Suncorp Group Ltd (ASX: SUN) just reported its FY21 half-year result showing a big improvement in operating net profit.
Suncorp is a diversified financial business offering both banking and insurance, with brands like AAMI, Bingle and Terri Scheer.
Suncorp half-year FY21 result
It said that its Australian insurance profit after tax went up 109.8% to $258 million. Banking and wealth saw an 11.1% increase in net profit to $190 million. New Zealand profit after tax grew by 17.6% to $120 million.
In insurance, home and motor gross written premium (GWP) grew 5.2% with positive unit count and rate growth. Commercial GWP growth was 3.2%. Workers compensation GWP increased 13.7%. Investment market movements created higher investment income of $305 million, up 124%.
Total natural hazard costs across Australia and New Zealand were $561 million, which was $86 million above the allowance and $42 million above the prior corresponding period.
The banking and wealth profit grew after a strong improvement in the net interest margin (up 8 basis points / 0.08% to 2.04%) and non-interest income. Net interest income of $618 million was up 4%, reflecting continuing strong growth of at-call deposit cash and significantly lower benchmark rates in the market.
Overall net profit after tax from continuing operations grew 43.4% to $568 million. Cash earnings increased by 39.5% to $509 million.
However, the bottom line net profit saw a decline of 23.7% to $490 million. That was because the HY20 result included the $293 million gain on sale of Capital SMART and ACM Parts businesses in October 2019.
Suncorp dividend
The Suncorp board decided to maintain the dividend at 26 cents per share. However, the payout ratio improved from 89.5% last year to 65.2% in this result.
Outlook
Suncorp said that its operating expense base including restructuring charges is expected to be around $2.8 billion in FY21 and FY22. The FY23 operating expense base is expected to return to around $2.7 billion with efficiency gains effectively offsetting inflation and the costs of investing in growth over the three-year period.
It intends to remain well capitalised, with significant excess capital held at the group level, whilst maintaining a dividend payout ratio of between 60% to 80%.
Summary thoughts
This was a solid recovery in underlying earnings from Suncorp, though I’m not sure if it will be able to repeat double digit growth again next year.
It’s good to see that Suncorp is working on costs and being more efficient, but I don’t think that the insurance industry is one that can generate consistent long term profit growth because of the regular damaging storms and the occasional recession. Suncorp has a fully franked dividend yield of around 5%.
There are other ASX dividend shares I’d rather buy such as Magellan Financial Group Ltd (ASX: MFG) and Brickworks Limited (ASX: BKW).
Instead of Suncorp, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.