Portfolio Change | Increase Suncorp (SUN) & Reduce Commonwealth Bank (CBA)
Blackmore Capital Australian Equities Income Portfolio
We have added to the existing holding of Suncorp in the Income portfolio, funded by reducing Commonwealth Bank (CBA). The decision was driven by the growth of the CBA holding towards the portfolio position limit constraint; however, a brief examination of performance is warranted.
On a 12-month basis CBA has delivered a total return of ~58%, outperforming the ASX200 by ~35% and its major bank peers by a range of ~3% (NAB) to ~13% (Westpac). CBA’s 24-month performance relative to peers is considerably larger having outperformed the ASX200 Banks index total return by some 35%, in line with its outperformance over Suncorp. Thus, the market capitalisation of CBA at $186b is now more than that of Westpac and NAB combined.
CBA’s lead over its four-pillar peers since the Banking Royal Commission has been reflected in aggregate Ioan growth, owner/occupier housing loans and household deposits illustrated in the common base chart below. CBA now trades at a price/earnings ratio of 19.9 versus the other major banks range of 13.0-14.8 and its forecast dividend yield is 3.8% versus 4.7-5.2%.
Source: Velocity Trade
Suncorp has performed ahead of our expectations since being added to the portfolio in March this year with a ~35% total return (our previous discussion on Suncorp). The investment thesis remains intact and despite the higher stock price its forecast FY22 yield at 5.6% is higher than any major bank. We see premium rate increases offsetting claims inflation and natural perils, with potential margin improvement from increased investment returns amid increasing interest rates. In this respect it acts as an interest rate hedge relative to other income generating investments which can be negatively impacted by rising interest rates.