Suncorp Group: APS 330 quarterly banking update
About the author:
- Author name:
- By Richard Coles
- Job title:
- Senior Analyst
- Date posted:
- 11 November 2021, 8:00 AM
- Sectors Covered:
- Insurance, Diversified Financials
- The key takeaways from Suncorp Group's (ASX:SUN) quarterly banking update were the company achieved 1Q22 lending growth of 0.9% (~4% annualised) and only had a A$1m quarterly bad debt charge.
- Despite SUN’s home lending growth improving on the 2H21 level (1.5% annualised), the 1Q22 result is still below the current system level (~6.5% in the September quarter).
- We marginally lift our SUN FY22F/FY23F EPS by 1%-2% on higher loan growth and lower bad debt assumptions. Our price target rises marginally to (login to view).
- We remain optimistic on further SUN earnings improvement over the next few years, but with upside to our price target somewhat limited (<10%) we maintain our HOLD call.
SUN has put out its APS 330 quarterly banking update.
The key takeaways were:
- 1Q22 retail lending growth of +0.9% and -0.5% business lending growth;
- A ~A$1m impairment charge for the quarter (a negligible percentage of gross loans);
- Gross non-performing loans (A$620m) declining 15% from the end of June (A$730m); and
- Total provision and ERCL coverage remaining relative stable at 0.61%.
As a reminder, SUN retail lending volumes declined 1% in FY21, but grew 0.7% in 2H21 (+0.7%). So, the 1Q22 annualised growth rate of ~4% is a step up on 2H21 performance (~1.5%).
SUN also noted that 1Q22 total home lending lodgments were 40% higher than 1Q21, and up 18% on the June quarter, which should be positive for further momentum from here.
Despite SUN’s improving home lending growth performance, we do note the 1Q22 annualised lending growth rate (4%) is still below the current system level (~6.5% in the September quarter). One of SUN’s key banking aims is to achieve “above system” home lending growth, so the company still has some work to do to bridge this gap.
SUN’s bad debt performance continues to be exceptional, with a A$1m 1Q22 bad debt charge being versus a target level of 8bps-15bps of loans through the cycle.
Forecast and valuation update
We marginally lift our SUN FY22F/FY23F EPS by 1%-2% on higher loan growth and lower bad debt assumptions. Our price target rises marginally to (login to view).
SUN’s recent FY21 result was solid, and we expect earnings momentum to improve over the next few years as management executes on their clear strategic plan.
However, with upside to our price target somewhat limited (<10%) we maintain our HOLD call.
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