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Stockwatch: Suncorp Group Limited (SUN)

December 7th, 2012 · Greg Atkinson · 2 Comments

To pick a stock to write about this time I decided to set some high level criteria, do a search and then see what stock caught my eye. What I searched for was a stock with a market cap of over $100 million, a P/B ratio of less than 1 and a P/E ratio of less than 16. The stock that came out on the top of the list was Suncorp Group Limited.

Before I start, let me just make it clear again that I am not seeking to provide investment advice and that my aim is to simply highlight stocks which people may want to look at further.

Now onto Suncorp (ASX:SUN) which was at the top of the list because its P/B was just under 1 at 0.91. This means in theory that its book value is worth more than what the stock is trading at, but before we get too excited about that let’s look at what the stock has been doing to try and work out why the stock is trading at less than book value.

Basically Suncorp is a bank, financial services and insurance company or as their websites puts it:

Suncorp Group includes leading general insurance, banking, life insurance, superannuation and investment brands in Australia and New Zealand. The Group has around 16,000 employees and relationships with nine million customers. It is a Top 25 ASX listed company with over $95 billion in assets.

Suncorp has five core businesses: Personal Insurance; Commercial Insurance; Vero New Zealand; Suncorp Bank and Suncorp Life. These are supported by corporate and shared services divisions.

Source: Suncorp Website

So before I even look at a chart my expectation is that it will show the stock was hit hard by the GFC meltdown in 2008-2009.  But I have to say I was surprised by just how hard it was hit as the ten year chart shows below.

Suncorp Group (ASX:SUN) 10 year stock price chart

sun_10_year_chart_dec_2012

That’s quite a fall – from over $22 a share to under $6 or roughly a fall of about 70%. Ouch! What makes things worse is the rebound has not be very strong unlike say for the Commonwealth Bank for example.

But there recently there seems to be some life in this stock so let’s have a look at the 5 year chart.

Suncorp Group (ASX:SUN) 5 year stock price chart

sun_5_year_chart_dec_2012

On this chart we can see that during the second half of 2012 the Suncorp share price has been trending upwards so that stirs my interest a touch.

The P/E ratio is just under 15 so it’s not what I would consider an expensive stock by that measure either, but what worries me is the ROE (Return on Equity) which is a pretty poor 5.1%.  Back in 2006 the ROE was a very healthy 20.7% and since then it has never been in double digits again.

Also it’s useful to look at if the company has been issuing new shares over the years which is the case with Suncorp which had around 562 million shares outstanding in 2003 and now has 1,286 million shares out there now. Generally speaking as a company issues new shares the price per share will come under pressure.

So although the stock appears undervalued when we look at the P/B ratio it probably isn’t the bargain basket category. Having said that, it has a fully franked yield of just under 5% which means that with a little share price growth each year investors could be looking at a 10% return, which in this era of relatively low interest rates is tempting.

Finally let’s have a close look at what the stock price has been doing over the last six months.

Suncorp Group (ASX:SUN) 6 month candlestick chart

sun_6_month_technical_chart_dec_2012

Clearly Suncorp Group shares  has been on the rise over the last six months and for me the stock would become very interesting if it fell near $9 or better still,  bounced around $8 again. But please remember – that is just my view so please don’t take it as a buy recommendation.

Disclaimer: I don’t own shares in Suncorp right now, but I may pick some up at some point after this article is published.

This article was written by Greg Atkinson who is the editor of Shareswatch Australia and the Managing Director of Ohori Capital. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp


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