Great-West Earnings: Strategic Transactions Bode Well for the Company in the Long Run

No-moat-rated Great-West Life GWO announced three strategic transactions in the second quarter to rebalance and focus its business portfolio. The company announced the sale of Putnam Investments, which has been more unprofitable than it has been profitable over the past five years. The deal will unlock shareholder value and further focus U.S. operations on more lucrative retirement and personal wealth markets. The company announced the acquisitions of Investment Planning Counsel and Value Partners, which will enable the Canadian business of the company to offer an end-to-end wealth and insurance platform for independent advisors. Finally, the company also announced an agreement to sell the individual onshore protection business of Canada Life U.K. to Countrywide Assured.

This follows the company’s announcement that it closed onshore individual protection insurance to new businesses in November 2022. These recent transactions are in line with the company’s long-term strategy of reallocating more capital to increase earnings contribution from higher-growth, capital-light, and more stable businesses. Management emphasized that its recent portfolio repositioning has been focused on executing acquisitions that either enhance the scale or add strategic capabilities, whereas the dispositions are mainly focused on unlocking value and enabling focus in strategic businesses.

The company reported base earnings of CAD 920 million or CAD 0.99 per share in the second quarter versus CAD 903 million or CAD 0.97 per share in the same quarter of the previous year. The second-quarter results equated to an adjusted return on equity of 15.9%. The company paid a quarterly dividend of CAD 0.52 per share in the second quarter of 2023, which represents a 5.2% dividend yield as per the current stock price. We are maintaining our $37 fair value estimate for Great-West Life after incorporating the second-quarter results.