Uccmal Posted April 6, 2011 Share Posted April 6, 2011 Followup from Best Buy thread, I spent an enormous amount of time on MFC late last fall. I compared notes independently with a fellow value investor. I will put up my assessment - not updated - in a few minutes. Basically, MFC should trade at a p/b of at least 1.6. They have a huge Asian presence. With the recent events there I will bet that they can expand that side of things. They have hedged - probably overhedged their equity portfolios from the US creating the drag Finetrader has mentioned. They even hedged the bond side to satisfy institutional shareholders which was frankly ludicrous since bonds are near all time low yields. The margin of safety lies in the Minimum Capital Ratio - among the highest in the industry, and the ongoing business. They were storing cash for acquisitions but prices rebounded to quickly for the CEO - his words. They still issue debt and preferreds at near all time low yields. All of this combined leads me to think that there will be a renewal in dividend increases soon which will put a better floor under the stock. I wouldn't be surprised to see the stock back in the low 40s at some point in a couple of years. It was well on its way before the Earthquake which probably cost 150-200 m and erased 5 B in market cap. I have bought more in and around todays price. Second largest holding Link to comment Share on other sites More sharing options...
Uccmal Posted April 7, 2011 Author Share Posted April 7, 2011 I dont know how to get that attached. Here it is anyway: Manulife Summary 2010 3Q Key Metrics: MCCSR: 234% Required: 150%: Note: MCCSR of 100% means there is adequate capital to meet estimates of all payouts. MFC was badly hit by the equity meltdown of 2008/2009 due to equity holdings within its variable annuity product offerings. Simultaneously inflows to wealth management business slowed. Additionally, interest rates dropped along the entire curve below the level needed to profitably service promised rates of return amongst products sold. Safety: - Strong capital levels – maybe too high - Raised 2 B in 3 Q - Reducing interest rate and equity market exposure Recent Earnings: (947 M) – non cash losses – losses on goodwill impairment 1 B in US insurance ops, and 2 B reserve strengthening of same Hancock LT care business. Risk Factors: 10% equity decline: ~ 1B 10% equity rise: ~( 1.3 B); on net income: similar for SE Interest Rate Sensitivity: Net Income: Sept 10 June 10 1% increase: 1800 2300 1% decrease: (2200) (2700) As of Sept 30, 2010 likelihood of a 1% decrease in rates across curve is very low. Negatives: - May be more reserve hits in US Insurance division - Market meltdown may require more capital raises - Capital in a meltdown may become difficult to get - Growth in Canada and US competitive and slowing - hedges may put a drag on forward earnings - show no signs of increasing dividend in the near future Positives: - able to access 2 Billion in Q3 between 3.4 and 4.9% 2015-2020 - growth in Asia very high – makes up ~ 20% of revenues and 35% of Net Inc. - Interest rates unlikely to go much lower – why are they hedging this at all? - Trading at book value - Normalized earnings around 700 M per Q – if this is ever reached after writedowns. 700 M * 4 = 2800M/1772M = 1.6/share * PE:15 = 24 Estimate shares could reach at short term value of $24 again. Some reversal of writedowns taken could lead to $35 range if earnings exceed 2.50. Link to comment Share on other sites More sharing options...
gordoffh Posted December 13, 2011 Share Posted December 13, 2011 I was just curious as to whether any one else but me was buying MFC at the lows of the year Link to comment Share on other sites More sharing options...
racemize Posted December 13, 2011 Share Posted December 13, 2011 I've been having similar thoughts about Metlife (MET), but it looks like MFC is in better financial shape. ValueLine has both having significant total returns over the 3-5 year range. Link to comment Share on other sites More sharing options...
original mungerville Posted December 13, 2011 Share Posted December 13, 2011 Watsa said that in Japan's crisis three of the five (or something like that) life insurers went bankrupt. I am not passing a judgement just stating a relevant fact that when you have deflation, low asset yields for a long period of time, what's the biz model look like for a life insurer versus say a P&C insurer that can re-price liabilities annually as an industry when low asset yields gross of operating costs cut into profits and equity. One industry can't reprice and the other can. This is something you need to consider when you make your decisions. Link to comment Share on other sites More sharing options...
alertmeipp Posted December 13, 2011 Share Posted December 13, 2011 I was just curious as to whether any one else but me was buying MFC at the lows of the year I am not buying now, I bot 10% higher. :-\ It's tough business with low long term rate but they are shifting to growth area with higher margin. But if they can deliver their plan, it will triple by 14/15. And their hedge should ensure they will be around for a long time. It pays 4% to wait as well. I was looking at SLF as well, but u don't have Asian Pacific exposure with SLF. Link to comment Share on other sites More sharing options...
Carvel46 Posted December 13, 2011 Share Posted December 13, 2011 What happened to life policy holders in bankrupt Japanese life companies? Anyone around during that time or know the answer? Thx! Link to comment Share on other sites More sharing options...
Uccmal Posted December 14, 2011 Author Share Posted December 14, 2011 What happened to life policy holders in bankrupt Japanese life companies? Anyone around during that time or know the answer? Thx! I dont know the answer to the jap. Situation, but in NA the policy holders rank ahead of everyone else. This is the run on the bank scenario that keeps FFH out of lifecos. It is also the reason the Treasury and Fed loaned/gave AIG 160 B. I dont hold life insurance personally but it is my understanding that most policies can be cashed out any time. I dont think Mfc or Slf are in any danger of bankruptsy but they both have issues that are going to slow growth for years to come. It wouldn't surprise me to see further dividend cuts. The market is pricing SLf to cut their dividend already. Link to comment Share on other sites More sharing options...
alertmeipp Posted February 15, 2012 Share Posted February 15, 2012 Guys, any updated thoughts on MFC and SLF? Both just did a big write down on their US annuity business. Both are going to shift to growth oriented product that are less sensitive to low rate. (Manulife was the pioneer on that but they are the big guy on that front so it makes sense). MFC currently has 4%. SLF closes to 7% yield. Both selling a bit lower than book which is marked down faster than many international competitors. So if interest rate stays slow, these companies provide good yield plus potential growth. When interest rate finally comes back, they can reverse some of the charges happened in the last few years ? Link to comment Share on other sites More sharing options...
Uccmal Posted February 16, 2012 Author Share Posted February 16, 2012 alert, I dont think there is any rush on either right now. They are still facing the same problem. Hedging to the degree they have after the horses have left is going to hamper their recovery when interest rates rise. FWIW the market is pricing in a dividend cut at Slf. In this case The market may well be right. If I were tempted to load up on either I would leave aside the dividend in my calculations. MFCs capital ratio has dropped from 232 % to 216% in the past year. Well above the required ratio of 150 but still not a good trend. If they continue to bleed they will have to cut the dividends and/or dilute shareholders a little more. I still small holdings of each in RRSPs. One day these will be much more promising, in a year or two. Link to comment Share on other sites More sharing options...
alertmeipp Posted February 16, 2012 Share Posted February 16, 2012 alert, I dont think there is any rush on either right now. They are still facing the same problem. Hedging to the degree they have after the horses have left is going to hamper their recovery when interest rates rise. FWIW the market is pricing in a dividend cut at Slf. In this case The market may well be right. If I were tempted to load up on either I would leave aside the dividend in my calculations. MFCs capital ratio has dropped from 232 % to 216% in the past year. Well above the required ratio of 150 but still not a good trend. If they continue to bleed they will have to cut the dividends and/or dilute shareholders a little more. I still small holdings of each in RRSPs. One day these will be much more promising, in a year or two. Actually, SLF just increases their dividend a bit. MFC's MCCSR ratio should go back up after this quarter - it tends to swing back and forth with the market. MFC is still on track to hit 4billions in 2015 which should conservatively translate to 40 billions market cap. That's a double+ from here. Amazing to buy their franchise this cheap. MFC is doing well in cross selling as well. Link to comment Share on other sites More sharing options...
Uccmal Posted February 16, 2012 Author Share Posted February 16, 2012 Slf dividend is still unchanged. Have a look on their website. http://m.sunlife.com/Global/Investors/Shareholder+services/ch.Dividend+history.mobile?vgnextfmt=mobile&vgnLocale=en_CA The gains from equities in either on these companies are going to be heavily dragged by the hedging going forward. Don Gulieon said as much about two quarters ago. I dont think there is any hurry. On the other hand mfc probably wont get alot cheaper. Slf might yet. I still think they may have to cut the dividend. The book value on both companies is taking a pounding every single quarter with these writedowns as well. I just think it is going to be a long slog back. Link to comment Share on other sites More sharing options...
alertmeipp Posted February 16, 2012 Share Posted February 16, 2012 MFC actually lists out their sensitive to market pretty clearly on their slides. How low do u think SLF can go? Link to comment Share on other sites More sharing options...
alertmeipp Posted February 16, 2012 Share Posted February 16, 2012 btw, MFC mentions before some assets on their book would worth more to their US counterparties than to Manulife because of the Canadian regulations. Do you see them doing some assets sell anytime soon? btw, any notice the manulife bank is getting into nice scale. Link to comment Share on other sites More sharing options...
gordoffh Posted February 16, 2012 Share Posted February 16, 2012 nice move today Link to comment Share on other sites More sharing options...
alertmeipp Posted February 16, 2012 Share Posted February 16, 2012 i wonder why. Probably money coming from SLF sellers. Link to comment Share on other sites More sharing options...
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