Td recent update for life insures 4QThe backdrop for this earnings season is one of solid sentiment toward the insurers, but perhaps for the wrong reason. Although the insurers underperformed the banks by 10% in 2020 and a further 15% in 2021, in the early going of 2022, MFC and IAG are keeping pace with the best-performing bank stocks. When we say sentiment is positive for MFC and IAG for the wrong reason, we are referring to the rate call. Specifically, while we can easily argue that higher interest rates are positive for a financial services company with long-tailed liabilities, we believe central bank rate hikes mean very little to near-term earnings for the insurers.
Our approach to estimating deployable capital (discussed in more detail in the MFC and IAG sections of this report) puts MFC and IAG's deployable capital at $13.7bln and $950mm, respectively. Importantly, deployable capital should not be thought of as excess capital to buy back stock. Estimating deployable capital for the life insurance companies is a balancing act between operating company LICAT and core LICAT, and the holding company leverage ratio. Accordingly, we are not suggesting that MFC and IAG should or even can buy back that much stock based on deployable capital alone. However, both companies have the capital strength and valuations to support much greater buyback activity than their peers. Our estimates contemplate MFC and IAG repurchasing, at a minimum, 5% and 2.5% of their outstanding shares, respectively, in 2022
Manulife (ACTION LIST BUY): On a core basis, we forecast EPS of $0.81 (consensus adjusted EPS currently stands at $0.82) to be up 10% y/y (target is 1012%), reflecting investment gains (no gains reported in Q4/20), 4% growth in expected profit (primarily supported by Asia), and 20% growth in Wealth Management earnings. A core ROE of 12.5% is entirely incongruent with an ~1.0x book value multiple and continues to support our ACTION LIST BUY rating. The needless volatility created by the AFS portfolio, among other considerations, continues to weigh on the stock.
Target price previous $37.00 now $39.00 Totally return 55% All buy!