The Suncorp Group Ltd (ASX: SUN) share price has soared 8% higher after the financials business released its FY20 report.
Suncorp FY20 report
Suncorp has three main segments that it reports to investors.
The Australian insurance division reported a net profit after tax of $384 million, which was down 33.9%. The natural hazard cost was in line with the allowance of $820 million.
The COVID-19 impact on its general insurance businesses was broadly neutral – excluding the impacts on investment markets. This division recognised $85 million of additional claims provisions and risk margins to cover COVID-19 uncertainty, including landlord loss of rent and potential business interruption claims.
The banking and wealth division saw a net profit after tax of $242 million for FY20, which was down 33.5% to $242 million. The bank division has been impacted by higher higher provisions, amounting to $255 million in total with conservative economic assumptions. At 31 July 2020, 5% of the home lending portfolio was under temporary loan deferral arrangements.
Suncorp’s New Zealand division generated a net profit after tax of $245 million, the same as last year.
That meant the profit after tax from ongoing businesses dropped 26.8% to $871 million.
Suncorp’s total cash earnings fell 32.8% to $749 million (which includes ‘other’ profit/losses).
However, reported net profit after tax (NPAT) of $913 million was up 421.7% after a $285 million after-tax profit from the sale of the Capital SMART and ACM Parts businesses, and the $89 million impairment charge relating to the core banking platform.
One of the pleasing elements of the report showed that there was 14% growth in digital users and continued increases in new business sales and claims lodgements through digital channels.
Suncorp balance sheet and dividend
Suncorp has decided to pay a final dividend per share of $0.10, bringing the total FY20 dividend to $0.36 per share. That’s a reduction of 48.6%. The dividend payout ratio was 60.7%, less than FY19’s 81.2% payout.
The financials business said that it has excess common equity tier 1 (CET1) capital of $823 million after adjusting for the final dividend. All its segments are within their target operating margins.
Summary
Suncorp said the environment continued to be uncertain due to COVID-19. It said it’s going to remain conservative during this period. Its near term dividends may remain subdued to account for worse-than-expected scenarios.
The insurer has increased its FY21 natural hazard allowance by $130 million to $950 million and it has also purchased aggregate excess of loss reinsurance cover, which providers $400 million of cover for events in excess of $5 million once the retained cost of these events reaches $650 million.
Suncorp will continue to try to transform the business to improve its performance.
This was a solid result considering all of the uncertainty. I’m not sure I would ever want to buy shares though. Insurers suffer every time there’s a bad natural disaster year and they also suffer when the economy goes through a rough patch. For dividends I would rather buy something like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) or Brickworks Limited (ASX: BKW).
