Sun Life Financial (TSX: SLF) is one of the leading life insurance companies in Canada, which provides insurance, retirement, and wealth-management services to individual and corporate customers in Canada, the United States, and Asia. 

Key Update:

• Increase in Asset Under Management: In Q1FY22, the company reported its Assets under management of CAD 1,352 billion, higher than CAD 1,304 billion in pcp. This was primarily driven by higher contribution from General fund assets, Segregated funds and Other AUM segments. The above growth is impressive considering the ongoing sluggish economic scenario.

• New Acquisition Update: Recently, the company reported the acquisition of DentaQuest from CareQuest Institute for Oral Health, a U.S. based nonprofit organization, which has more than 33 million members in 36 states and more than 2,400 employees. The above acquisition is expected to report additional revenue in the coming years. The transaction is expected to help the company to improve its market share in the coming days, which is a key positive.

• Increase in dividend payment: The company reported its dividend payment of CAD 393 million v/s CAD 339 million in pcp. This is impressive as most of the companies are lowering dividend distribution in order to retain liquidity. Additionally, the Stock of SLF carries a dividend yield of ~ 74% on an annualized basis, which looks attractive considering the persisting interest rate scenario.

Risks associated with the Investment:

The company’s performances might be hindered due to the extension of the ongoing pandemic, as it would impact the overall investor’s sentiment. Moreover, any volatility in the capital market and debt-market would lead to higher outflow of funds. 

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, the company posted its total revenue of CAD 380 million v/s CAD 1,514 million in pcp. The decline was primarily due to higher losses from the Fair value and foreign currency changes on assets and liabilities of CAD 8,312 million versus CAD 6,946 million in pcp, partially offset by a higher net premium (CAD 5,291 million v/s CAD 5,126 million in pcp).
• The quarter witnessed an increase in Gross claims and benefits paid, partially offset by operating expenses, commissions and premium taxes. Insurance contract liabilities decreased to CAD 7,621 million from CAD 6,848 million in pcp. Income before income taxes stood at CAD 1,160 million in Q1FY22, as compared to CAD 1,336 million in pcp.
• The company reported lower net income of CAD 892 million v/s CAD 1,011 million in pcp. The decline was due to a lower income before income taxes, partially offset by a slide in income tax expense.

  Valuation Methodology (Illustrative): Price to Book based

Analysis by Kalkine Group

Stock Recommendation:

Despite the ongoing sluggish economic conditions in Q1FY22, the company reported strong momentum within the insurance segment and reported a 9% y-o-y growth at CAD 799 million, which is encouraging. We expect the above momentum to sustain in the coming quarters supported by revival in the demand dynamics across the North America region. We have valued the stock using price to book based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like ECN Capital Corp Intact Financial Corp, etc. for this purpose. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of SLF at the last closing price of CAD 58.23 on June 17, 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 17, 2022). Source: REFINITIV, Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

Technical Analysis Summary

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