Sun Life Earnings: Group Health and Protection Segment Delivers Solid Results

No-moat-rated Sun Life Financial SLF reported a decent set of numbers as the company reported an underlying net income of CAD 920 million or CAD 1.57 per share in the second quarter versus CAD 808 million or CAD 1.38 per share in the second quarter of the previous year. The results equated to an annualized underlying return on equity of 17.7% that is in line with the medium-term guidance of more than 18%. The company paid a quarterly dividend of CAD 0.75 per share in second-quarter 2023, which represents a 4.4% dividend yield per the current stock price. We note that the dividend payout has been in 40%-50% of the underlying earnings range over the past year, highlighting the safety of the dividend. We are maintaining our CAD 63 fair value estimate after incorporating these results.

The underlying earnings in the wealth and asset management business were flattish on a year-over-year basis at CAD 419 million in the second quarter. The results in the segment were driven by higher investment income, which was mostly offset by lower fee-based earnings in MFS, as well as higher expenses. Assets under management in the MFS business grew 7% on a year-over-year basis to $589 billion, whereas the AUM in the SLC management business grew by 13% to $218 billion, driven by market appreciation and net inflows.

The group health and protection segment delivered solid results as underlying net income was reported at CAD 360 million, up CAD 122 million compared with the previous year on the back of decent premium growth and better disability experience in Canada and the U.S. The contributions from the recently acquired DentaQuest also had an impact on the results in this segment. We like the progress that the company has been making with the DentaQuest acquisition in its U.S. business. The company has totaled dental sales of USD 580 million since it was acquired in June 2022.