TSX:SLF - Post Discussion
Post by
retiredcf on Aug 07, 2020 8:27am
TD
Maintain their $58.00 target. GLTA
Sun Life Financial Inc.
(SLF-T, SLF-N) C$53.98 | US$40.54
Q2/20: Solid Result Including MFS Flows & Investment Experience Event
SLF reported underlying Q2/20 EPS of $1.26, up 2% y/y reflecting business growth, yield enhancement gains, and morbidity experience, offset by higher credit charges, higher expenses, and an unfavorable tax settlement ($0.09/share). Reported EPS of $0.88 was lower than underlying mostly reflecting the impact of lower credit spreads and interest rates generally.
Impact: POSITIVE
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Insurance sales in Canada were down 22% y/y, reflecting materially lower activity in individual and group businesses. U.S. insurance sales were flat y/y; a solid result in the context of COVID-19. We believe that, the stable result, in part, reflects SLF's highly digitized processes (including virtual enrollment options) as well as temporary fee waivers. Insurance sales in July were running approximately 5% lower than the previous year and wealth sales were 10% higher. While this suggests that conditions improved, we continue to model for modest declines in insurance sales in H2/20.
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Similar to MFC, SLF experienced private equity losses and negative marks against the value of investment properties. However, SLF's charges were more than offset by the equity market gains in the quarter. Credit experience was a loss of $58mm comprised of $60mm in downgrades and $24mm in impairments, offset by release of best estimate reserves of $26mm. 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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Management did not provide guidance on the Q3/20 assumption review. This has been the company's pattern for several years. SLF's track record suggests the assumption review will not result in a material gain or loss in Q3/20.
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 4% q/q and the underlying ROE was a strong 13.4%. We continue to rate SLF BUY.
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