Suncorp Group released their half year result to 31 December 2016 which was broadly in line with our expectations. The company delivered top line growth of 4.3% and net profit after tax of AUD537 million, up 1.3% from the prior corresponding period. The company also announced a 10% increase to its interim dividend to AUD 0.33 per share. Gross written premium improved in both the Australian and the New Zealand general insurance markets.
The negative was net interest margin (NIM) compression in the banking business from increased competition, however the company has flagged that it should rise to the upper half of their target (1.75%- 1.85%) at the full year result as the out-of-cycle rate rises flow through. General Insurance saw underlying insurance margins flat on the prior half but year on year, margins rose from 10.1% to 11.0% and management is still guiding it to move to 12% over time.
The company has positive margin outlook and on the insurance division’s written premium growth and strong focus on claims management. Recent increases in mortgage rates by Suncorp Bank are expected to deliver improved second half NIM.
Our investment thesis towards the stock hasn’t changed. We expect the company to perform well in the second half on the back of improved margins, higher interest rates and a recovery in the commercial insurance segment.
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