Manulife (MFC, $19.95): “Can Manulife bring the industry back to life?”
By: Joseph Vitrano, AIM
Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This
article was written by myself, and it expresses my own opinions. I am not
receiving compensation for it and I have no business relationship with any
company whose stock is mentioned in this article.
Summary
• Manulife (NYSE:MFC) provides insurance products for individuals and
businesses. Their products include health, travel, and life insurance, group
benefits, group retirement, investments, wealth management, and banking. These
products are offered in Canada where Manulife is headquartered. They also offer
various services across the twenty-two countries they are in.
• Canada’s Central Bank Rate is
still 1.75% since October 8, 2019. Canada’s yield curve is inverted
by 14.6 bps (10-2yr).
•MFC missed Q3 earnings projections,
actual EPS was 30 cents, while forecasted EPS was 78-79 cents.
•The Coronavirus Could have a
negative impact on Manulife’s Asian branches, due to an increase in claims.
•Slowing GDP growth may lead to
Central rate cut. There is consistent unemployment at 5.5% and inflation at
2.2%.
•John Hancock a Manulife
subsidiary will collaborate with Human API to create an easier life insurance
buying process.
Key points:
Manulife’s
most recent earnings miss was caused by investment-related experience charges,
and a $0.5 billion charge due to a change in the Ultimate Reinvestment Rate.
The Ultimate Reinvestment Rate is controlled by the Canadian Actuarial
Standards Board. Since these charges appear to be non-recurring, this earnings
miss isn’t a reason to sell. Core earnings also stayed consistent with 2018 Q3
numbers at $1.5 Billion. New business value improved by 14% compared to 2018 at
$526 million.
The Coronavirus death toll has rose to 908, which is higher
than the SARS epidemic according to The New York Times. If the Coronavirus
death toll continues to rise it could affect life insurance claims in Asia. At
the moment it looks like the Coronavirus is being identified quickly and
infected are being quarantined. This factor will need to be monitored in the
future.
Although Canada is not a center for growth, the US and Asia
look to be more promising markets in the future. Manulife CEO Michael Doughty
has been focusing on the future of technology as it relates to Manulife. They
partnered with Apple to give deals on Apple Watches. Now they are working with
Human API to connect health data and life insurance. The collaboration will allow
health records to be instantly sent to John Hancock a subsidiary of Manulife.
This will make insurance purchases significantly easier. Michael Doughty wants
people to choose to pay for life insurance over the other common subscription
services. To do this he knows that it will take ease of use, and assurance of
value. This process should boost sales in the US, and if it can be replicated
elsewhere should help to gain Manulife market share.
What has the stock done lately?
The Stock has fallen from $21.16
to $19.95. This is a decrease of 5.7 percent. This decline can possibly be explained
by the Coronavirus outbreak. The decline started early January, and it happened
after hitting an all time high since the 2008 recession.
Past Year Performance:
Manulife’s stock price has grown from $16.23
to $19.95, a 22.9% increase. It continues to perform well due to its cost
cutting measures and growth opportunities in Asia. Manulife outperformed the
MSCI Canada Index which grew 9.9% over the past year. Manulife is able benefit
from outside growth while being in a stable country like Canada.
My Takeaway
It is my recommendation that
Manulife continue to be held in the AIM International Equity Fund. Robby
Metcalf had it right when he described Manulife’s commitment to innovation and
technology. While life insurance as an industry seems unexciting and low in
growth potential, Manulife is discovering ways to get past that. CEO Michael
Doughty knows that they need to justify monthly premiums that millennials could
be spending on entertainment subscriptions. To do that they are moving to make
purchasing it as easy as possible and keep premiums affordable based upon
updated health information. While the Coronavirus may initially increase claims
in Asia, it also likely will encourage the purchase of life insurance policies
and eventually create opportunity for Manulife.
