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The Suncorp Group Ltd (ASX:SUN) share price is down 14% since reporting season, is it a buy?

The Suncorp Group Ltd (ASX: SUN) share price is down 14% since it reported in August.

The part bank, part insurer has a pretty good reputation with customers and it had been doing well with investors until August. However, according to an article in the Australian Financial Review, Suncorp’s management does not have a good reputation with staff.

Apparently only 39% of staff think that senior leadership are effective, whereas in 2016 that figure was 50% – which still isn’t great. Only 41% of staff think senior management are providing clear direction and only 38% think senior management are making good decisions.

Staff are the true insiders of the business, they are the ones who get to see how the business is developing.

Management have been trying to improve the bottom line by cutting costs and improve efficiencies. This is good up to a point, but it can be quite demoralising when stuff wages or numbers are cut.

The morale of staff is not the ultimate decider of shareholder returns, but demotivated staff isn’t a good thing. The businesses creating the best results for clients, customers and shareholders are usually the ones with staff who are motivated to do their best.

In FY18 Suncorp reported that both its cash earnings and its reported earnings fell, by 4.1% and 1.5% respectively.

One bonus for shareholders was a special dividend of 8 cents per share, although the full year ordinary dividend was maintained at 73 cents per share. That equates to a grossed-up dividend yield of 7.7%.

Foolish takeaway

Analysts have pencilled in earnings growth for Suncorp for the next few years. It’s currently trading at less than 14x FY20’s estimated earnings.

Suncorp may create decent income for shareholders, but I don’t think it’s going to be a solid market-beater at the current price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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