One Large Cap Financial Services Stock under the Radar – MFC

Manulife Financial Corporation (TSX: MFC) is a leading international financial services provider that helps people make their decisions easier and lives better. It provides life insurance and wealth management products and services to individuals and group customers. The company mainly operates in Canada, the United States, and Asia.

Key highlights 

• An income play: The Company has a long history of paying dividends and has grown its payout ratio over time, demonstrating its financial strength and cash flow generation. Recently, the company paid a quarterly dividend of CAD 0.33 per share on March 21, 2022. Furthermore, the stock is carrying a healthy dividend yield of 5.011% at its final closing price of CAD 26.34 on March 22, 2022, which is reasonable given the present macroeconomic and interest rates.

• Solid APE sales along with strong NBV growth: Annualized premium equivalent ("APE") sales stood at CAD 6.1 billion in FY 2021, an increase of 13% compared to CAD 5.6 billion in the previous corresponding period, this improvement was led by greater sales across all divisions. On the other side, in the same reported period, the New Business Value ("NBV") increased 31% to CAD 2.2 billion, against CAD 1.8 billion in pcp, thanks to strong contributions from all geographies.

Source: Company Presentation

• Elevated assets under management and administration: In FY 2021, the company’s assets under management and administration (“AUMA”) increased 11% to CAD 1.4 trillion, against CAD 1.2 trillion in the previous corresponding period. An increase was primarily due to the net favorable impact of markets and net inflows. Additionally, total invested assets and segregated funds net assets increased 4% and 9%, respectively, on an actual exchange rate basis primarily due to the favorable impact of markets.

Source: Company Filing 

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

• In FY 2021, the company’s net premiums increased to CAD 39,065 million against CAD 32,917 million in the previous corresponding period. The net premium income increase was primarily driven by the growth of in-force business and new business sales.
• Total revenue decreased to CAD 61,821 million in FY 2021, against CAD 78,908 million in the previous corresponding period mainly due to realized and unrealized loss on assets supporting insurance and investment contract liabilities and on the macro hedge program.
• As a result of lower net benefits and claims in the reported period the company’s total contract benefits and expenses stood lower at CAD 53,696 million against CAD 72,137 million in pcp.
• Net income stood at CAD 6,912 million during FY2021 against CAD 5,576 million in pcp.

 Valuation Methodology (Illustrative): Price to Book Value

Analysis by Kalkine Group

Stock recommendation

The company’s ability to adapt and serve clients across the globe enables it to deliver strong operating results with record net income of CAD 6.9 billion and core earnings of CAD 6.5 billion in 2021. This was mainly driven by its insurance businesses via double-digit growth in APE sales and NBV.  Additionally, Global WAM delivered strong net inflows of CAD 27.9 billion. Moreover, the stock is carrying a healthy dividend yield of more than 5.0% which looks decent amid the current macros. Therefore, based on the above rationales and valuation done using the above methodology, we recommend a “Buy” rating at the last closing price of CAD 26.34 as on March 22, 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 22, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

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.