Sun Life Financial Inc.
Solid result, especially in Canada where experience improved a lot
TSX: SLF | CAD 68.52 | Outperform | Price Target CAD 79.00
Sentiment: Positive
SLF’s Q2/23 underlying EPS came in at $1.57, above our estimate and consensus of $1.54. Underlying earnings were higher than our forecast in Canada, Asia, and Asset Management. SLF intends to launch a normal course issuer bid to purchase up to 17 million common shares (approximately 2.9% of issued and outstanding shares), which SLF expects will commence on August 21.
SLF Canada underlying earnings of $372 million (up ~18% QoQ and ~24% YoY) were higher than our estimate of $328 million.
SLF Canada had significant experience gains this quarter (both in group business and insurance) of $94 million which we did not assume in our model. With just 6 quarters of IFRS 17, this level of experience gains is a “new” high and not something we typically model/assume. Canada also had higher than expected investment earnings of $173 million compared to our forecast of $160 million, partly offset by higher expenses and lower than expected earnings on surplus.
SLF Asia underlying earnings of $150 million increased ~6% QoQ and ~27% YoY, relatively in line with our forecast of $144 million. Higher than expected net investment results from joint ventures & other of $47 million compared to our estimate of $37 million were mostly offset by lower than expected other fee income.
SLF U.S. underlying earnings of $215 million (down ~-9% QoQ but up ~60% YoY) were below our forecast of $238 million. Lower than expected U.S. earnings were mainly driven by lower than estimated expected earnings on short-term (group) insurance business at US$174 million, compared to our estimate of US$185 million. It is our understanding that while the stop loss business is still performing very well, it was slightly below its level of contribution last quarter. While SLF did not discuss commercial real estate-related losses in the U.S. segment, SLF disclosed that real estate investments contributed to market-related impacts on a reported basis at the consolidated level.
SLF Asset Management had underlying earnings of C$296 million (up ~5% QoQ), just a touch above our estimate of C$288 million. MFS had net outflows of -US$4.0 billion, versus net outflows of -US$4.3 billion last quarter. Institutional net outflows were -US$2.3 billion (versus net outflows of -US$2.4 billion last quarter) and mutual funds had net outflows of -US$1.7 billion (versus net outflows of -US$1.8 billion last quarter). MFS underlying earnings decreased ~-1% QoQ to C$252 million, while SLC Management underlying earnings increased ~57% QoQ to C$44 million in the quarter.
SLF’s total LICAT ratio at the holding company level remained stable QoQ at last quarter’s ratio of 148%. SLF’s book value per share including AOCI came in at $34.86 for the quarter, lower than our estimate of $36.28. The Q2/23 underlying ROE was 17.7%, versus 17.3% last quarter.
We have a mildly positive view on Q2/23 results as underlying EPS was higher than our estimate/consensus, and cash at the holding company is solid at $2 billion, allowing a share buyback which should help SLF achieve its 18% ROE target.