TSX:MFC - Post Discussion
Post by
SunsetGrill on Feb 11, 2022 5:22pm
Scotia up to 30 from 29-Report
Q4/21 Review – Should Investors Chase the Rally in Manulife Shares?
OUR TAKE: Positive. Given the big move in Manulife shares on earnings day (and even in the lead-up to reporting season) investors sitting on the sidelines are certainly wondering whether now is the time to capitulate and buy. Despite the market’s newfound enthusiasm for this name we believe that caution continues to be warranted, and we do not see Q4’s results changing that view. Our reticence remains grounded in Manulife’s unique risk profile which, in our view, stands as a significant barrier to a further revaluation of the shares. The reality is that while year-end results looked better than peers, they are unlikely to drive material upward estimate revisions. The real news in Q4 was the lack of bad news, which is notable, but not something to build a buy thesis on. As we enter 2022 reporting core investment gains will no longer be a tailwind, and the introduction of IFRS 17 continues to pose a real risk for this name, as does the prospect of a much more volatile rate and equity environment.
Results Review: MFC reported core EPS of $0.84, which was 6% above us at $0.79 and 2.5% above the Street at $0.82. This result was up 14% Y/Y and up a more impressive 18% in constant currency terms. Core investment gains, strong new business gains, and a robust result from Manulife’s WAM segment helped offset a drag from higher-than-forecast experience losses and modestly lower-than-expected EPIF (up 4% Y/Y or 8% in constant currency terms). On a segmented basis relative to our numbers WAM and Corporate beat, Asia was in line, and Canada and the US missed due to negative policyholder experience. MFC’s LICAT ratio was up 3 points Q/Q to 142% (141% pro forma) while the firm's leverage ratio increased 32bp Q/Q to 25.8% (25.0% pro forma), just above its 25% target.
Changes to our Estimates, Price Target and Recommendation: Our 2022E core EPS estimate climbs by 1% to $3.51, reflecting a more favorable outlook for the Global WAM business, partially offset by a smaller buyback program than we had initially forecast. Meanwhile, our 2023E core EPS estimate remains essentially unchanged at $3.94. We continue to value the shares at 1.0x Q4/22E book, and so our price target climbs by $1 to $30. Despite the break-out in the shares we reiterate our Sector Perform recommendation and believe that tail risk remains a key issue limiting further multiple expansion.
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