash injection of $550m to the Queensland economy, Mr Johnston said.

The interim dividend, at 60.6 per cent of cash earnings, is at the lower end of the company’s 60 to 80 per cent target payout ratio.

Mr Johnston said without the bank, which was sold to ANZ last year, Suncorp could focus on being a pure-play insurer.

“Suncorp is now a simpler, more resilient, and focused business that consistently delivers for customers and shareholders,” Mr Johnston said.

“We no longer have to make trade-off decisions between investing in an insurance company that needs to be at the leading edge of what insurance needs to do, and investing in a regional bank that needs to be looking at things like scams and cyber and anti-money laundering. We don’t have to make those compromises anymore.”

The total cost of natural hazards in the half was $503m in the half, $277m below its allowance for the six months. The insurer benefited from a benign natural hazard period, with six weather events above $10m in Australia, and no significant weather events in New Zealand.

n premiums, Mr Johnston expects growth in the high single digits through the rest of this year, in line with the 8.9 per cent seen in the half.

While he acknowledged the cost-of-living challenges affecting customers, he said insurance inflation was still pressuring prices.

“Insurance inflation is different to CPI, because it’s got a lot of supply chain, labour and other factors embedded in it. I fully recognise the impact these premiums are having on consumers. Our objective is to keep as many Australians insured as we can and the steepness of these increases that we’ve seen, which has been a consequence of reinsurance pricing changes, frequency and severity of weather and inflation combined, I think that is starting to ease,” he said.

Net investment income added $374m to the result on the back of high underlying yields on the interest-earning portfolio and strong equity markets.

Barrenjoey analyst Andrew Adams said the result was better than expected and mostly driven by natural hazard claims, with the underlying margin closer to consensus. Weakness in compulsory third party in Australia was offset by a strong NZ margin, Mr Adams said.

Citi analyst Nigel Pittaway said it was a significant beat but that the special dividend was lower than expected.

“While most of the beat is due to favourable weather, there is also a slightly stronger result from NZ Life and slightly stronger than expected net insurance revenue growth,” he told clients.

Originally published as Big payday for Suncorp investors