At time of writing, the share price of Suncorp Group Ltd [ASX:SUN] is down 3.28%, trading at $12.10.
You can see the chart going back to 2013 below:
Source: tradingview.com
Today the main idea is that the Suncorp share price reflects the death of banks, not the immediate pain caused by disasters to the company’s bottom line.
Suncorp maintained its dividend this time around, find out why this could be increasingly difficult going forward.
Key points from Suncorp’s results release, impact of disasters hurts share price
Here are the key points from the Suncorp results release:
- NPAT up 156.8% to $642 million
- Net profit from continuing operations down 6.2% to $396 million
- Revenue down 6% to $7.05 billion
- Interim dividend of 26 cents
The results come after the company, which does insurance as well, faced more than 42,000 claims in Australia and more than 3,000 in New Zealand.
This came from seven natural hazard events over the half year.
And when you take out the sales of two repairs businesses, Capital SMART and ACM Parts, things look worse.
Its dividend payout of 26 cents is quite generous though, especially considering the payout ratio is 89.5% of cash earnings.
That means though, that there isn’t much in the way of funds available to grow Suncorp as a business, despite how much long-term shareholders may like it now.
Chart shows that Suncorp’s share price moved sideways for seven years
The chart at the start says it all.
The Suncorp share price is now sitting at around the same level as it was in 2013.
Seven years is a long time in the investment world and it is an indicator that Suncorp as a whole is maintaining its business, but not growing it.
Over the last three years it has had a dividend yield of around 5%.
So it seems that for years many investors were happy to scrape 5% away, minus inflation of 2%, and walk away with 3% in real profits from a perceived safe investment.
But here is the interesting bit.
I think Suncorp’s payout ratio may not be sustainable as fintech moves in on its core business.
Innovation and/or acquisitions take time and capital, something which Suncorp may not have over the next three to five years.
As a result, the impact of disasters is certainly a factor in today’s Suncorp share price — but the slow asphyxiation of traditional banks is the long-term story.
You can read more about why bank dividends could be cut here.
You can also find out about three fintech stocks chipping away at the banks’ core business here.
Regards,
Lachlann Tierney,
For Money Morning
Comments