Manulife Financial Corporation (TSX: MFC) is a leading international financial services provider that helps people make their decisions easier and lives better. It provides financial advice and insurance, operating as Manulife across Canada, Asia, and Europe, and primarily as John Hancock in the United States.

Key highlights 

• An income play: The Company has a long history of paying dividends and has grown its payout over time, demonstrating its financial strength and cash flow generation. The company has upped its dividend payout by 18% to CAD 0.33 per share. Furthermore, the stock gave a healthy dividend yield of 4.688% at its final closing price of CAD 23.89 on December 24, 2021, which is reasonable given the present macroeconomic and interest rates.

• Solid APE sales along strong NBV growth: Annualized premium equivalent ("APE") sales were CAD 1.4 billion in 3Q2021, up 5% from 3Q20, while YTD APE sales were CAD 4.6 billion in 2021, up 15% from the same period in 2020, led by greater sales across all divisions. On the other side, in 3Q21, the New Business Value ("NBV") was CAD 539 million, up 22% from 3Q2020, thanks to strong contributions from all geographies.

Source: Company Filing

• Higher Net Inflows under Global Wealth and Asset Management: In 3Q21, the firm reported net inflows of CAD 7.9 billion in Retail, compared to CAD 0.7 billion in 3Q20, driven by double-digit growth in gross flows across all regions, owing to higher investor demand and lower mutual fund redemption rates. The business recorded overall inflow of CAD 9.8 billion, with the Institutional and Retirement segments accounting for the remainder.

Source: Company PPT 

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 Q3 2021

Source: Company Filing 

• The group delivered core earnings of CAD 1,517 million in 3Q2021, an increase of 10% compared to CAD 1,453 million in 3Q2020. The gain was driven by the recognition of core investment gains in the quarter, higher net fee income from higher average assets under management and administration in Global WAM, which benefitted from the favorable impact of markets and net inflows.
• The Life Insurance Capital Adequacy Test ratio improved to 138% on September 30, 2021, compared to 137% as of June 30, 2021. The one percentage point increase was mainly due to the favorable impacts from market movements and portfolio optimization initiatives.
• Net income decreased to CAD 1,592 million, against CAD 2,068 million in the previous corresponding period. Decrease in net income was mainly due to previously announced Ultimate Reinvestment Rate ("URR") reduction.
• Book value per common share as of September 30, 2021, was CAD 25.78, a 3% increase compared with CAD 25.00 as of December 31, 2020.
  

Valuation Methodology (Illustrative): Price to Book Value 

Stock recommendation

The group's franchise's diversity and robustness were demonstrated once again in the third quarter, with core earnings growth of 10% and solid net income of CAD 1,592 million in 3Q2021, as well as a core return on equity of 13.2% year-to-date. The pandemic's impact continues to differ around the world, with North American markets beginning to recover and many Asian countries imposing further limitations in the third quarter. Despite the difficult environment, Asia recorded double-digit NBV growth, and Global WAM was bolstered by strong net inflows of CAD 9.8 billion in the quarter, resulting in an 18% rise in core earnings over the prior year quarter. Together with strong fundamental and solid balance sheet, the company is offering a lucrative dividend yield of 4.56%, significantly higher given the current lower interest rate environment.

Therefore, based on the above rationales and valuation done using the above methodology, we recommend a “Buy” rating at the closing price of CAD 23.89 as on December 24, 2021. We have considered Sun Life Financial Inc, MetLife Inc, Prudential Financial Inc, etc., as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary:

One-Year Technical Price Chart (as on December 24, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.