Should you buy Suncorp?

In the past few months, investors have flocked into Suncorp (ASX: SUN) shares hoping that the company’s recent profits can be extended throughout the full year, but has the market gone too far?

After the GFC, Suncorp shares hit a rough patch and when other smaller financial institutions like Bendigo and Adelaide Bank (ASX: BEN) were getting taken over or joining with their peers, Suncorp was left to fend for itself. Since its highs of around $22 back in 2007, the company has been clawing down “bad bank” debt and struggling through many natural weather events which triggered large insurance payouts.

Since over 65% of revenue comes through the companies popular insurance names like GIO, AAMI, APIA, Suncorp, Vero and Shannons, benign weather conditions have led to a huge spike in first half profits. For the half year ended 31 December 2012, NPAT rose 47.6% to $574 million and allowed the company to pay down its debt associated with its “bad bank”.

This month Suncorp sold approximately $1.6 billion of debt to Goldman Sachs (NYSE: GS). The debt was once $17.5 billion of commercial real-estate loans and is now all but gone. The elimination of the entire bad bank portfolio is now predicted to result in a net loss of between $470 million and $490 million in the second half of the current fiscal year.

The eradication and absorption of the last of the debt is a good thing for long term investors, but for those looking to get on board for a quick gain might be unpleasantly surprised when the full year results are released. With a current P/E of 22, it seems investors are hoping for big things in the upcoming annual report.

Foolish takeaway

Investing with a long term strategy enables investors to mitigate losses and focus on good business models and the leadership of management. Trying to predict short-term price fluctuations is impossible, but in the last three years Suncorp has returned an average of 19.4%, whilst competitor Insurance Australia Group (ASX: IAG) has also returned a similar amount.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Owen Raszkiewicz does not own shares in any of the companies mentioned in this article.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!