GREAT-WEST LIFECO INC. $35 - Toronto symbol GWO

GREAT-WEST LIFECO INC. $35 (Toronto symbol GWO; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 996.9 million; Market cap: $35.0 billion; Priceto- sales ratio: 1.0; Dividend Yield: 3.7%; TSINetwork Rating: Above Average; www.greatwestlifeco.com) is Canada’s second-largest insurance company, after Manulife Financial (Toronto symbol MFC). It also offers mutual funds, retirement planning and wealth management. Power Financial (Toronto symbol PWF) owns 67.1% of Great-West.

As of June 30, 2015, the company had $1.15 trillion of assets under administration, up 7.9% from $1.06 trillion at the end of 2014.

Diversified operations cut risk

In Canada, Great-West sells its products under many well-known banners, such as Great-West Life, Canada Life and Freedom 55. Canada supplies 44% of the company’s earnings.

Great-West’s European division (42% of earnings) mainly sells group insurance and annuity products in the U.K., Ireland and Germany.

In the U.S. (14% of earnings), Great-West is a leading provider of employer-sponsored retirement savings plans. This division also owns Putnam Investments, a major mutual fund firm.

Great-West’s revenue fell 0.7%, from $30.1 billion in 2010 to $29.9 billion in 2011, as lower premium income in Europe offset gains on the company’s investment portfolio. Revenue then improved to $30.6 billion in 2012.

In July 2013, Great-West paid $1.75 billion for Irish Life, Ireland’s largest pension manager and life insurance provider.

Even with Irish Life, Great-West’s revenue declined to $26.4 billion in 2013, after the value of its investments fell by $3.0 billion. However, revenue jumped to $39.2 billion in 2014.

Irish Life fuelled strong gains

Great-West’s earnings rose 25.3%, from $1.70 a share (or a total of $1.6 billion) in 2010 to $2.13 a share (or $2.0 billion) in 2011. Earnings then fell to $1.90 a share (or $1.8 billion) in 2012 but improved to $2.11 a share (or $2.05 billion) in 2013. They reached $2.55 a share (or $2.5 billion) in 2014.

The company continues to expand in Ireland. In July 2015, it paid an undisclosed sum for the Irish operations of Legal & General Group plc, which provides investment and tax-planning services to wealthy individuals.

Low p/e, attractive yield

This latest purchase will also give Great-West more opportunities to cut costs by merging overlapping operations. It recently finished integrating Irish Life and now expects annual savings of 48 million euros, up 20% from its initial target of 40 million euros (1 euro = $1.45 Canadian).

The company’s earnings should improve to $2.79 a share in 2015, and the stock trades at a low 12.5 times that forecast. The $1.30 dividend yields 3.7%. Great-West Lifeco is a buy.

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