Citi keeps Suncorp's price target upside following H1 results

Despite missing the investment bank’s consensus, Suncorp’s (ASX:SUN) half yearly report has left Citi retaining a $13.50 price target on Suncorp, reflecting a return of 8.3%. 

This after Suncorp reported first-half Net Profit After Tax (NPAT) of $560m. 

Analysts are most interested in Suncorp’s successful tracking on its goal to increase margins to over 10%. 

Insurance margins increased to 10% in 1H23, just below Citi analyst Nigel Pittaway’s forecast of 10.2%. 

“The Australian Insurance result is in line with our expectations but a little shy of consensus. However, underlying margin is exactly in line with consensus suggesting the miss should not overly concern,” Pittaway wrote on Wednesday. 

“SUN suggests it remains on track to reach its FY23E underlying insurance margin target of 10%-12%.”

Premium growth 

That margin increase is due in part to the rising cost of insurance. 

On Monday 30 January, a research note from Macquarie effectively foreshadowed Citi’s positivity on Suncorp today. 

Macquarie Research sees Suncorp as a beneficiary of inflation, especially where payments on home and motor insurance by every-day customers are concerned. 

The bank estimated claims inflation for Personal Motor in the insurance sector broadly at 11.5% growth in the December 2022 quarter.

A smaller exposure to New Zealand is also helping Suncorp’s performance as opposed to its next most like-for-like peer.

A flood of data to consider 

Suncorp was recently hit by the floods in NZ, which also saw counterpart Insurance Australia Group (ASX:IAG) shares were walloped in the days that followed. 

Last week, IAG revealed the true cost of flooding in NZ would exceed $1bn and noted it was seeing an increasing number of claims. 

Suncorp was also dragged down by the NZ flood events, which followed those on the Australian east coast all through last year. 

Floods between July and Oct last year were a significant drain on the company’s disaster payout fund for the full FY23. 

Natural disaster cost blowouts for Suncorp were first announced by the insurer in August of 2022. 

Despite this, Macquarie Research still thinks Suncorp (and IAG) have upside room to run. Citigroup has joined that chorus. 

Suncorp's one year charts