2015 has been a rather disappointing year for investors in Suncorp Group Ltd (ASX: SUN). That's because shares in the insurance and banking specialist have posted a rise of just 3% since the turn of the year, which is less than even an uncertain ASX has been able to deliver. In fact, the ASX is up by 5% year-to-date and, while that is only 2% more than Suncorp has managed in the same timeframe, Suncorp's share price has been down by as much as 7% in 2015, with investor sentiment being relatively weak.
However, this week's results from Suncorp should provide investors with a significant amount to cheer about, with the company reporting a rise in net profit of 55%. Although a stunning increase, it was only in-line with market expectations, and so Suncorp's share price rose by just 1.5% following the results.
Looking ahead, though, Suncorp is on-track to post a rise in earnings per share from $0.87 in the previous financial year to around $1 in the current financial year. That would equate to a rise of 15% and is likely to positively catalyse investor sentiment in the stock.
In fact, with Suncorp trading on a price to earnings (P/E) ratio of 16.4, it trades at only a small premium to the ASX's P/E ratio of 16.3 and offers a significant discount to the wider insurance sector's rating of 19.1. And, when Suncorp's P/E ratio is combined with its forecast growth rate, it equates to a price to earnings growth (PEG) ratio of just 1.1, which indicates that its shares offer strong growth potential at a reasonable price.
Furthermore, Suncorp continues to deliver impressive levels of cost savings that are set to continue in the current year. In fact, it expects to reduce its cost base by around $265m this year as it seeks to make its business simpler, more efficient and more profitable. And, beyond this year, the company believes it can further simplify its business model so that, by 2018, it is much leaner, more profitable, and in a better position to deliver bottom line growth.
Meanwhile, Suncorp announced a small rise in dividends to $0.88 for the full year (including the $0.12 special dividend). This figure is likely to fall over the next two years as Suncorp seeks to improve its dividend coverage ratio but, in any case, it is still expected to deliver an income return of 11.5% (fully franked) over the next two years. And, while interest rates were held by the RBA this week, such an excellent yield is likely to improve investor sentiment in Suncorp moving forward.
Of course, financial year 2015 was also a tough year for Suncorp, with its natural disaster claims being the highest on record at $1,068m and being almost twice the budgeted $595m. As such, future years are likely to be more profitable for its general insurance business and, with the aforementioned cost savings yet to come through as well as a great dividend and appealing valuation, now appears to be the perfect time to buy a slice of Suncorp for the long haul.
