Monday, July 24, 2006

RBC CM Preview of Insurance Co Q2 2006 Earnings

RBC Capital Markets, 24 July 2006

• IAG: We recommend investors accumulate IAG ahead of Q2 earnings to stay ahead of positive earnings revisions. IAG’s acquisitions will be just hitting the ‘sweet spot’ in terms of EPS accretion during the second half of 2006, and into early 2007. IAG reports Tuesday. We rate IAG O/P, with a $40 target and 68¢ Q2 EPS outlook, well above consensus.

• SLF: We are 1¢ above consensus for Sun Life’s Q2 as we think peer analysts underestimate sharply increased share repurchases. However, we have a 5¢ lower EPS outlook for both 2006, and 2007 on concerns Sun Life’s U.S. businesses will be hurt by rising retail wealth outflows (U.S. mutual fund industry reported redemptions in May for 1st time in 2 years). Sun Life’s U.S. annuity and MFS are having trouble reversing 3 years of outflows, and a weak equity market may exacerbate the trend.

• MFC: Manulife also cranked up share repurchases to 25MM or 1.5% of shares in Q2, well through our 5MM assumed Q2 level, let alone our 20MM full year assumptions, both ’06 and ’07. MFC’s total repurchases are at 39MM of the 100MM program to Nov ’06. This positive surprise could drive up street EPS estimates. Unlike for Sun Life, MFC’s U.S. equity exposure is low proportionate to MFC’s overall business (ie. negligible mutual fund exposure). MFC’s high-flying Japanese annuity business will slow near-term only, the issue is financially immaterial and will be fixed soon. We rate Manulife Top Pick ($43 target) and carry just-above consensus EPS estimates of $2.49/$2.88 for ‘06/’07.
RBC Capital Markets, 24 July 2006

• Scotiabank Expanding in Mexico

Scotiabank plans to grow its market share in Mexico from 6% to 10% by 2010. As part of that strategy, Grupo Scotiabank will spend US$150MM to US$200MM on more than 300 branches. The Mexican branch count is slated to rise from the current 470 to 800 by the end of 2009, with each branch taking approximately 15-16 months to break even.

• TD Banknorth Analysts Estimate is U$0.55 EPS

By our calculation, the bellwether U.S. banks have reported Q2/06 earnings 4% above consensus expectations, driven by strong fee income and loan growth, partially offset by continued margin pressure. Credit quality remains benign. TD Banknorth is set to report on July 26, with the Thomson First Call mean estimate at US$0.55/share.