The results at a glace
General insurance and financial services company Suncorp Group Limited (ASX:SUN) kicked off reporting season with a $1.1bn full-year net profit after tax (NPAT) of $1.1bn compared to a $730m profit during FY14. Total revenue increased slightly to $16.7bn (FY14: $16.4bn).
Suncorp also announced a final ordinary dividend of 38 cent per share, bringing total dividends for FY15 to 76 cents, a slight improvement to the 75 cents recorded last financial year. A special dividend of 12 cents per share will be paid to shareholders as well which overall represents a payout ratio of 100% of the Group’s NPAT.
SUN closed at $14.33 on Monday afternoon. The dividends yields 6.1% at the current price.
A year of natural hazard events
The results come after a year of considerably severe natural hazard events, which were well above the allowance according to the company. The net impact of natural hazards was $1,1bn which was almost twice as much as the allowance of $595m.
Chairman Ziggy Switowski is pleased with the results and emphasises on the company’s effort to reward shareholders with a 100% payout ratio. The Group’s strong capital position and improved financial performance has allowed the board to declare a final ordinary dividend, so Mr Switowski.
Due to the significant impact of natural hazard events general insurance NPAT declined 25% to $756m. However Bank NPAT and profit from Suncorp’s Life Insurance contributed positively to the results.
Suncorp’s share price has struggled in the past 12 months and overall moved sideways. Over the past year SUN gained just over 1%, trading in a 52 week range of $12.68 - $15.37.
The past 12 months have been challenging for both the board as well as shareholders. External impacts of a challenging year were already factored in by the factor which has resulted in a sideways moving share price. Investors are expected to be pleased with the results, however the 100% payout ratio could face some criticism. Whilst the short-term benefits of a fully franked dividend are great for investors and SMSF’s alike, some investors would prefer to see reinvestments into future growth opportunities. Suncorp’s balance sheet remains extremely conservative which allows the company to weather trading volatility better than some of its peers.
The 6.1% dividend yield as well as Suncorp’s conservative exposure to financial markets are attractive qualities that long-term investors appreciate. Suncorp’s P/E ratio of ~17 is slightly above the market average and indicates high expectations of earnings growth. Investors who hold the equity for its dividend will most likely continue to hold in the long-term, however the capital growth outlook appears limited.
Author: Simon Herrmann
Aug 04, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.