Post by
lb1temporary on Aug 04, 2021 7:33am
GWO: TD increased target at 42$
As the most important asset of POW ( more than 65% of the POW value is GWO), this is an interesting analysis for us.
Event
GWO reported Q2/21 base EPS of $0.89, up 17% y/y (materially higher than our estimate of $0.81 and consensus of $0.79), reflecting the acquisition of MassMutual's business, strong equity markets, and strong experience gains (mortality and yield enhancement). Credit was a modest charge. Base ROE was 15.1% (target: 14-15%), and BV/share was up 8% y/y. Relative to our estimate, tax again contributed materially as the base tax rate was only 9%, reflecting the resolution of tax issues. Tax gains added $21mm ($0.02/share) to base earnings. Expected profit was very strong (MassMutual), offset by higher new business strain (elevated in the U.S.). Our estimates reflect core EPS growth of 19% in 2021E and 10% in 2022E (includes 4% accretion from Prudential deal).
Impact: POSITIVE
Following are the elements of Q2/21 results that had an impact on our estimates and/or outlook on the stock:
Business growth was strong across most of the organization. In Canada, wealth sales were up 42% y/y, which, combined with strong markets, drove AUA up 16% y/y. In Europe, insurance/annuity sales were steady, and wealth sales remain strong. While insurance sales in Canada and Europe were generally flat, the strength of the wealth segments supports strong expected profit growth going forward. Large plan sales were strong at Empower. Personal Capital also delivered net inflows of US$1bln.
Empower's base earnings (cc) were up over 200% y/y, reflecting a US$52mm contribution from the MassMutual acquisition, growth in participants, and good investment experience. The acquisition of Prudential's full-service retirement business will take Empower's participant count to ~16mm and AUA to $1.4T. The deal is expected to be 8-9% EPS accretive once fully integrated.
Putnam continues to disappoint with declining gross flows, net outflows of US $3.7bln, and earnings of only US$17mm entirely reflecting strong markets. The core pre-tax margin of 13.1% remains very low for a fund company with ~US $200bln in AUM.
TD Investment Conclusion
Our BUY rating is supported by GWO's strong capital position, and leading market positions across most segments in Canada and U.S. group retirement. The recently closed acquisitions in the U.S. retirement services business should lead to good earnings momentum in H2/21 and 2022