Sun Life Earnings: Decent Quarter as the Firm Transitions to IFRS 17

No-moat-rated Sun Life Financial SLF reported a decent set of numbers to start the year and transitioned to IFRS 17 financial reporting standard. The company reported underlying net income of CAD 895 million or CAD 1.52 per share in the first quarter versus CAD 720 million or CAD 1.23 per share in the first quarter of the previous year. The first-quarter results equated to an annualized underlying return on equity of 17.3%. The company paid a quarterly dividend of CAD 0.72 per share in the first quarter of 2023, which represents a 4.4% dividend yield as per the current stock price. We note that the dividend payout has been 45%-55% of underlying earnings over the past year, highlighting the safety of the dividend. We are maintaining our CAD 63 fair value estimate for Sun Life after incorporating the first-quarter results.

Weakness in capital markets over the past year impacted the firm’s asset management unit, as underlying earnings were reported at CAD 282 million in the first quarter, down 12% compared with CAD 321 million in the first quarter of the previous year. Assets under management, or AUM, in the MFS business were down 10% on a year-over-year basis to $570 billion. In contrast, the AUM in the SLC management business grew strongly by 18% to $218 billion driven by market appreciation and net inflows. The results in the Canada segment were solid as the underlying earnings were reported 53% higher than the previous year at CAD 316 million. The strong results in the Canadian business were driven by higher investment income in the asset management business, better disability experience in the group (health & protection) business, and improved sales momentum in the individual (protection) business. We like the competitive positioning of the company in the Canadian market with leadership positions in group benefits, group retirement services, and individual insurance.