IAG down 8% IA Financial Corp. Inc.’s (
) fourth-quarter 2023 results represented “a soft end to the year,” according to National Bank Financial analyst Gabriel Dechaine, who emphasized its capital position provides downside support.
After the bell on Tuesday, the Quebec City-based insurance and wealth management company reported underlying earnings per share of $2.34, missing both Mr. Dechaine’s $2.40 forecast and the consensus estimate of $2.47 due largely to higher corporate expenses and weakness in its U.S. results. Reported EPS of $2.46 were also lower than anticipated ($3.95 and $3.16, respectively) stemming from a $56-million post-tax actuarial charge.
“Although assumption changes from policyholder behaviour were positive, offsetting charges emanated from mortality/morbidity, expense and other/model changes and assumption updates,” he said. “In-period P&L charges were more than offset by a full year of increases to the Risk Adjustment, an IFRS 17 liability category that amortizes into future earnings. In our opinion, the actuarial assumption changes should be viewed in their totality through the P&L and the balance sheet (yielding a net positive figure for the full year).”
The analyst also pointed to struggles south of the border with its U.S. segment earnings sliding 4 per cent year-over-year (or 20 per cent pre-tax).
“Performance has been hindered by weaker U.S. auto sales (resulting in Warranty profits falling 34 per cent year-over-year) and a 14-per-cent year-over-year increase in U.S. segment expenses, continuing a trend that could persist into 2024. IAG’s outlook comments include ‘taking action to grow sales and earnings in a challenging environment’. We believe the details behind these plans will be a focus on [Wednesday’s] call.”
While he believes its buyback program, which he expects to result in the repurchase of 5 million shares on top of 5.4 million in 2023, should protect investors from further downside, Mr. Dechaine cut his target for iA Financial shares to $102 from $104 after reducing his estimates based on higher expenses and lower U.S. profits, keeping an “outperform” rating. The average target on the Street is $101.25.
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