IGM FINANCIAL INC. $43 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 264.1 million; Market cap: $11.4 billion; Price-to-sales ratio: 4.7; SI Rating: Above Average) is Canada’s largest independent mutual-fund company, with $112.3 billion in assets under management. Power Financial owns 56.4% of IGM.
IGM operates through two main divisions. Investors Group sells funds through its own network of 4,500 advisors. Mackenzie Financial sells its funds through independent brokers.
In June, IGM purchased the 27.6% of Investment Planning Counsel (IPC) that it did not already own. IPC’s 700 advisors provide wealth-management services. IGM paid a total of $42.4 million, which consisted of $1.7 million in cash and $40.7 million in common shares. IGM will keep operating IPC separately, and will not merge it with Investors Group or Mackenzie.
In the three months ended June 30, 2009, IGM’s revenue fell 18.4%, to $587.8 million from $720.7 million a year earlier. Earnings fell 33.1%, to $144.5 million from $216.1 million. Earnings per share fell 39.6%, to $0.55 from $0.91, on fewer outstanding shares. The year-earlier earnings exclude IGM’s proportionate share of a one-time, $25-million gain stemming from Great-West’s sale of its U.S. health-care business (IGM owns 4.0% of Great-West’s shares).
Investors Group continues to expand its sales force. This should help it attract clients as the economy improves and more investors switch from low-yielding savings accounts to mutual funds. As well, Investors Group has a reputation for exceptional customer service. This lets it hang onto its clients longer than other mutual-fund companies. Its redemption rate fell to 7.5% in the most recent quarter from 7.7% in the prior quarter.
IGM’s $1.6-billion long-term debt is a low 14% of its market cap. It also holds cash of $1.3 billion, or $4.84 a share. This will let it keep paying its $2.05 dividend, which yields 4.8%. The stock trades at 18.7 times IGM’s forecast 2009 earnings of $2.30 a share. That’s still reasonable in light of its loyal clientele and leading market share.
IGM Financial is a buy.
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