One Large Cap Financial Services Stock under the Radar – SLF

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.

Key Highlights

• 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.

Source: Company Filing

• An income play: Over the years, the company has maintained a consistent dividend payout, helped by solid cash flows from strong activities. Recently, the Company declared a quarterly cash distribution of CAD 0.66 per common share payable on March 31, 2022. Moreover, at the last closing price of CAD 70.31 as on March 30, 2022, the stock offered a healthy dividend yield of 3.75%, which looks decent considering the current macros and interest rates.

           Source: REFINITIV, Analysis by Kalkine Group

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. 

Financial Overview of FY 2021

Source: Company Filing

• 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.

• 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.

• 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 due to fair value and foreign currency changes on assets and liabilities.

• 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.

• 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.
  

Valuation Methodology (Illustrative): Price to Book Value based

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. 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 last closing price of CAD 70.37 as on March 30, 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 30, 2022). Source: Kalkine, Analysis by Kalkine Group

Disclaimer

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