Suncorp share price on watch after FY22 profit falls 34%

Suncorp shares will be on watch on Monday following the release of its FY 2022 results….

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Key points

  • Suncorp shares will be on watch today after the insurance giant released its FY 2022 results
  • While Suncorp delivered strong top line growth, this couldn't stop its profits from falling heavily
  • Severe weather and volatile investment markets weighed on its profits

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

This follows the release of the insurance giant's full year results this morning.

Suncorp share price on watch following FY22 profit decline

  • Revenue up 14% year over year to $16,169 million
  • Net profit after tax down 34% to $681 million
  • Final dividend per share of 17 cents
  • FY 2023 targets reaffirmed

What happened during FY 2022?

For the 12 months ended 30 June, Suncorp reported a 14% increase in revenue to $16,169 million. This was driven by record second half premium growth, a return to growth in home lending, and improved underlying margins.

However, things weren't quite as positive on the bottom line, with the company reporting a 34% decline in net profit after tax to $681 million. This reflects volatile investment markets and elevated natural hazard costs.

Management notes that the prevailing La Niña weather pattern across Australia and New Zealand led to 35 separate weather events and around 130,000 natural hazard claims. This led to the company exceeding its natural hazard allowance by $101 million.

Whereas volatile investment markets, including rapidly rising yields and widening credit spreads, drove mark-to-market losses across the company's $14.9 billion investment portfolios. This saw Suncorp record a net loss from investment markets of $190 million compared to a profit of $453 million in the prior year.

Positively, as the company holds its fixed interest investments to maturity, the majority of these FY 2022 accounting losses are expected to unwind to profit over the coming periods.

Finally, for the second half, Suncorp declared a final fully franked dividend of 17 cents per share. This is payable on 21 September and will bring its full year dividend to 40 cents per share.

How does this compare to expectations?

The bad news for the Suncorp share price today is that this result appears to have fallen a touch short of expectations.

According to CommSec, the market was expecting the company to report a net profit after tax of $699 million and declare a full year fully franked 46 cents per share dividend in FY 2022.

Management commentary

Suncorp's CEO, Steve Johnston, acknowledged that this was challenging year for the company. Nevertheless, he was pleased that the company maintained momentum and delivered on its key strategic initiatives.

[W]e have maintained our focus on executing our strategic initiatives and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs.

A highlight of this result is the GWP [gross written premium] growth that has been delivered and the increased underlying ITR [insurance trading ratio], which demonstrates that we can meet the needs of customers and make good progress against our strategic initiatives.

Outlook

Johnston also reaffirmed the company's FY 2023 targets. He said:

We are proud of what we have delivered this year and the hard work we have done over the past three years means we are able to reaffirm our FY23 targets.

This includes an ITR target of 10% to 12%, GWP growth in general insurance, and a cost-to-income ratio target of ~50% by the end of FY 2023.

The Suncorp share price is down 9% over the last 12 months.

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 Scott Phillips.

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