Kick Off: Suncorp Group Ltd v QBE Insurance Group Ltd

Welcome to this ASX World Cup group game between Suncorp Group Ltd (ASX: SUN) and QBE Insurance Group Ltd (ASX: QBE). With other group members Insurance Australia Group Limited (ASX: IAG) and AMP Limited (ASX: AMP) delivering some impressive results recently, this looks a must win game for both QBE and Suncorp.

Pre-match commentary and stats

QBE has failed to impress in the warm up, with a shocking 28% fall over the past year compared to the S&P/ASX 200 Index’s (INDEXASX:XJO) handy 16% rise. Meanwhile insurance and banking business Suncorp has gained around 14% over the past year, suggesting it starts as favourite.

Suncorp QBE
Recent Price $13.41 $11.00
Market Capitalisation $17.25 billion $14.17 billion
Dividend Yield / Franking 5.1% | 100% 3.7% | 100%
Projected P/E ratio 2015 12.9 8.4
Price-Book ratio 1.24 1.19

Source: Morningstar / Thomson Consensus Estimates.

QBE has a track record of underperformance to equal that of England’s national football team, wearing a $482 million loss for its North American operations in 2013. Suncorp recently announced a $500 million writedown of intangible assets related to worse-than-expected policy lapses and future claims assumptions in its life insurance business. However, as a review of future assumptions this will have no impact on cash earnings or dividends due to be announced when the group reports full-year results on August 20. Neither team can score, despite some evidently wobbly defences.

Going into the second half and both groups’ future plans to cut costs look impressive, this should hopefully increase profits and returns in the form of income to shareholders. Suncorp plans cost-cutting of $225 million in financial-year 2015 and $265 million by financial-year 2016. QBE meanwhile is aiming to cut costs by $250 million in 2015. Suncorp scores with its disciplined approach impressing the fans. 1-0 to Suncorp.

Time to look at the value comparisons and QBE is trading on a forward price-earnings of 8.4 compared to Suncorp’s 12.9. QBE looks better value although it carries more risk in executing its turnaround plan. Still a goal to QBE, that’s 1-1.

It’s getting to the business end of the game now as prospective yields come onto the horizon. Suncorp’s 5.1% fully franked yield is looking impressive here. In fact Thomson Consensus estimates provided by Morningstar are forecasting earnings per share and dividends to grow steadily out to 2016. Forecasts for dividends per share of 85.2 cents for 2015 placing it on a forward yield of 6.35% at today’s prices. That’s a late goal for Suncorp and a 2-1 win at full-time. If it’s juicy dividends and growth you’re after. Look no further!

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Motley Fool contributor Tom Richardson owns shares in QBE. You can find him on Twitter @tommyr345

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