Q: Good Morning,
Knowing that you like both Intact and Sunlife, can you please give me your opinion on which insurance company might provide a better total return over the next 5 years? Sunlife is much cheaper and has a good dividend, but if interest rates drop (in Canada at least), how might this impact both businesses?
Thanks.
Brad
Knowing that you like both Intact and Sunlife, can you please give me your opinion on which insurance company might provide a better total return over the next 5 years? Sunlife is much cheaper and has a good dividend, but if interest rates drop (in Canada at least), how might this impact both businesses?
Thanks.
Brad
5i Research Answer:
We like both, but as growth managers we would side with IFC today if only one is to be owned. EPS is expected to almost double from 2023 to 2025 estimates. As much as we like SLF it can't compete with that growth. IFC is more expensive because of this (15X earnings vs 10X) so there is a valuation trade-off here. Five years is hard to forecast, but IFC has executed very well and we would have no reason to expect problems over five years. Typically, insurance companies do better with high rates, because they invest surplus cash. BUT..from a stock perspective investors like lower rates, so valuations of insurance companies' stocks can and likely will see some benefit if rates do fall over the next couple of years.