Manulife Financial Corporation 

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 AUMA: In 2021, Assets under Management and Administration (AUMA)stood at CAD 1.4 trillion, reflecting an increase of 11% on y-o-y basis, primarily due to the net favorable impact of markets coupled with net inflows. Notably, total invested assets and segregated fund net assets increased 4% and 9%, respectively, on an actual exchange rate basis, primarily due to the favorable impact of markets. All these factors helped the company to report higher AUMA.

• Impressive Dividend Yield: In FY21, the company reported a higher dividend distribution of CAD 2,500 million, which is higher than CAD 2,340 million in FY20. This is impressive as most of the companies are lowering their dividend payment to retain liquidity. Moreover, the stock of MFC carries a dividend yield of ~5.222% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

Source: Company Presentation

• Improved Financial Metrics: In FY21, the company reported strong momentum across all its business segments supported by higher traction across online investment platform, new product, and geographic expansion and due to the positive impact from recent acquisition of Aviva Vietnam. Notably, the company reported its highest net earnings and core earnings in FY21, in the last three years, which is encouraging.

Source: Company Presentation

• Enhancing Digital presence: In FY21, the company successfully increased its digital presence across the globe, which is resulting in hassle-free and data transmission. For instance, In Asia, the company’s digital onboarding app, is enabling our agents with faster, error-free submissions with 82% of applications digitally submitted, representing a 22% year over year increase. Moreover, In U.S., the completed the iPipeline integration with the JH brokerage eApp, which provides 66% of the regular distribution partners with access to next-generation sales tools. These strategies would lead to several cross-selling opportunities along with improved cost structure. Notably, total new business applications digitally submitted increased by 15% in 2021 to 71%.
  

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. 

 Key Financial Highlights: FY21 (CAD in Mn)

 FY21 Income Financial Highlights (Source: Company Reports)

• MFC announced its FY21 result, wherein the company posted total revenue of CAD 61.8 million, as compared to CAD 78.9 million in FY20. The decline was due to realized and unrealized losses amounting CAD 4.0 million, as compared to an unrealized gain of CAD 18.9 million in FY20.
• The period was marked by higher general expenses, increase in commissions along with higher investment expenses. Gross claims & benefits stood lower at CAD 10.7 million, significantly lower than CAD 36.9 million in FY20. Income before income taxes stood higher at CAD 8.1 million, as compared to CAD 6.7 million in FY20, due to a reduction in gross claims and benefits as mentioned above.
• Net income stood at CAD 6.9 million, increased from CAD 5.5 million in FY20, supported by higher income before income taxes, partially offset by increase in income tax expense.

Valuation Methodology Illustrative: Price to Earnings based

Analysis by Kalkine Group  

Stock Recommendation: 

In FY21, the company reported an increase in core earnings, driven by the recognition of core investment gains in 2021 coupled with an increase in new business gains across all segments. Moreover, a higher net fee income from higher average Asset Under Management in Global Wealth and Asset Management (WAM) also achieved due to the favorable impact of markets and net inflows along higher investment income from Corporate. We expect the momentum to continue in the coming quarters, supported by the company’s focus on growth strategies.

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 25.28 on April 28, 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 April 28, 2022). Analysis by Kalkine Group 

  Technical Analysis Summary:

Canada Western Bank

Canada Western Bank (TSX: CWB) is the only full-service financial institution in Canada, which provides nation-wide full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. 

Key Updates:

• Consistent Growth in loan book: Over the years, the company reported a constant growth in its loan book, supported by strong new lending volumes with high-quality borrowers and underlying assets with balanced risk profile. Moreover, the company has strong client relationships which has also contributed to the loan growth. Notably, in Q1FY22, the company’s general commercial loans and commercial mortgages loan grew by double-digit over previous corresponding period, which is encouraging.

      Source: Company Presentation

• Bullish Outlook: The Corporation reported a strong loan growth over the years by focusing on full-service relationships with strategically shifting industry mix. The group is focusing on further geographic diversification, with 10% annual growth in Ontario region. The group is focusing to open new banking centres in Markham in 2022 and downtown Toronto in 2023, which offers ample growth potential. Additionally, the company is continuing its progress towards launch of the digital banking platforms for personal, small business and commercial clients, which looks promising as it would offer several cross-selling opportunities for the company.

• Higher Dividend distribution: Despite the ongoing economic turbulence, the company reported slightly higher dividend distribution of CAD 31.6 million in Q1FY22, as compared to CAD 30.6 million in pcp. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity. Moreover, the stock of CWB carries a dividend yield of ~3.671% on an annualised basis, which looks impresive considering the present interest rate scenario.

Risks associated with the Investment:

The company’s performance might be hindered due to a slow economic activity, which would lead to lower loan disbursement and subsequently lower interest income. Moreover, rising provision for credit losses due to sluggish business activity would further dampen the scenario. 

Q1FY22 Financial Highlghts: (in 000’s CAD)

 Q1FY22 Income Statement Highlights (Source: Company Report)

• CWB announced its Q1FY22 result, wherein the company posted its total revenue of CAD 265.9 million, which is higher than CAD 260.6 million in pcp. This was supported by both increase in interest and non-interest income.
• The quarter witnessed a provision for credit losses amounting CAD 9.0 million as compared to a provision for recovery of CAD 10.2 million in pcp. Total non-interest expense stood lower at CAD 131.4 million, as compared to CAD 140.8 million in pcp, due to lower salaries and employee benefit expenses along with a slide in other expenses. Due to the provision for credit losses as mentioned above, the company reported a net income before income taxes of CAD 125.4 million v/s CAD 130.0 million in pcp.
• The company’s net income fell to CAD 93.7 million from CAD 97.2 million in pcp, due to above mentioned facts, partially offset by a lower income tax expenses.

  Valuation Methodology Illustrative: Price to Book based

  Analysis By Kalkine Group

Stock Recommendation:

Despite the sluggish economic scenario, the company reported an impressive loan growth in Q1FY22, which is encouraging and indicates strong client-relationships. Moreover, in order to attain improved its operating performance, the group would expand the wealth management segment, with increased CWB referral-based client acquisition. We have valued the stock using the Price to Book based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Bank of Nova Scotia, Bank of Montreal etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of CWB at the last closing price of CAD 32.69 on April 28, 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 April 28, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

 Victoria Gold Corp

Victoria Gold Corp. (TSX: VGCX) is a gold mining company which operates through its fully owned Dublin Gulch property, situated in central Yukon, Canada. The Dublin Gulch property includes the Eagle Gold Deposit, the Olive Deposit, the Wolf Tungsten Deposit, and the Potato Hills Trend.

Key Updates:

• Strong Production Profile: During the FY21, the company produced 164,222 ounces of gold, higher than 116,644 ounces of gold produced in 2020. The 41% surge in gold production was attributable to the increase in ore mined and stacked along with higher ore grades. This was in line with the company’s guidance of 162,000 - 180,000 ounces of gold production.

• Robust Profitability Margins: In FY21, the company reported its EBITDA margin, and operating margin of 57.1%, and 40%, respectively, as compared to the industry median of 40.2% and 20.1%, respectively. This indicates that the company has improved cost management, which resulted in better margins than the industry median. Moreover, the company reported a net margin of 31% in FY21, as compared to the industry median of 14%.

• Strong FY22 Guidance: For FY22, the company expects its gold production in between 165,000 and 190,000 ounces, which is higher than 164,222 ounces of gold in FY21. All in sustainable costs (AISC) for 2022 is expected in between USD 1,225 to USD 1,425 per oz. Moreover, the corporation has initiated ‘Project 250’ targeted to increase the average annual gold production of 250,000 ounces in 2023. The company is focusing on exploring new opportunities like scalping of fine ore from the crushing circuit and adjusting the seasonal stacking plan for the above growth.

Risks associated with the Investment:

The company’s operations might be impacted due to lower commodity prices, currency volatility, high input costs, etc. Moreover, changes in drilling and well-servicing technology, along with the impact of any adverse weather conditions, might also dampen the ongoing operation of the company. 

FY21 Financial Highlights:

 FY21 Income Statement Highlights (Source: Company Report) 

• VGCX announced its FY21 result, wherein the company posted its revenue of CAD 356.4 million, significantly higher than CAD 178.7 million in FY20. Gold sales stood at 158,736 oz in FY21, as compared to 102,551 oz in FY20. However, average realized price stood at CAD 2,243/oz in FY21, lower than CAD 2,480/oz in FY20.
• The company reported its gross profit of CAD 150.9 million, which is significantly higher than CAD 76.3 million in FY20, thanks to the higher revenue as mentioned above, partially offset by an increase in the cost of goods sold.
• The company reported impressive cost management, which resulted in lower corporate general and administrative expenses in FY21. Moreover, the company reported a gain on derivative instruments of CAD 12.1 million versus a loss of CAD 44.8 million in FY20. Hence, net profit was reported at CAD 110.3 million, as compared to CAD 14.8 million in FY20.
  

Valuation Methodology (Illustrative): EV to Sales based

 Analysis by Kalkine Group

Stock Recommendation:

International Gold price has remained elevated since September 2021 and currently trading near the 52-weeks high due to rising inflation and weak macros outlook. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market coupled with persisting tensions between Ukraine and Russia. Considering the above facts, we expect the outlook for the Gold looks promising in the rest of FY22. We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Calibre Mining Corp, Orla Mining Ltd etc. for this purpose. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of VGCX at the last closing price of CAD 13.83 on April 28, 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 April 28, 2022). Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITI 

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.