Sun Life Financial Inc.
(SLF-T, SLF-N) C$64.46 | US$51.42
2021 Investor Day Takeaways
Event
SLC Management held a virtual investor day this morning.
Impact: NEUTRAL
SLC Management (SLCM) announced an objective to grow AUM to $225bn and generate underlying earnings of $225mm (consistent with an operating margin of 30-35%) by 2025. The operating margin reflects 100% of acquired businesses and is defined as pre-tax underlying income before amortization of intangibles and minority interests to total revenue. The margin increased from 15% in 2019 to 26% in 2020 mostly reflecting the benefits of scale. The 30%-35% does not contemplate any expense synergies from the acquisitions.
The company contemplates getting to this target through organic growth and acquisitions. In 2020, SLCM reported underlying earnings of $94mm ($100mm on a run-rate basis) and Q4/20 AUM $106bn. The company reported gross flows and net outflows of $11.7bn and $458mm, respectively, in 2020. Approximately $2 billion of the $12 billion of outflow was a return of capital resulting from strong performance, rather than a typical outflow.
Including the acquisition Crescent Capital (closed in Q1/21), SLFM AUM stands at $145bn. SLC Management and Crescent focus on fixed income, while BentallGreenOak (BGO) and InfraRed manage real assets (e.g. real estate, infrastructure). Broadly, SLCM is expected to benefit from the shift into alternative asset investing by institutions and retail investors.
Sun Life's $133bn fixed income general account is managed by SLCM. SLCM's third-party fixed income AUM is $48bn, up 12% (4-year CAGR) since 2016. The company believes an investment grade fixed income presence is key to the company's capabilities and is necessary to win mandates, including alternative investing mandates.
TD Investment Conclusion
The premium valuation that we assign to SLF in setting our target price reflects: 1) lower interest-rate sensitivity (e.g., MFS and Group businesses); 2) industry-leading, very solid capital levels; 3) strong track-record of earnings stability; and 4) two of the company’s more important growth drivers—Asia and the U.S. Group Insurance— support strong growth and higher ROEs. The rationale for favouring MFC over SLF remains relative valuation. We continue to rate SLF BUY.