Thursday, May 26, 2011

Manulife Financial Corp

I am reviewing this stock (TSX-MFC) because I have updated my spreadsheets for the year ending in December 2010. I have also updated my spreadsheet for the first quarterly report of 2011. There is no doubt that this insurance company has been one of the hardest hit Canadian insurance companies in the recent recession.

I first bought this stock in 2005 and more in 2006 and 2009. My latest purchase was in October 2010. I have an average amount of this stock relative to other stocks in my portfolio. To date, my total return is a negative 7% per year. I, however, do expect that this stock will improve in due course. The portion of this total return due to dividends would be 3%. This would imply that I have lost 10% per year on the share price of this stock.

Manulife finished the year with better earnings that I had in my spreadsheet, but within the range given by various analysts. I had earnings for the year at negative $1.26 and the earnings were negative $.26. The earnings for the first quarter at $.54 were better than any analysts expected. The average earnings estimate for the 1st quarter was $.31.

The only growth that this company has had over the past 5 years is growth in cash flow. The 5 and 10 year growth in cash flow is 8% and 9.4% per year respectively. Also, even though they decreased their dividend by 50% in 2009, over the past 10 years the dividends have grown at the rate of 9.5% per year. Dividends were $.0525 per share in 2000 and are now $0.13 per share. This company’s shares were also split on a 2 for 1 basis in 2006.

No one would have made any money on this stock over the past 5 years. The current share prices are back to the lows of 2006. If you have held this stock for 10 years, you might have broken even or perhaps gained the dividends paid.

There has been small moderate growth in Revenues over the past 5 and 10 years, with 5 and 10 year growth at 3.3% and 8.8%. If earnings estimates are correct for 2011, there will be also a modest growth in earnings over the last 10 years, and no growth over the past 5 years.

Book Value growth over the past 5 and 10 years is 0% and 6.7% per year, respectively. Growth has not been great. Shares have also grown over the past 10 years at the rate of 8% per year. This is because this company has been growing by acquiring other firms.

As far as debt ratios goes, this company is just ok. As with other insurance companies and banks, Asset/Liability ratios are lower and Leverage and Debt/Equity Ratios are higher than for other companies. It is hard to get a fix on the Liquidity Ratio as this is a financial services company, but it is fine. The Asset/Liability is lower than normal for this company. The 10 year median ratio is 1.08 and the current ratio is 1.06.

For the Leverage Ratio and Debt/Equity Ratio, they are also a bit higher than the 10 year median Ratios. The Leverage Ratio is 18.49 compared to a 10 year median of 14.69. The Debt/Equity Ratio is 17.40 compared to a 10 year median of 13.64.

When looking at the Return on Equity, the 5 year median is just 5.2%. This is because this company has not made much money over the past 3 years and lost money in 2010. However, the ROE for the 1st quarter of 2011 is 16.9%, and this is good. It is also better than the ROE prior to 2008, when the median was in the 14% to 15% range.

The Globe and Mail had an interesting article on this stock on May 7th, 2011.

I will be holding on to the shares in this company that I have. I certainly believe this company will recover. Tomorrow, I will look to see what analysts are saying about it. I will also look at what my spreadsheet shows about the current stock price.

This is a life insurance company in the financial services business. It offers financial protection products (e.g. Life Insurance) and wealth management services (i.e. segregated funds, mutual funds and pension products). They sell products to individuals and business. They are an international company, selling in Canada, US and Asia. This company is listed on Canadian, US, Hong Kong and Philippines Stock Exchanges. Its web site is here Manulife. See my spreadsheet at mfc.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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