IGM FINANCIAL INC. $36(Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 243.6 million; Market cap: $8.8 billion; Price-to-sales ratio: 2.9; Dividend yield: 6.3%; TSINetwork Rating: Above Average; www. igmfinancial.com) is Canada’s largest independent mutual fund provider. Power Financial owns 60.1% of IGM.
The company has two main divisions. Investors Group offers mutual funds and other services, such as portfolio management, through 5,300 affiliated advisors. This business forms close relationships with clients, which helps it retain them. In 2015, its redemption rate for long-term funds was 8.7%, well below the industry average of 15.4%.
The other division, Mackenzie Financial, sells funds through independent brokers.
In 2015, IGM’s overall earnings fell 3.6%, to $796.0 million from $826.1 million in 2014. Earnings per share declined 1.8%, to $3.21 from $3.27, on fewer shares outstanding.
Revenue rose 3.4%, to $3.0 billion from $2.9 billion. Sales of mutual funds (net of redemptions) rose 15.8% at Investors Group, but worsened at Mackenzie.
Due to the recent declines in global equity markets, the company’s assets under management as of February 29, 2016, fell 13.6%, to $129.1 billion from $149.3 billion a year earlier.
IGM’s fee income rises and falls with the value of the mutual funds and other securities it manages, so its revenue and earnings suffer when the value of these assets declines.
Ongoing stock market volatility could continue to dampen mutual fund sales. However, the uncertain economy should help the company attract more wealth management clients.
IGM’s earnings will probably decline to $3.01 a share in 2016. The stock trades at 12.0 times that forecast. The $2.25 dividend seems secure, and yields 6.3%.
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