Friday, February 10, 2006

BMO NB's Comment on Manulife's Q4 2005 Earnings

  
Forecasts

Given results in the quarter, we are increasing our 2006E and 2007E EPS to $4.95 and $5.65 from $4.90 and $5.60.

Valuation

We are increasing our target price to $80 from $74, reflecting 16.2x 2006E EPS and 2.4x 2006E BVPS, in line with current trading multiples.

Recommendation

Manulife remains Outperform rated. Overall, results were slightly ahead of expectations, driven by strength in the U.S. Protection segment, Japan and Hong Kong. New business growth was also strong across all segments While there were a number of unusual items in the quarter, they were largely offsetting. The company benefits from a steady earnings stream from Canada, strong U.S. operations with cost synergies from the JHF acquisition, as well as a growing Asian platform. At 14.2x 2006E EPS, some observers have asked if MFC is overvalued. We do not believe so, based on the EPS outlook, strategic position in North America and Asia, and the success of the JHF acquisition. ROE was 15.5% in the quarter, up substantially from 13.0% last year. The dividend increased 17% and we would expect more dividend increases over the next few years. We believe Manulife is unique given its operating platforms and remains our favourite life insurer.
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