Sun Life Financial (TSX: SLF) is a Canada-based financial services company that provides a diverse range of insurance, wealth and asset management solutions to individual and corporate customers in Canada, the United States, and Asia.

• Consistent dividend distribution: Over the years, the company has maintained a consistent dividend payout, helped by solid cash flows from strong activities. Because the firm offers vital services like electricity, its operations are immune to the economic cycle, thus we expect healthy cash flow generation and dividend payments will be stable in the near future.

 Source: REFINITIV, Analysis by Kalkine Group

• Healthy dividend yield: The dividend pay-out practice translates into an essential factor for regular income-seeking investors with a long-term horizon. Recently, the Company declared a quarterly cash distribution of CAD 0.66 per common share payable March 31, 2022, to shareholders of record at the close of business on March 2, 2022. Moreover, at the last closing price of CAD 65.55 as on March 7, 2022, the stock offered a healthy dividend yield of 3.99%, which looks decent considering the current macros and interest rates.

• Growing Assets Under Management: Total assets under management climbed by CAD 188.7 billion, or 15%, to CAD 1,444.7 billion in FY 2021, compared to CAD 1,256.0 billion in the previous corresponding period. AUM increased by CAD 39.1 billion as a result of favorable market movements in the value of mutual funds, managed funds, and segregated funds, as well as the acquisition of a majority share in Crescent. In addition, the corporation received CAD 26.3 billion in net inflows from mutual, managed, and segregated funds.

             Source: Company Filing

• Clocking higher fee income: Fee income climbed by CAD 1.12 billion or 16% in the reporting period, reaching CAD 8.0 billion in FY 2021, compared to CAD 6.8 billion in the previous equivalent quarter. The increased fee income was due to better asset management and the healthy performance from the Canadian region.

• Positive outlook: The client expectations across all cohorts are rapidly changing, driving higher demand for personalized experiences that are aligned with their needs, while being quicker and seamless. In addition, evolving mental, physical, and sociological needs across the Canadian population is increasing the need to provide tailored solutions within the health market. We continue to embrace these changes and evolve out diversified business model in response to the shifting Canadian market, by accelerating key investments and expanding our clients’ offerings, while maintaining strong financials and robust capital management practices.

• Strong Liquidity: With a Life Insurance Capital Adequacy Test (LICAT) score of 145 percent, a financial leverage ratio of 25.5% (up from 22.2 percent in Q3 2021), and consolidated cash and other liquid assets of CAD 7.8 billion on December 31, 2021, the company's capital and liquidity position remains robust, which is a key positive.

Risks associated with investment 

The company is principally susceptible to capital market asset price volatility; any negative movement could have a significant negative impact on the group's health, including a loss in average asset under management, increased redemption demands, a decline in core earnings, and other factors. Due to the company's significantly increased exposure in the global equities and debt markets, the company is also vulnerable to forex risks.

Financial Overview of FY 2021

Source: Company Filing

• Flat Net Premiums: In FY 2021, the company posted flat net premiums of CAD 23,053 million compared to CAD 23,738 million in the previous corresponding period.

• Higher Fee Income: For the complete year 2021, the group posted elevated fee income of CAD 8,002 million against CAD 6,881 million in pcp. The higher fee income was primarily driven by robust assets management and from the Canadian region.

• Lower total revenue: The group posted lower total revenue at CAD 35,688 million compared to CAD 43,337 million in pcp. The fall in consolidated revenue was mainly dur to fair value and foreign currency changes on assets and liabilities.

• Regulated total benefits and expenses: In the reported period the group’s total benefits and expenses stood at CAD 30,591 million compared to CAD 40,050 million in pcp, the decline was mainly due to lower insurance contract liability.

• Higher net income: On the back of lower total benefits and expenses, the group managed to elevate its shareholder’s net income to CAD 4,035 million compared to CAD 2,498 million in pcp.

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 27.09% of the total shareholding. RBC Global Asset Management Inc. and RBC Wealth Management, International hold the company's maximum interests at 3.70% and 3.34%, respectively. The company's institutional ownership stood at 58.19%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): Price to Book Value based Valuation Metrics

Analysis by Kalkine Group 

Stock recommendation

Sun Life continues to handle the challenges of the continuing pandemic across markets in 2021, delivering good results. It had a strong fourth quarter, fueled by expansion in wealth and asset management. The group's assets under management increased by 15% to CAD 1.4 trillion over the previous year. Insurance sales were up 13% year over year, amounting to a 16% increase in the value of new business.

With more than ten significant deals in 2021, the firm continues to successfully manage capital and build shareholder value, including the acquisition of PinnacleCare, the IPO of its Indian asset management joint venture, and an intention to buy DentaQuest. Shortly after regulatory constraints were relaxed in November, the company announced a 20 percent increase in its common shareholder dividend, demonstrating its commitment to providing substantial returns to shareholders. Moreover, the stock offered a healthy dividend yield of 3.99%, translates into an essential factor for regular income-seeking investors with a long-term horizon.

Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the closing price of CAD 65.55 as on March 7, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 7, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

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Disclaimer

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