Suncorp Group chief executive Michael Cameron has defended his decision spend an extra $100 million on a "knock-out digital experience" this year saying he would be disappointed if a rival picked up the strategy and “beat us to the punch".
Since the Queensland financial services group always planned to compete its customer-centric marketplace strategy over three-years, bringing forward the $100 million spend did not sit well with the country’s insurance analysts or investors at Thursday's results anouncement.
Suncorp’s share price plunged more than six per cent to $13.57 on the news but by midday on Friday had clawed back one per cent. Cameron (pictured) acknowledged that bringing forward the one-off spend had analysts worried, adding that it would would take a bit of time to sell his decision to speed things up.
“All of the analysts are very cautious but once we talk to them and fill in the blanks I’m confident we will see a little more strength in the share price," he told AB+F. “What I’m seeing is a very immediate reaction to a couple of announcements which we now need to flesh out. It’s hard to explain what we’re doing in full at one presentation.
“For us, it is all about keeping the foot on the gas. The $100 million is discretionary spend - we don’t have to do it but we are choosing to do it right now.”
The decision to bring that forward reflects Cameron’s confidence in the company's ability to deliver value to customers and shareholders faster.
“We are a more resilient Suncorp and we have the confidence to invest for growth in the future were very comfortable with the businesses and we have got terrific momentum going into 2018,” he said.
Referring to his solid run as chief executive of the GPT Group before joining Suncorp, Cameron said he had the courage to think long term.
“Unfortunately, it means some days you have to take a few knocks … you need sometimes to make the hard decisions with great conviction so value can be created for customer and shareholders."
According to UBS analyst James Coghill, the absence of detail was an added frustration.
“While soft underlying trends across almost every business were disappointing, the more surprising development was Suncorp’s decision to accelerate marketplace spend of $100 million post-tax in 2018," he said.
“From its infancy in late 2015, Suncorp has argued this core strategy would be funded by cost efficiency elsewhere – in hindsight too optimistic.”
However, despite the shift in managing costs, Coghill is rating the stock a ‘Buy’ as he continues to view the general insurance backdrop positively, with premium rate momentum in key classes continuing to build.
And, the analyst is forecasting a 6.4 per cent earnings bump to $1.15 billion in 2018.
Morgan Stanley analyst Daniel Toohey also pointed out to clients that the digital platform was to be self-funded from prior simplification benefits, with a "flat cost base" targeted for the two years to 2018.
“Tangible upside demands a leap of faith,” he said in a client note. “At this point the RoI and P&L accountabilities are unclear and the stakes on the 'marketplace' strategy are increasing.”
According to Cameron, management has demonstrated this year that components of the marketplace are working given the addition of nearly 400,000 customers and a lift in customer retention.