iA Financial Corporation Inc IAFNF

TD

[retiredcf]

Have an $85 target. GLTA

iA Financial Corporation Inc.

(IAG-T) C$69.60

Q1/21: Strong Top Line Points to Accelerating EPS Growth Event

IAG reported core EPS of $1.79, 19% y/y and lower than our estimate of $1.86 (consensus: $1.83). Relative to our estimate, the tax rate was higher than expected (reduced EPS by $0.11 relative to mid-point of tax-rate guidance). Pretax earnings was higher than our estimate reflecting higher earnings on capital (another strong quarter in home/auto insurance) partially offset by lower P/H experience gains. Core ROE of 12.8% (forecast 13.3%) and BV/share was up 9% y/y.

We raised our estimates to reflect materially better wealth management flows and stronger new business generally. Our estimates reflect EPS growth of 12% and 8% in 2021E and 2022E, respectively.

Impact: POSITIVE

The following elements of Q1/21 had an impact on our estimates and/or outlook on the stock:

• Strong top-line growth continued this quarter, with P&D up 24% y/y. Individual insurance sales in Canada were up 29% reflecting growing distribution and new product offerings. Individual wealth management net flows remain very strong, with mutual fund net inflows of $378mm (forecast $297mm; and $99mm in outflows last year). Segregated fund flows were a record high at $972mm (forecast $500mm; $424mm last year). Importantly, emerging strength in auto sales as well as the acquisition of IAS supported U.S. dealer services sales of $233mm, up 99% y/y in constant currency. In H2/21, we expect sales to slow reflecting chip shortages. In Canada, dealer services sales were strong, however, growth was driven by higher subprime auto loans.

• LICAT fell to 128% from 130% and was in-line with our forecast. The decline reflects the effect of higher rates in the quarter. LICAT remains well above the company's 110%-116% target range. The leverage ratio at 24.3%, was down from 24.8% LQ and was in-line with our forecast. The low leverage ratio and strong LICAT, as well as IAG's stable capital generation ($90mm in Q1/21) supports the view that IAG remains well capitalized.

  TD Investment Conclusion

  Key factors contributing to our outlook include what we view as a strong reserve position as it relates to all key assumptions, product mix (less exposure to long-term rate guaranteed products), and very good new business momentum. We continue to rate IAG BUY.