Suncorp-Metway (SUN, $8.92) Buy

By Jason Fittler

Examination of the underlying profitability of SUN’s core bank highlights that on almost any measure its performance compares favourably with regional banking peers.

Recent APRA statistics also indicate that SUN’s housing credit growth is starting to be restored post stabilisation of SUN’s banking operations.

This positive outlook for the core bank is still not fully reflected in SUN’s current share price, in our view.

QLD has suffered worse than any other state during the GFC, with four quarters of negative growth in 2009.

With 69% of SUN’s lending coming from the Sunshine State, SUN stands to benefit significantly from an upturn in the QLD economy going forward.

Recent state-based demand figures show this recovery is taking shape, with QLD still having significant ground to recover on other territories.

We still see upside potential for SUN with an improving domestic economy pointing to a better outlook for the bank.

The company should also benefit from back office synergies in its general insurance business, lifting insurance margins by 3% by 2012.

With SUN trading at a c16% discount to our target price of A$10.34, the stock remains our top pick in the insurance  sector.

To invest in SUN please call us on 07 4771 4577.