TSX:SLF - Post Discussion
Post by
retiredcf on Nov 05, 2020 9:11am
TD
Maintain their $68 target. GLTA
Sun Life Financial Inc.
(SLF-T, SLF-N) C$54.96 | US$41.88
Q3/20: Strong Wealth Sales/Results; Credit a Non-issue Event
SLF reported underlying Q3/20 EPS of $1.44, up 5% y/y, versus our estimate of $1.32 and consensus of $1.27, reflecting business growth, yield enhancement gains, favourable morbidity experience, and strong MFS results (strong asset growth), partially offset by higher credit losses. Relative to our estimate, strong underlying earnings reflected strong P/H experience and a lower effective tax rate. Reported EPS of $1.28 was lower than underlying, mostly reflecting assumption charges ($53mm).
Impact: POSITIVE
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Policyholder experience continued to benefit from lower disability claims and pricing actions. U.S. medical stop-loss also benefited from improved morbidity. We expect claims frequency to trend back to pre-crisis levels in 2021 as conditions normalize (e.g. dental/vision claims). Mortality remained unfavourable in the U.S.
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Credit experience was a modest $2mm charge in the quarter, reflecting $33mm for rating changes offset by release of best estimate credit reserves. The net charge is well below Q2/20 level of $58mm charge and our forecast of $70mm. While we continue to believe that the insurers will report net investment losses (including impairment charges) in 2020, we expect the charges to be manageable.
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Insurance sales were flat y/y in the quarter, reflecting a sharp drop in group benefit sales in Canada, offset by strong sales in the U.S. Asia sales were flat y/y. Wealth sales were up 28% y/y, reflecting strong group retirement results in Canada and strong growth in mutual and managed fund sales at MFS. MFS reported net flows of US$4.5bln, lower than our forecast of US$5.8bln. The improvement in insurance and wealth sales is consistent with company guidance in Q2/20 that sales were approaching or exceeding pre-COVID-19 levels. We forecast continued strong results, particularly in wealth management.
TD Investment Conclusion
The premium valuation that we assign to SLF in setting our target price reflects: a) lower interest-rate sensitivity (e.g. MFS and Group businesses); b) industry-leading, very solid capital levels; c) strong track-record of earnings stability; and d) two of the company’s more important growth drivers—Asia and U.S. Group Insurance—should support higher ROEs once conditions stabilize. BV/share was up 7% y/y and the underlying ROE was a strong 15.1%. We continue to rate SLF BUY.
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