iA Financial Corporation Inc IAFNF

RBC Report

[retiredcf]

Their upside scenario target is also raised to $103. GLTA

May 7, 2021

iA Financial Corporation Inc.
We like Q1 results and the outlook remains solid

Our view: Q1/21 results were impacted by higher taxes but U.S. results were good and we continue to expect results to improve.

Key points:

We view IAG's Q1/21 underlying results as good even though higher
taxes resulted in a slightly lower core EPS relative to our expectations.
We are increasing our price target to $78 (was $75) and we maintain
our Outperform rating. IAG's core EPS was $1.79 versus our estimate of
$1.82 and consensus of $1.84 but higher taxes had an impact of -$0.06 per
share. Our EPS and BVPS (excluding AOCI) estimates move higher as we are
now assuming higher income on capital over our forecast period given the
results this quarter, amongst other modest changes. Our core EPS estimate
for 2021 of $7.70 remains at the low end of IAG's guided range of $7.60 to
$8.20. We continue to believe that our estimates are conservative.

IAG's valuation remains below peers and historical averages. IAG is trading

at 9.1x our 2021 core EPS estimate versus a peer average of 10.2x. On a
P/B basis, IAG is trading at 1.23x versus a peer average of 1.48x and the
historical average of 1.43x. RBC Estimates

U.S. Operations results were good as core earnings increased ~26% QoQ
to $30.0 million, above our $27.6 million forecast. Management indicated
that the integration of IAS is progressing well. The segment had experience
gains due to stronger than expected sales, better claim experiences and
lower than expected expenses. IAG expects car sales to remain strong in
Q2/21 but there may be some headwinds in H2/21 due to chip shortages and inventory issues. Despite potential near-term headwinds, we have a  positive outlook on the segment as we believe car sales will recover and normalize.

Individual Insurance core earnings declined ~-5% YoY to $81.4 million,
below our forecast of $86.3 million reflecting higher taxes. The segment
had a higher tax rate of ~27% compared to our estimate of ~21%. Earnings
were also impacted by higher IT expenses and employee benefits that are mostly non-recurring per management. Sales growth remained solid at ~29% YoY.

Individual Wealth core earnings were $55.1 million (up ~29% YoY) and above our estimate of $53.7 million. Both mutual funds and segregated funds continued to have strong net inflows of $377.8 million and $972.3 million, respectively.

Similar to the other Canadian lifecos, IAG's total solvency ratios declined QoQ. IAG's total solvency ratio declined -2% QoQ to 128% at the holding company level. At the operating company level, IAG's total solvency ratio was 116% (down -6% QoQ).