Suncorp (ASX:SUN) share price on watch after announcing FY21 result and $250m buyback

Suncorp has announced strong profit growth and a share buyback…

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The Suncorp Group Ltd (ASX: SUN) share price will be one to watch on Monday.

This follows the release of its full year results for FY 2021 this morning.

Suncorp share price on watch after strong profit growth in FY 2021

  • Revenue down 4% to $14,187 million
  • Cash earnings up 42.1% to $1,064 million (vs Goldman Sachs estimate of $1,005 million)
  • Net profit after tax up 13.1% to $1,033 million
  • Final dividend of 40 cents per share and special dividend of 8 cents per share
  • $250 million on-market share buyback

What happened in FY21 for Suncorp?

A key driver of the company’s solid performance during FY 2021 was its Australian Insurance business. It delivered its strongest top-line growth since 2013, with gross written premium (GWP) up 5.5%. This could bode well for the Suncorp share price today.

Management notes that as part of its focus on revitalising growth, its customer value propositions have been refined, new product features have been introduced, and an additional investment has been made in marketing.

The Suncorp Bank business’ performance improved, with home lending growing 0.8% during the second half of the year. This was driven by improvements in broker lodgements and settlements and improved approval turnaround times.

Positively, the company has made a net impairment release of $49 million, reflecting a $60 million reduction in its collective provision. This is due to the improvement in economic conditions since the outbreak of COVID-19.

Over in New Zealand, the company reported GWP growth of 9.2%. This was driven by a strong performance by the AA Insurance channel and growth in the intermediated commercial portfolios. However, this was partly offset by lower investment returns, the normalisation in working claims, and higher natural hazard costs.

Speaking of which, Suncorp notes that the La Nina weather pattern resulted in a higher number of events during FY 2021. This led to natural hazard costs of $1,010 million, which was $60 million above its FY 2021 allowance of $950 million.

What did management say?

Suncorp’s CEO, Steve Johnston, was pleased with the company’s performance given the challenging external backdrop of COVID-19 and the La Niña weather pattern.

He said: “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.”

“We have been flexible and responsive in supporting our customers as we know the financial and emotional strain COVID-19 is inflicting on our communities. This includes a range of relief measures such as flexible premium options and loan deferrals. “

“A vaccinated population is key to building confidence and restoring movement between the two countries and the world. All members of our Board and our Australian-based ELT are either fully vaccinated or are awaiting their second vaccine,” he added.

What’s next for Suncorp?

Potentially weighing on the Suncorp share price today will be the company’s outlook.

While management notes that the operating environment has improved since the outbreak of COVID-19, it warned that the outlook remains uncertain, with lockdowns and restrictions currently in place in a number of states.

It also highlighted that approximately $115 million in GWP 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.

However, management is a lot more positive on FY 2023, which could be the Suncorp share price’s saving grace today.

Commenting on its FY 2023 plan, management said: “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. 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%.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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