GREAT-WEST LIFECO INC. $25 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s largest insurance company, with $441.9 billion of assets under administration. Great-West also provides retirement-planning and wealth-management services. It gets about 60% of its earnings from Canada, followed by Europe (25%) and the United States (15%). Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares.
In August 2007, Great-West bought Putnam Investments Trust, a leading U.S. mutual-fund company. Great-West paid just $4.2 billion, even though Putnam had $182 billion U.S. in assets under administration. That’s because Putnam was coming off a mutual-fund trading scandal that spurred a wave of investor redemptions. Putnam’s assets have since dropped to $108 billion U.S., largely because of falling stock prices. Still, the purchase gave Great-West access to Putnam’s large client base.
In the three months ended June 30, 2009, Great-West’s earnings fell 26.8%, to $413 million from $564 million a year earlier. In response to last year’s financial-market turmoil, the company sold $1 billion worth of common shares to shore up its already strong balance sheet. As a result, earnings per share in the latest quarter fell 30.2%, to $0.44 from $0.63.
The company set aside an extra $506 million for future credit losses in the latest quarter. The move was in response to a change in the way Great-West calculates this liability, and an increasingly uncertain credit market. This was the main reason for the lower earnings.
Despite the drop, Great-West continues to pay quarterly dividends of $0.3075 a share. The annual rate of $1.23 yields 4.9%. The stock now trades at 13.0 times Great-West’s likely 2009 earnings of $1.93 a share.
Great-West Lifeco is a buy.
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