Suncorp share price under pressure despite huge half-year profit growth

Suncorp has delivered stunning profit growth during the first half of FY 2023. But maybe it wasn't strong enough…

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Key points

  • Suncorp has released its half year results
  • The banking and insurance giant has delivered strong profit growth
  • However, this still appears to have fallen a touch short of the market's expectations

The Suncorp Group Ltd (ASX: SUN) share price is edging lower on Wednesday morning.

At the time of writing, the banking and insurance giant's shares are down slightly to $12.46.

This follows the release of Suncorp's half-year results.

Suncorp share price edges lower on half-year results

  • Insurance Australia gross written premium (GWP) up 9% to $4.8 billion
  • Suncorp New Zealand GWP up 12.2% to NZ$1.2 billion
  • Suncorp Bank home lending up 10.4%
  • Net profit after tax up 44.3% to $560 million
  • Cash earnings up 62.9% to $588 million
  • Interim fully franked dividend up 43.5% to 33 cents per share

What happened during the half?

For the six months ended 31 December, Suncorp delivered a major jump in earnings thanks to a combination of factors. This includes underlying margin improvement, positive investment returns, premium increases, loan growth, and the release of $150 million from the provision for potential business interruption claims.

This helped offset the negative impact of elevated natural hazard activity. Suncorp notes that the prevailing La Niña weather pattern across Australia and New Zealand led to eight separate weather events and around 53,000 natural hazard claims during the half. This resulted in Suncorp exceeding its natural hazard allowance by $99 million.

Nevertheless, this couldn't stop Suncorp from boosting its interim dividend by a massive 43.5% to a fully franked 33 cents per share. This represents a payout ratio of 71%, which is in the middle of its target payout ratio of 60% to 80%. This dividend will be paid to eligible shareholders on 31 March.

However, it is worth noting that the market was expecting a net profit of $570 million. So, Suncorp's $560 million profit appears to have fallen short of expectations. This could be weighing on the Suncorp share price a touch today.

Management commentary

Suncorp's CEO Steve Johnston was pleased with the half. He said:

Our Australian and New Zealand businesses have achieved strong growth in premiums, while unit growth across our consumer portfolio demonstrates the value of our products and brands, particularly in an inflationary environment. Our Best-in-Class claims program has allowed us to be more disciplined in leveraging scale to deliver lower aggregate inflation outcomes. The Bank continued to grow its home and business lending portfolios and customer deposits.

Outlook

Also failing to boost the Suncorp share price was management's positive outlook commentary.

Mr Johnston revealed that the company is on track to deliver on its FY 2023 targets. He added:

Pleasingly, we remain on track to achieve our FY23 targets, which is testament to the strength and resilience of our business amid significant headwinds, and demonstrates our ability to create long-term shareholder value while meeting the evolving needs of our customers and other stakeholders

This includes operating expenses being in-line with its previous guidance of $2.7 billion, its underlying insurance trading ratio in the range of 10% to 12%, and growth in its GWP.

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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