Shrinking profit leaves Suncorp exposed Speculation over ANZ, QBE interest
The Age
Saturday August 8, 2009
A €śTRIPLE whammy€ť of bad debts, huge weather-related insurance claims and volatile financial markets will cut Suncorp-Metway's annual net profit by more than a third and continue to leave the group exposed to predators such as ANZ and QBE.In a warning that confirmed market watchers' expectations of a second successive year of bad results, the Brisbane-based financial services combine yesterday disclosed that its after-tax earnings for the year to June 30 would fall to between $340 million and $360 million, compared with last year's $556 million net profit.Suncorp will deliver this year's result in two weeks.The one saving grace is that the already reduced final dividend will be fixed as forecast at 20 a share, making 40 for the full year. Investors received $1.07 a share last financial year.Suncorp's profit warning came after the ASX fired off a €śplease explain€ť letter following a rise of nearly 10 per cent in the group's share price between Tuesday and Thursday.More than 26 million shares changed hands over that period €” almost three times the recent average daily amount €” driving Suncorp's price from $7.37 to $8.16.That trading followed comments on Wednesday by ANZ chief executive Mike Smith that his bank was still interested in the acquisition of a regional lender, widely assumed to be Suncorp.An approach by ANZ last October to buy Suncorp's banking arm was knocked back by the troubled group, whose insurance businesses, AAMI, Vero and GIO, are thought to be of interest to the highly acquisitive Sydney-based insurer QBE.Suncorp told the ASX yesterday it was unaware of any €śunannounced information€ť that would explain the sudden rise in its shares.It then released a separate statement that revealed the impact of bad-loan provisions, large storm and bushfire insurance claims and falling investment values on its three major operations.Banking would turn in a pre-tax amount of just $100 million to $130 million because of impairment charges as high as $730 million. General insurance was set to contribute $560 million to $580 million before tax, while Suncorp Life, the wealth management operation, would produce a result of $100 million to $120 million, either in line or just below last year's profit.As a consequence, the whole group would produce a profit of between $510 million and $530 million.Analysts at Deutsche Bank said one-off hits appeared to be behind the lower outcome and expressed relief that the two main €śfear factors€ť dogging the group €” its bad debt position and capital requirements €” had not worsened since the last update.The likely final result was €śnot as scary as the headline [figure] suggested€ť, said James Coghill, the bank's insurance analyst, in a client note yesterday.€śWhile we don't necessarily believe there is much substance behind recent merger and acquisition speculation, and therefore question the sharp price rise, we still see reasonably good value [in the stock],€ť he said.Suncorp shares closed with a loss of 10 at $7.90 after bouncing back from a low of $7.63 early in the session.
© 2009 The Age
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