Last month the Suncorp Group Ltd (ASX: SUN) share price stormed higher following the announcement of a divestment.
The insurance giant's shares finished the day 6% higher at $11.78 after it agreed to sell its banking business to Australia and New Zealand Banking Group Ltd (ASX: ANZ).
Since then, however, the Suncorp share price given back half of these gains, closing Thursday's session at $11.46.
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Why is the Suncorp share price backtracking?
Investors have been selling the insurer's shares after its divestment received a lukewarm response from a number of analysts.
For example, the team at Citi have warned that the company's sale could be dilutive to its earnings in the coming years. Citi commented:
We estimate SUN's sale of its bank to ANZ would be ~9% dilutive in FY24E. It would also dilute RoE [return on equity] but materially increase return on tangible book. Overall, we see the bank sale as strategically sound but not one that adds materially to our estimated value.
In our view, it would, however, firm up value in its bank and pave the way for a material capital return, ACCC permitting. Shareholders can also hope for better medium-term returns from general insurance.
In light of this, the broker has reduced its earnings per share estimates as follows: FY22E: -15%; FY23E: -4%; FY24E: -13%.
It's not all bad news
The good news, though, is that the broker still sees plenty of value in the Suncorp share price despite this.
It has retained its buy rating with a trimmed price target of $13.00. This implies potential upside of 13.5% over the next 12 months. Citi concluded:
Despite several current headwinds and tailwinds that we discuss inside, we still forecast expanding margins and continue to see reasonable value. We retain our Buy call.
