Has never been a big fan but raises his target by a buck to $73.00. GLTA
Sun Life Financial Inc.
(SLF-T, SLF-N) C$70.78 | US$52.58
Q4/23: Good Quarter; Raising Estimates Slightly
Event
SLF reported strong Q4/23 underlying EPS of $1.68, up 11% y/y, reflecting strong
growth in the higher ROE short-term insurance earnings (group) and continued
growth in net investment results (benefit of rates), offset by weaker (but still positive)
experience gains. EPS was higher than our forecast of $1.61 (consensus: $1.58),
reflecting better U.S. results (net investment income, not insurance results), offset
by weaker Asset Management earnings.
Impact: SLIGHTLY POSITIVE
Underlying ROE was a strong 18.4% and BV/share was up 1.7% q/q,
reflecting earnings and the drop in interest rates, offset by FX and the non-
core market-related charges in the quarter. The LICAT remains very strong at
141% (operating company). Holdco cash stands at $1.6mm, giving SLF significant
financial flexibility. SLF did not repurchase shares in the quarter.
Top-line results were good across the business. Individual protection sales
were up a solid 42% y/y, reflecting strong results in H.K. and Canada. Group sales
were up 8%, supported by large-case sales in Canada and U.S. group. In U.S.
group, dental sales were up 3% y/y, reflecting growth in commercial dental sales,
offset by lower large-case dental sales (Medicaid/Medicare dental sales down
31% y/y). Asia individual life sales was up 49%, driven by the return of Mainland
Chinese visitors to H.K.
WM gross flows were up 6% y/y, but net flow remains weak at MFS. Net
flows remain firmly in negative territory at US$9.2bln (Q4/22 outflows US$8.2bln).
Retail flows remain especially weak at MFS. SLC Management, while still a small
contributor to total earnings, continues to attract assets. Stronger insurance sales
boosted CSM growth (e.g. new business CSM in Asia up 82% y/y) and supported
taking our CSM amortization estimate higher. However, significant outflows at
MFS hurt our asset management outlook.
TD Investment Conclusion
In our view, the following support a premium valuation for SLF: 1) lower interest-rate
sensitivity; 2) solid capital levels; 3) track record of earnings stability; and 4) strong
ROE (low capital-intensity business mix). However, we rate SLF HOLD and continue
to favour MFC over SLF, mostly reflecting relative valuation.