Suncorp Group Ltd (ASX: SUN) shares could offer investors a nice mix of capital gains and income.
That's the view of analysts at Goldman Sachs, which are feeling bullish on the insurance giant.
Image source: Getty Images
Why is Goldman saying about Suncorp shares?
According to a note released this morning, the broker has retained its buy rating and $14.53 price target on the company's shares.
Based on the current Suncorp share price of $13.01, this implies potential upside of 11.7% for investors over the next 12 months.
In addition, as mentioned above, its shares are also expected to provide investors with a nice source of income in the coming years.
Goldman is forecasting fully franked dividends of 79 cents per share in both FY 2023 and FY 2024. This will mean attractive yields of 6.1% for investors in both financial years.
Why is the broker bullish?
Goldman believes that the company is well-placed to benefit from favourable trading conditions. It commented:
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.
And while the broker sees some margin pressures in the near term, it feels price increases will offset much of this. It 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.
