Morgan Stanley upgrades Suncorp price target
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The news: Morgan Stanley analysts have lifted their price target on insurer Suncorp citing better earnings quality on its simplified business model and potential for capital return.
The numbers: Morgan Stanley raised Suncorp’s 12-month price target to $20.20 a share, from $17.05 previously.
Suncorp shares were 0.1% lower at $16.80 during early trading in a weak Australian market.
The context: The analysts said Suncorp had historically traded at a 2x to 3x price-to-earnings discount to bigger rival IAG, but this gap had widened to ~3.5x currently.
They estimated the gap should be tighter ~1.5x discount because of Suncorp’s simplified business model after its recent deal to sell Suncorp Bank to ANZ, along with the previous sales of its life insurance businesses.
Suncorp on Friday also announced that it renewed its FY25 reinsurance program with catastrophe reinsurance cover providing protection for losses between $350 million and $6.75 billion. This followed rival IAG that outlined last month extra catastrophe and reserve reinsurance from FY25.
What they said: “Suncorp needs to deliver for shareholders as a standalone insurer from 1 August. We think it can do this as in the last eight years its insurance earnings have been less volatile than IAG's,” the analysts said in a note.
The source: Morgan Stanley
