Suncorp Group: Changes at the top

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
28 May 2019, 12:30 PM
Sectors Covered:
Insurance and Diversified Financials

Key points

  • Suncorp CEO and Managing Director Michael Cameron has stepped down, replaced in the interim by current CFO, Steve Johnston.
  • With market doubts about Michael Cameron's 'marketplace strategy' not abating, we think the transition to the new CEO will be seen broadly as a positive. 
  • SUN also confirmed that it expects FY19 cash earnings to be in-line with market expectations (FactSet consensus ~A$1.1bn). Our forecasts were too optimistic versus this guidance, and we lower FY19F EPS by ~10%
  • SUN remains relatively inexpensive trading on ~14x FY20F PE, and we think recent steps to de-risk earnings will ultimately drive a re-rating over time. Maintain ADD.

Event – Change of CEO

Suncorp has announced that CEO and Managing Director, Michael Cameron, has stepped down and will be leaving the company.

Mr Cameron had spent roughly four years in the role and seven years as a board member. Group CFO Steve Johnston has been appointed Acting CEO, as the board begins an external domestic and international search for possible candidates.

The board aims to announce a CEO replacement in the 'latter part of the year'. Deputy CFO Jeremy Robson will be Acting CFO over that time.

Not completely unexpected

It has been clear for some time, in our view, that the market has had significant doubts about Michael Cameron's 'marketplace strategy'. With these concerns not abating despite some increased disclosure, we think the transition to a new CEO will be seen broadly as a positive.

We remain of the view that lack of comfort on strategy is one of the key reasons for SUN's significant PE multiple discount versus key peer IAG (~14x vs ~18x FY1 PE).

On this, we imagine the search for a new CEO also likely puts on the backburner any decision on whether to separate SUN's banking and general insurance businesses (per recent press speculation).

Changes to forecasts

SUN also confirmed that it expects FY19 cash earnings to be in-line with market expectations (FactSet consensus ~A$1.1bn).

Our forecast had been more optimistic than this guidance and as a result we downgrade FY19F EPS by 10% but leave FY20F EPS largely unchanged. Our share price target is lowered (available here Morgans client only).

Investment view

In our view, SUN remains relatively inexpensive trading on ~14x FY20F PE and we think recent steps to de-risk earnings, e.g. higher weather allowances, should ultimately drive a re-rating over time.

We also think a new strategic direction under a new CEO could provide further stock momentum, helping to further unwind more of SUN's trading discount to IAG. Maintain Add.

More information

Morgans clients can login to view our detailed report and share price target for Suncorp Group (SUN). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

  • Print this page
  • Copy Link