The Suncorp Group (ASX: SUN) share price has grown a pleasing 14.6% over the past year, where will the share price go next?
Suncorp is one of the insurance giants of Australia with a market capitalisation of $17 billion. It is known for brands like AAMI, Bingle and Terri Scheer as well as the bank named Suncorp Bank.
There are several factors that could drive the Suncorp share price higher or lower. Here is my bull and bear case for the Suncorp share price:
The bull case
Suncorp is benefitting from the overall rise of the insurance market. All the major players are steadily increasing premiums and this should fall mostly to Suncorp's bottom line, boosting profit and hopefully the dividend.
The increase in the Australian and global share market is a big positive for Suncorp because it boosts the float that Suncorp is managing. Generating good investment returns is important for Suncorp to make sure income outweighs claims.
The number of storm events and the damage caused seems to be increasing, which should give Suncorp the impetus to increase its premiums even more in the future.
Suncorp is quite cheaply priced compared to its competitors. Suncorp is priced at 15x FY17's estimated earnings, Insurance Australia Group (ASX: IAG) is trading at 16.7x FY17's estimated earnings and QBE Insurance Group Ltd (ASX: QBE) is trading at 16.9x FY17's estimated earnings.
The bear case
The strong storms can be a problem for Suncorp's profit in the year that it occurs, as shown by the last couple of years. If the number of damaging storms continue to increase, this could cause more hits to Suncorp's profit.
Insurance is increasingly seen as a commodity by consumers, therefore people have no qualms changing provider for better value whenever the renewal comes up. This behaviour somewhat keeps a lid on the price increases that Suncorp can implement.
Automated cars aren't close to being legal on our roads. However, at some point it's very likely that premiums will decrease because of the pleasing (hopeful) reduction in vehicle crashes. Less crashes and deaths would be great, but a reduction of premiums will hurt Suncorp's automotive insurance profit.
Foolish takeaway
Suncorp isn't one of the best investment ideas in the ASX50 in my opinion, even though it is well run and liked by customers. It does have a pleasing grossed-up dividend yield of 7.72% which could be decent income for investors looking for dividends.
I personally wouldn't think about buying Suncorp shares unless they were at least under $11.50, instead I'd want to invest my money into one of these three great blue chip stocks.
