(Reuters) - Australian insurer Suncorp Group Ltd (SUN.AX) said it will sell its vehicle repair business for A$420 million ($283.5 million) as it seeks to focus on its core insurance and banking operations after disappointing results in recent times.
The sale of the business, Capital S.M.A.R.T, to smash repairs firm AMA Group (AMA.AX) comes less than a month after company veteran Steve Johnston was appointed chief executive, following the surprise departure of Michael Cameron in May.
Suncorp’s 2019 results showed a steep drop in profit on the back of higher hazard claims and rising regulatory costs, after a government-mandated inquiry found widespread misconduct in the financial sector.
From the smash repairs divestment, Suncorp said it expects an after-tax profit in the range of A$275 million to A$295 million, in addition to the value of a 10% stake it will retain.
The insurer has sought to slim down its business after selling its life insurance division for $540 million last year. Mis-selling in the life insurance sector, in particular, had come under scathing criticism from the public inquiry.
“The increasing complexity of repairs is driving significant change in the smash-repair and parts-procurement industry, and the divestment means Suncorp can focus on its core Insurance and Banking operations,” CEO Johnston said.
A 25-year service agreement with Capital S.M.A.R.T, which includes two additional five-year renewal options, will allow both Suncorp and AMA to continue reaping benefits from their existing partnership, Suncorp said.
“Markets are pleased with both the strategy and the price achieved in this sell-down. This is about streamlining the Suncorp insurance business,” said Michael McCarthy, chief market strategist at CMC Markets.
“The big question for Suncorp that remains is whether banking is a core business. I would suggest it is but analysts are divided on that front.”
Suncorp Bank, which it operates separately from its insurance business, has long since been the subject of divestment speculation, although the company has not given any indication of a potential sale.
In a separate statement, AMA Group said it would fund the acquisition through an A$216 million capital raising plan, and expected significant savings and earnings from the transaction.
AMA will also buy Suncorp’s auto parts supply division ACM Parts for A$20 million, the auto repairer said.
Reporting by Rashmi Ashok in Bengaluru; Editing by Sandra Maler and Stephen Coates