Suncorp Group Ltd (ASX: SUN) shares could be a bit of a bargain right now.
That's the view of analysts at Goldman Sachs, which are tipping meaningful upside for the insurance giant's shares over the next 12 months.
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What is Goldman saying about Suncorp shares?
According to a note this week, Goldman Sachs has retained its buy rating with a modestly improved price target of $14.53.
Based on the latest Suncorp share price of $12.38, this implies potential upside of over 17% for investors over the next 12 months.
But the returns won't stop there! Goldman is also forecasting fully franked dividend yields of approximately 6.4% in both FY 2023 and FY 2024. This boosts the total 12-month potential return to almost 24%.
Why is the broker positive?
The broker explains that it is bullish on Suncorp shares due to the tailwinds the company is experiencing right now. It said:
We are favourably disposed to Suncorp, noting in large part the tailwinds that exist in the general insurance market – i.e., very strong renewal premium rate increases and the benefit of higher investment yields. We think the strong rate momentum that SUN is getting should likely offset volume pressures as they optimise their risk exposures in certain portfolios such as home but also likely policy lapses / buy downs.
Goldman then adds:
We think that while SUN's underlying margin is likely to face pressure into FY24 from higher reinsurance costs again, increased perils allowances, AMA contract renegotiation and possibly lower reserve release assumptions, we note that SUN is putting through significant price increases to reflect these pressures with the benefits flowing through with a lag. Further, we note that we could start to see more meaningful benefits from underlying claims inflation abating into FY24E. Separate to our thesis, we also see possible catalysts on the horizon for SUN including capital return post the bank sale and the possibility of a whole of account quota share arrangement similar to IAG. We are Buy-rated on SUN.
