Kerching! Payoff time for shareholders in Brisbane-based financial services group Suncorp, with a special dividend, share buyback and a final dividend revealed with yesterday’s 2020-21 results.
The news sparked an 7.5% jump in the value of the company’s shares to $12.79 yesterday.
The news, especially of a solid performance by its insurance businesses, also led to a rise in the shares of other insurers.
Insurance Australia Group saw a 4.6% rise in its share price (it reports on Wednesday), QBE shares were up 3.2% (it releases its interim later this week), while there was a 2.6% rise in the price of shares in broker Steadfast Group.
Suncorp said its annual net profit rose by 13%, beating analysts’ forecasts as the company rebounded from the impact of Covid lockdowns and higher claims from bad weather and bushfires.
Suncorp (its best-known brand is AAMI insurance) reported a net profit of $1.03 billion for the 12 months through June, up from $913 million a year earlier.
Cash earnings at Suncorp, a measure liked by analysts that excludes certain costs and one-off items, rose to $1.1 billion from $749 million a year earlier.
The company revealed a final ordinary dividend of 40 cents a share and a 8 cents a share special dividend.
The total ordinary dividend for the year was 66 cents a share, up from the Covid-hit 36 cents for 2019-20 when the bank cut its final payout to just 10c a share at the behest of key regulator, APRA’s instructions to the sector to conserve cash.
Suncorp said it intends to buy back shares worth up to $250 million, thus adding the company to the list of banks announcing buybacks after similar statements from the ANZ ($1.5 billion) and NAB ($2.5 billion).
The industry leader, the Commonwealth is expected to reveal a much larger buyback with its annual results tomorrow, and a higher final dividend.
The rise in the company’s share price took investors by surprise as most of the market focus on buybacks was on the big banks.
CEO Steve Johnston said the group had struck an appropriate balance between returning capital to shareholders and retaining appropriate buffers for uncertainty.
“After the proposed returns, we will continue to hold almost $400 million in excess capital at the group level,” he said.
Mr Johnston said over the course of the year, the Group had provided COVID-19 support to more than 85,000 customers and contributed $9 million to a range of community programs.
“While COVID-19 and the weather will continue to challenge our customers and our team, we know we have good momentum and a program of work that will further improve outcomes for our customers and shareholders.”
The significant improvement in cash earnings was driven by increased Profit After Tax in Insurance (Australia) (up 42.4%) and Suncorp Bank (up 69.0%). Profit in New Zealand fell by 18.4% (in AUD terms), largely as a result of increased natural hazard costs.
Investors liked the buyback and ignored the way the bank skated over the current 2022 financial year and focused attention in its announcement on 2023.
For the coming year the company noted that while the operating environment has improved since the outbreak of COVID-19, the outlook remains uncertain, with lockdowns and restrictions currently in place in a number of states.
It also highlighted that approximately $115 million in Gross Written Premiums related to portfolios, which have been exited, will not repeat in FY 2022, and that its operating expenses are expected to rise due to project spending and restructuring charges.
That seemed to be an oblique warning for investors not to expect very much positive from the insurance operations in the 2021-22 financial year.
However, management is a lot more positive on 2022-23.
“The plan aims to deliver a growing business with a sustainable return on equity above the through-the-cycle cost of equity. To achieve this the Group is investing in 12 strategic initiatives, with the benefits of this program beginning to be realised in 2H22 (June 2022 half year). ”
Consequently, this implies the General Insurance business delivers an underlying ITR in FY23 of between 10-12% and the Bank cost-to-income ratio will fall to around 50%.”
