SUN

Suncorp-Metway (SUN) has a retained Buy/Medium Risk rating and A$15.00 share price target from Australian Stockmarket analyst Macquarie Research Equities.

Suncorp-Metway (SUN) Ltd: Caution may place DRP underwrite on the agenda

Here is an Australian banking sector update from Australian market analyst UBS.

Labor Govt keeps the Four Pillars Policy

Rudd Government is committed to the four pillars policy:

Suncorp-Metway Limited (SUN) has retained a $15.00 share price target and has a medium risk to buy from Australian stockmarket analysts from Citi.

Suncorp-Metway Ltd: Value Looks Appealing as Guidance Reiterated

Upgrade to BUY, slightly lower EPS — We roll forward our mark to market, and allow for higher bad debt charges and make the following EPS adjustments, FY08E: -5%; FY09E: -1%; FY10E: -2%. With risks seemingly priced in and guidance largely reiterated, we lift our recommendation from Hold, Medium Risk to Buy, Medium Risk, retaining our A$15.00 target price.

Here is an update on the Australian banking sector provided by Australian market analyst UBS.

Australian Banking Sector- Credit growth - is this the tipping point?

March credit growth: 0.8%: business 0.9%, personal -0.2%, housing 0.8%:

March system credit grew at 0.8%; driven by: (1) good headline growth in business lending 0.9%, although higher due to Feb revision down from 0.5% to 0.3%, (2) sharp slowing in personal credit growth - .2%, the second negative month this yr, (3) housing credit growth stable at 0.8%, with non-banks share continuing to slow.

Here is an insurance sector update from Australian market analyst UBS.

Insurance Sector

108 profitability better, cost inflation up
Gross underwriting margins improving in personal lines:

Suncorp-Metway has a $24 share price target and a retained Buy medium, Risk rating from Australian stocks analyst Citi Investment Research. Following today's update on the cost of the NSW storms the weekend before last, they lower their FY07E EPS another 3%. This is in addition to the 6% downgrade they posted last week. Suncorp's new belief is that it will hit the maximum retention for both Suncorp and Promina, whereas initially it thought the Suncorp retention was unlikely to be reached. So the new estimated loss of A$160m pre-tax is A$50m ahead of their initial expectations. This earnings downgrade reduces our spot valuation a further 3 cps to A$21.20ps but they retain our A$24.00ps target price and Buy, Medium risk call. Since its last update on 12 June, Promina's claims numbers have risen from 8,500 to 12,000, while the number of Suncorp/GIO claims is up from 3,000 to 7,000. Sentiment towards Suncorp's stock is poor but potential supports to profit include diversification benefits, the claims cost reduction project, a potential uplift to integration synergies and further reserve releases including ~A$170m pre-tax from lowering the probability of sufficiency to 90%. Add this to the strong possibility of a capital return later in the year. A catalyst for Suncorp-Metway stocks is currently lacking but may come as early as the full year results in August.

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 (SUN) have an unchanged Neutral 2 shares recommendation and a steady price target of $23.20 per share from market analyst UBS. The banking company have made extensive changes to their executive management team. Suncorp-Metway have hired 3 managers from PMN (Belleville: personal insurance; Fox: WM; Bell: Vero NZ) & an external candidate (Smith: IT). Five SUN executives were retained (Foster: retail bank; McDonald: business banking; Milliner: commercial insurance; Inglis: strategy & HR; Blucher: integration), though there was a redistribution of responsibilities. PMN's West & SUN's Eilert have decided to leave new group. Today's broad restructure followed a similarly extensive redistribution of executive roles less than one year ago. Prior to that restructure, changes in the group executive were infrequent. With Blucher filling the newly created role of Integrations, we believe that management's prime focus will be on the PMN merger. (A similar role was created at the time of the GIO acquisition.) While the company today said that they would not be providing frequent synergy updates, there was a commitment to update investors on the integration progress at the FY07E result (27 August). The analyst estimates c2% FY09E EPS accretion (ex integration costs) & assuming targeted synergies of $225mn pre-tax. They valued SUN using a sum-of-the-parts methodology and estimate that SUN is trading on a 12.5x FY08E PE.

Suncorp-Metway (SUN) has a Neutral 2 shares recommendation and a price target of $23.20 from analyst UBS. The shares analyst is looking forward to the Re-commencement of trading on the stock exchange for the bank on Friday March 16th. Shares will trade on an ex-entitlement basis tomorrow (ASX code SUN). Shares issued to PMN shareholders under the scheme will also commence trading tomorrow, on an ex-entitlement & deferred settlement basis (ASX code SUNN), with normal settlement from March 21st. A choppy market & mixed investor response to the 27% entitlement discount cloud expectations on tomorrow’s trading outcome. The analyst expects share price re-basing given the $20.57 theoretical ex-entitlement price & the flat (+0.4%) ASX 200 price index since last Friday. They estimate a post-merger valuation range of $22-$24 & remain neutral on SUN (Neutral 2, $23.20 PT). The analyst see post-completion risks to the upside (synergies, releases, capital management) & downside (revenue attrition, integration costs). Their sense is that Suncorp-Metway would present good value in sub-$20 territory. Their SOTP based PT is stand alone, ahead of the 20th March scheme implementation date. QBE remains our top GI pick (Buy 2, $34.35 PT: locked in growth, acquisition upside), followed by IAG (Buy 2, $7.05 PT: signs of improvement in domestic personal lines, offshore operations upside, possibility of market share gains during SUN/PMN integration).