Suncorp announced Michael Cameron would be leaving his position as CEO, which he has held for three years, with immediate effect, although he will remain as an adviser to the business until 9 August. Group CFO Steve Johnston will be acting CEO until a new appointment is made.
In the announcement, chairman Christine McLoughlin said now was the time for change for Suncorp “to enhance its performance in a highly competitive and challenging external environment as Suncorp seeks to strengthen its core businesses by focusing on its customers, products and brands”.
In our view, Cameron has had mixed fortunes at Suncorp, having inherited a tough situation from the former CEO Patrick Snowball where there were concerns about the extent to which Suncorp was claiming elevated underlying earnings that were either unsustainable or not apparent (margins were too high). Cameron’s brief also included improving volumes at Suncorp, for which he unveiled his ‘marketplace’ strategy.
This strategy has evolved considerably into a program that has cost at least $140m and has moved towards a digital offering. Arguably, Cameron has tackled some of the tough issues surrounding the integrity of Suncorp’s underlying margins – for example, by addressing large loss allowances and reinsurance – although the volume trends have worsened.
A new CEO could take the view that current margin target levels need to be tempered in order to reignite growth. It is unclear whether he or she will be as firmly committed to the 12% insurance margin and 10% return on equity targets.
Suncorp confirmed its FY19 cash earnings were tracking in line with market expectations – the company is due to report its result on 7 August. We have reduced our earnings estimates to reflect our view that Suncorp is likely to invest more into growth initiatives, which may pressure otherwise improving margin trends and could necessitate a reset of margin targets. This has led us to lower our target price to $13.82 from $14.13 and we maintain our Hold recommendation.