Sun Life Financial Inc T.SLF.PR.H

Ink Research

[retiredcf]

August 15, 2023

Morning Report: Insiders bet VersaBank and Sun Life can win in a high-rate world

Higher interest rates can benefit some areas of the Financials sector, particularly if they are accompanied by higher demand for borrowing or investments. With that in mind, today we first visit branchless VersaBank (VBNK). It is up 9.4% since we last featured it here on March 28th and set a new 52-week high of $11.66 on July 31st. On June 7th, it reported Q2 EPS of $0.38 versus $0.17 a year earlier. This was driven by higher interest income due primarily to 40% year-over-year loan growth. Net interest margin was 2.78%, up 1 basis point from a year ago. Loan growth was driven by the bank's point-of-sale financing portfolio. VBNK continues to advance through the regulatory approval process for its proposed takeover of a US chartered bank which would give it a vehicle to ramp up its efforts in its US receivables business.

Insurance giant Sun Life Financial (SLF) stock is up 12.1% since we last featured it here on November 8th. We saw insider selling as the stock traded near its initial 2023 highs in the winter, but it has subsequently taken out those highs. This time, we are seeing some modest insider buying and no public market selling. On August 8th, Sun Life reported Q2 EPS of $1.12 versus $1.58 a year ago. However, what it calls underlying EPS rose from $1.38 in Q2 2022 to $1.57 this year. The underlying number makes certain adjustments to help management put reported income into a longer-term context. On balance, higher rates had a mixed impact on Sun Life in Q2. However, in its interest rate sensitivity analysis on after-tax net income (ATNI), it estimates that a 0.5% decrease in rates would have little impact, while a 0.5% rise might boost the bottom line by about $25 million. Moreover, the range of estimated outcomes on ATNI between an interest rate drop or rise has narrowed since the end of 2022.