IGM FINANCIAL INC. $40 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 252.6 million; Market cap: $10.1 billion; Price-to-sales ratio: 3.9; Dividend yield: 5.4%; TSINetwork Rating: Above Average; www.igmfinancial.com) is Canada’s largest independent mutual fund company, with $119.3 billion of assets under management. Power Financial owns 58.4% of IGM.
To help spur its sales and compete with other fund companies, IGM recently cut the management fees on most of the mutual funds it sells through its Investors Group subsidiary. It is also changing the way it pays its salespeople. This will result in savings that will help offset the lower fee income.
In the meantime, the reduced fees pushed down IGM’s earnings by 12.3% in the three months ended September 30, 2012, to $186.9 million. A year earlier, it earned $213.0 million. Earnings per share fell 11.0%, to $0.73 from $0.82, on fewer shares outstanding. Revenue declined 5.9%, to $634.0 million from $673.8 million.
Fund redemptions, net of sales, rose to $1.8 billion from $1.3 billion a year earlier. Even so, rebounding stock markets pushed up the value of IGM’s assets under management by 2.2%. That’s good news for the company because its fee income rises and falls with the value of the securities it manages.
The stock trades at a reasonable 13.6 times IGM’s likely 2012 earnings of $2.94 a share. The $2.15 dividend yields 5.4%.
IGM Financial is a buy.
