Suncorp Metway

Submitted by Craig Strzelecki on 24 April, 2007 - 18:13

Suncorp Metway Limited has an upgraded broker call from Hold to Buy, Medium Risk with a decreased share price target of $23.24 from $24 from sharemarket analyst Citigroup Investment Research. In time, the analyst expects Suncorp to upgrade its pre-tax integration synergy target from A$225m and a capital return may assist the end of the year. Strong general insurance reserving allows scope to support profits. The analyst alters their EPS for the company: FY07E: -11%; FY08E: +1% FY09E: +10%. These changes allow for the Promina acquisition including pre-tax synergies of A$275m, A$50m more than that currently promised by Suncorp, and the recently advised 12% 3Q07 drop in Qld CTP premium. The EPS growth profile is relatively lack lustre but at this price, the analyst still sees value.Valuation not too demanding: While the analyst could hardly describe Suncorp as cheap, it is currently trading on around 12.3x FY09E earnings and close to the analyst's new spot valuation of A$21.30ps. In a market that otherwise looks fairly fully valued, this does not appear particularly demanding. The fully franked dividend yield from Suncorp-Metway, potentially supported by capital returns, is also attractive and recent banking volume/risk product sales growth also appears encouraging. Integration risk significant: the analyst still believes that the Promina integration is likely to be tricky – it involves merging a centralised and decentralised culture – and there is risk of revenue fallout. But if there are hiccups, the impact is unlikely to be for a while and in the meantime the positive news should dominate.

Suncorp-Metway Limited is listed on the Australian Stock Exchange (ASX) under stock code SUN. You can view their investor website here. SUN was listed on the ASX on 7 July, 1988. John Story is the chairman of Suncorp-Metway and the CEO is John Mulcahy. The Suncorp Group is one of Australia's leaders in banking, insurance, investment and superannuation. The Group focuses on retail consumers and small to medium businesses. Providing banking, insurance, superannuation and funds management products and services to the retail, corporate and commercial sectors. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade SUN. Check your charts and good luck with your share trading!