Morgans has been busy looking at insurance and diversified financials shares and have picked out three that it rates as "standout picks" this week.
Let's see what the broker is saying about them:
Challenger Ltd (ASX: CGF)
Morgans was impressed with this annuities company's performance in FY 2024. And given its positive outlook and undemanding valuation, it believes now could be a good time to buy the ASX 200 stock. It said:
CGF's FY24 normalised NPAT (A$417m) was in-line with consensus and +14% on the pcp. Overall, we saw this as a positive FY24 result highlighted by a strong improvement in Life business margins/returns, good group cost control and an upward step change in CGF's capital position. We lift our CGF FY25F/FY26F EPS by 4%-6% on higher Life business margin expectations, and a reduction in our cost-to-income ratio forecasts. With CGF having good earnings momentum, and trading on an undemanding 12x FY25F PE multiple, we see further upside.
Morgans has an add rating and $8.66 price target on its shares.
QBE Insurance Group Ltd (ASX: QBE)
The broker was also pleased with this insurance giant's performance during the first half of FY 2024. It was in line with expectations and believes it supports its view that QBE's shares are dirt cheap at current levels. It explains:
QBE's 1H24 result was broadly in-line at both Gross Written Premium (GWP) and NPAT, with the company delivering a solid 16.9% ROE (10.1% in the pcp). Overall we saw this result as largely as expected, with the negative being slightly lowered FY24 top-line guidance, and the positive being an improved overall North America business performance. We lower our QBE FY24F/FY25 EPS by 9%/5% reflecting; restructuring charges, reduced top-line growth expectations, higher tax rate forecasts and a change in QBE's definition of adjusted NPAT. We continue see QBE as too cheap, trading on 10x FY24F PE.
Morgans has an add rating and $18.73 price target the ASX 200 stock.
Suncorp Group Ltd (ASX: SUN)
While this insurance giant's result was short of expectations, it was pleased with its guidance for the year ahead. It said:
SUN's FY24 cash NPAT (A$1,372m) was ~-5% below consensus (A$1,425m), mainly due to a softer General Insurance result than expected. FY25 guidance points to solid earnings momentum continuing into this year, and we see SUN's unveiled FY25-FY27 business strategy as uncomplicated and focused on driving the insurance business harder (which should be well received). We lift our SUN FY25F/FY26F EPS by 5-6% on an increase in insurance margin forecasts and lower "other items" forecasts.
Morgans has an add rating and $18.92 price target on its shares.
