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Q&A -weekend report – DRO & SUN

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

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Q&A -weekend report – DRO & SUN

Hi James and Team Your thoughts please on DroneShield ($1.70) and Suncorp($16.80 ). Both have hit YTD highs today. Would you be taking some profits on DRO or let it run for now? What are some of the Broker valuations on DRO? Would you be holding on to SUN until the completion of the Sale of its bank to ANZ? Will shareholders benefit from the return of capital from the sale or would this be simply offset by the fall in value of the shares without the banking business? Also when is the sale likely to be completed? regards Debra


Hi Debra,

While some approvals are still required, we believe the sale of SUNs banking division will go ahead. The capital returns that happens will likely lead to an equivalent drop in the short price. We now then need to think about what PE multiple SUN as an insurer only should trade on, given insurers trade on higher multiples than banks, dependent on the type and risk of insurance they write. As it stands, IAG is on 16.5x and SUN is on 16.1x, and many in the market believe that SUN should trade on at least a comparable PE, if not a higher PE than IAG. In short, we reiterate what we wrote in our last Q&A on SUN, we think it is a hold until a better opportunity came along.

Droneshield (DRO) – hard to add any real value, other than to say the stock remains incredibly strong, and following the trend on this one has proven very profitable. In a scenario like this, we tend to back it until it falters, trimming along the way to maintain an adequate position size, however, we could not be a buyer up at these levels – simply too hard to asses risk/reward.

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Suncorp Group Ltd (SUN)
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