Manulife: Admirable Goals, Harsher Realities

RBC Capital Markets attended Manulife Financial's (MFC) investor day on Monday and took the opportunity to re-evaluate the insurance company, deciding to maintain its sector outperform rating despite reduced earnings per share estimates in both the second half of 2008 and in 2009.

“Our current bias is toward lower estimates given the sharp late-quarter drop in equity markets,” RBC analyst Andre-Philippe Hardy said in a note released Tuesday. However, RBC expects to reduce its EPS estimates across all the life insurance companies it covers.

At the meeting, Manulife reiterated its EPS growth objective of 15% per year and an ROE target of 16%, but Mr. Hardy predicts a negative EPS growth of only 10% and an ROE of 15.6%.

Still, he has maintained Manulife's current C$40 target price (calculated on a forward multiple of 11.5 times earnings), noting the company will need to make a large acquisition to nudge that number north. And he expects Manulife to target embattled insurer AIG.

“We believe that Manulife is well positioned to acquire assets from AIG,” he said. At the meetings, Manulife did not provide any specific plans, but said it would consider its options. Mr. Hardy points out the company's complementary businesses in Asia and the U.S. and its potential C$1.8-billion in excess capital if assuming a 25% debt to equity ratio all put Manulife in an attractive position.

However, whether Manulife makes this move depends on several factors including the size of the acquisition, how much it will cost, available synergies and how the funding will work.

As well, Mr. Hardy warns low interest rates, deteriorating equity markets, unfavourable political and economic developments in Asia and appreciation of the Canadian dollar may all work against Manulife's target price.

All amounts shown in US$ unless otherwise indicated.

Comments

[livesinhiscar:]

I doubt Manulife will pick up any AIG asian assets.
Chinese insurance companies will outbid them.
They have tons more cash burning holes in their pockets.

2008 Oct 01 12:56 PM