GREAT-WEST LIFECO INC. $32(Toronto symbol GWO; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 998.9 million; Market cap: $32.0 billion; Price-to-sales ratio: 1.1; Dividend Yield: 3.8%; TSINetwork Rating: Above Average; www.greatwestlifeco.com) is Canada’s secondlargest insurance company after Manulife Financial (Toronto symbol MFC). It also offers mutual funds, retirement planning and wealth management. Power Financial (Toronto symbol PWF) owns 67.0% of Great-West.
As of June 30, 2014, the company had $804.6 billion of assets under administration, up 6.1% from the start of the year.
In Canada, Great-West sells its products under many wellknown banners, such as Great West Life, Canada Life and Freedom 55. Canada supplies 49% of the company’s earnings.
Great-West’s European division (40% of earnings) mainly sells group insurance and annuity products in the U.K., Ireland and Germany. It also offers reinsurance policies to other insurers.
In the U.S. (11% of earnings), Great-West is a leading provider of employer-sponsored retirement savings plans. This division also owns Putnam Investments, a major U.S. mutual fund company.
Great-West’s revenue fell 2.1%, from $30.5 billion in 2009 to $29.9 billion in 2011, as lower premium income in Europe offset gains on its investment portfolio. However, revenue rose to $30.6 billion in 2012.
Irish Life has long-term promise
In July 2013, Great-West paid $1.75 billion for Irish Life Group, Ireland’s largest pension manager and life insurance provider. Irish Life has over one million clients and $50 billion of assets under management. Even with Irish Life, Great-West’s revenue fell to $26.4 billion in 2013, due to a $3.0-billion decline in the value of its investments.
Earnings fell slightly, from $1.72 a share (or a total of $1.63 billion) in 2009 to $1.70 a share (or $1.62 billion) in 2010. Earnings improved to $2.13 a share (or $2.0 billion) in 2011 but fell to $1.90 a share (or $1.8 billion) in 2012.
Irish Life contributed $85 million to Great-West’s earnings in 2013, which helped push up its full-year earnings to $2.34 a share (or $2.3 billion). Without unusual items, such as costs related to the acquisition, earnings per share rose 2.9%, from $2.05 in 2012 to $2.11 in 2013.
Great-West continues to make progress combining Irish Life’s computer systems and offices with its own operations. These moves should cut its annual costs by 40 million euros (or $58.3 million Canadian) by the end of 2015.
Meanwhile, the company is doing a good job of improving Putnam’s performance. Thanks to rising stock markets and several new mutual funds, Putnam’s losses narrowed to $9 million in the second quarter of 2014 from $14 million a year earlier.
The stock trades at 12.7 times the $2.52 a share before one-time items that Great-West will probably earn in 2014. The $1.23 dividend yields 3.8%.
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