Post by
Al42 on Nov 04, 2022 8:29am
From RBC
November 4, 2022
Great-West Lifeco Inc.
Mixed results leave us with an unchanged view
Our view: GWO's Q3/22 core EPS came in below our estimate and
consensus. While Empower results were good, there is "always something"
that makes us second guess the longer term earnings power (if not fees,
fee pressure, participant loss, etc.). For valuation, we use a higher ROE
and discount rate to compute a P/B multiple that accounts for the IFRS 17
transition and a potential economic downturn. Using an IFRS 17-adjusted
1-year forward BVPS, we decrease our price target to $36 and maintain our
Sector Perform.
Key points:
GWO's Q3/22 core EPS was $0.74, below our estimate of $0.77 and the
consensus estimate of $0.76. Our core EPS estimate decreases slightly
due to changes in our model mostly reflecting Q3/22 actual results, lower
earnings from Putnam, lower impact of new business in the U.S., and more
negative experience losses in Europe.
Canada base earnings of $283 million were down ~-4% QoQ and ~-9% YoY,
and below our forecasted $311 million. Results were lower than expected
due to weaker expected profit on in-force (EPIF) of $328 million compared
to our $349 million expectation. Total sales in Canada decreased to $3.1
billion from $3.2 billion last quarter (down ~-4% QoQ), as individual life and
wealth sales were down ~-4% QoQ and ~-5% QoQ, respectively.
Capital and Risk Solutions had base earnings of $1 million (down ~-99%
QoQ and YoY), below our expected $31 million.
Base earnings in the U.S. (including Putnam) increased ~43% QoQ and
~2% YoY to C$204 million, higher than our forecasted C$157 million. U.S.
results were stronger than our estimate despite Putnam disclosing a core
net loss of -US$13 million, lower than our expected core net earnings of US
$15 million. Base earnings in the U.S. excluding Putnam were C$186 million
compared to our estimate of C$114 million.
GWO's total LICAT ratio at the operating company level was 118%, a 1
percentage point increase sequentially, in line with our estimate.
On a P/B basis, GWO is trading at 1.16x, below its historical average of
1.84x but slightly above the peer average of 1.15x. On a P/E basis, GWO
is trading at 8.8x, also below its historical average of 11.3x but above the
peer average of 8.6x. We continue to struggle with GWO's valuation as it
does not own particularly risky businesses (yes, we do not view Capital Risk
Solutions as actually risky all things considered) but at the same time its
U.S. business either earns nothing (Putnam) or are a roll up play with longer
term fee pressure (Empower) that leave us for the time being unconvinced.