Manulife Financial Corporation (TSX: MFC) is a Canada based Insurance company that operates as a financial services company with its major operations in Asia, Canada, and United Sates.

Key Updates:

• Growth in total AUMA: In Q1FY22, the company reported its Assets under Management and Administration (AUMA) of CAD 1.34 trillion, higher than CAD 1.29 trillion in pcp. This was primarily due to the net favorable impact of markets coupled with net inflows on y-o-y basis. Notably, a higher AUMA denotes higher investors interest for the company’s products and services, which is a key positive.

• Impressive Dividend Yield: In Q1FY22, the company reported a higher dividend distribution of CAD 631 million, which is higher than CAD 544 million in Q1FY21. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity. Moreover, the stock of MFC carries a dividend yield of ~5.607% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

• Strong Momentum from the Canada Geography: The company reported a strong growth in earnings from the domestic region primarily driven by higher in-force earnings across all businesses due to higher interest rates and business growth and more favorable policyholder experience in Annuities and Individual insurance. Moreover, the company witnessed higher Annualized premium equivalent (APE) sales primarily driven by increased customer demand for lower risk segregated fund products and higher Group Insurance mid-size sales.

Operating performance from Canada region (Source: Company Reports)

Risks associated with the Investment:

The company is exposed to the volatility in the capital market along with a reduction in the AUM etc. Moreover, the company’s operation is also exposed to several forex risks given its area of operation across several geographies.

 Financial Highlights: Q1 FY22

   Q1FY22 Income Statement Highlights (Source: Company Report)

• MFC announced its Q1FY22 result, wherein the company net premiums of CAD 9.5 million, as compared to CAD 9.6 million in pcp. The decline was primarily due to a lower gross premium. The group reported higher realized and unrealized losses of CAD 18.5 million v/s CAD 17.0 million in pcp. Hence, total revenue came at a negative of CAD 3.6 million v/s a negative of CAD 1.5 million in pcp.
• Gross claims & benefits stood higher at CAD 8.5 million, up from than CAD 7.6 million in pcp. Decrease in insurance contract liabilities stood at CAD 17.5 million v/s CAD 13.0 million in pcp.
• The period was marked by lower general expenses, decline in commissions along with a slide investment expenses. Income before income taxes stood higher at CAD 3.7 million, as compared to CAD 0.8 million in pcp.
• Net income stood at CAD 2.9 million, increased from CAD 0.8 million in pcp, supported by higher income before income taxes, partially offset by increase in income tax expense.

 Valuation Methodology Illustrative: Price to Earnings based

Analysis By Kaline Group

Stock Recommendation:

In Q1FY22, the company delivered solid results despite a challenging operating environment caused by the resurgence of COVID-19 across Asia and global market volatility. We expect the operating performance to be improved for the rest of FY22, aided by revival in the overall economy.

We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like MetLife Inc, Prudential Financial Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of MFC at the last closing price of CAD 23.54 on June 02, 2022. 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 June 02, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

  Technical Analysis Summary

Disclaimer

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