Upgrade Desjardins Securities analyst Doug Young expects to see “decent” fourth-quarter financial results from Canadian insurance companies, featuring “less noise than last quarter, along with benefits from higher equity markets and past acquisitions”
In a research report released Thursday, he raised his earnings per share projections across the sector to account for “the positive impact of equity markets (versus lifeco expectations) and the mixed impact of interest rates.” He’s now forecasting core EPS to rise by an average of 11 per cent year-over-year for the quarter. For full-year 2022 and 2023, he’s expecting an 8-per-cent increase.
“For 2022 and 2023, there are several core EPS growth drivers: (1) SLF—contribution from its DentaQuest (DQ) acquisition, momentum in Asia, higher contribution from SLC Management and potential capital deployment (although we have not built any in); (2) MFC—we expect momentum in Asia, growth in wealth management, expense efficiencies and share buybacks to support EPS growth in 2022. MFC could also further reduce its exposure to ‘legacy businesses’ via additional reinsurance transactions, which could be a catalyst; (3) IAG—integrating IAS in the US, organic growth, digital initiatives, potential buybacks and leveraging distribution capabilities domestically; and (4) GWO—inclusion of MassMutual’s and Prudential’s U.S. retirement business, and growth in Europe and Capital Risk Solutions (CRS),” he said.
However, Mr. Young did warn that COVID-19-related headwinds will be present, pointing to “higher deaths in the insured population, higher-than-expected group benefit claims and lower sales in Asia from travel restrictions in certain regions.”
“Looking forward, the macro backdrop remains favourable, with interest rates expected to move higher over the next year although the enthusiasm is somewhat tempered by uncertainty around the pending adoption of IFRS 17 in 2023,” he said. “We hope the lifecos will start providing more details on the impact from IFRS 17 sooner rather than later. We tweaked our estimates ( although we view 2023 estimates as useless in light of pending accounting changes).”
He raised target price for shares of Sun Life Financial Inc. (SLF-T), which remains atop his pecking order, by $1 to $76 with a “buy” rating. The average on the Street is $77.29, according to Refinitiv data.