Friday, March 09, 2007

UBS Favours Life Insurance Cos Over Banks

Financial Post, Jonathan Ratner, 9 March 2007

Given the lower credit risk and better earnings stability he says Canadian insurance companies offer, UBS analyst Jason Bilodeau prefers those stocks to the banks.

While the Canadian banking group performed relatively well in the first quarter, weak equity markets pose risks to their operating results, he said in a research note, adding that UBS remains neutral weighted on the broader financial sector.

Mr. Bilodeau also thinks Manulife Financial Corp. has one of the most promising outlooks given its earnings per share growth in the mid-teens and the capital strength required for investment, share buy-backs and dividend growth.

Toronto-Dominion Bank is his top pick in the banking sector, while he recently upgraded his rating on Bank of Nova Scotia.

The credit environment is Mr. Bilodeau’s primary concern for the banks going forward, but he noted that recent negative events in the U.S. should have little impact on Canada.

In general, he is optimistic about trends in the banking industry, pointing out the ability of the banks to control costs, generate strong brokerage activity and grow fees from asset management.
Manulife Financial Corporation share repurchases:

28 Feb 2007 : 460,000 shares at $39.178
27 Feb 2007 : 300,000 shares at $39.777
26 Feb 2007 : 300,000 shares at $40.149
Lehman Brothers reiterate its "equal weight" rating on Manulife Financial Corporation. The target price has been reduced from U$55 to U$38.
UBS maintained its "buy" rating on Manulife Financial Corp. The target price has been raised to $46 from $44.

In a research note published on 14 Feb 2007, the analysts mentioned that the company’s ongoing share repurchases are expected to drive over 16% ROE and bottom-line growth in the mid term. According to the analysts, Manulife Financial is well positioned to generate profitable sales growth going forward. The company’s sales trends are likely to improve through product innovation in 2007, UBS adds.