IGM FINANCIAL INC. $47 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 251.8 million; Market cap: $11.8 billion; Price-to-sales ratio: 4.6; Dividend yield: 4.6%; TSINetwork Rating: Above Average; www.igmfinancial.com) is Canada’s largest independent mutual fund company, with $125.8 billion of assets under management. Power Financial owns 58.4% of IGM.
The company has two main divisions. Investors Group sells its mutual funds, along with other services like portfolio management and mortgages, through 4,500 affiliated advisors. Mackenzie Financial sells its funds through independent brokers.
In 2012, Investors Group cut the management fees on most of its funds to better compete with other fund companies. This move seems to be paying off. In the three months ended March 31, 2013, Investors Group’s sales, net of redemptions, jumped 114.4% to $375.6 million from $175.2 million a year earlier.
Mackenzie did not cut its fees. Even so, it sold $254.0 million of funds, net of redemptions, compared to net outflows of $933.0 million a year earlier. But even with these gains, IGM’s overall revenue fell 3.0%, to $652.7 million from $673.1 million. That’s largely because it earned lower interest income on its mortgage loans.
The company earned $180.5 million, down 9.2% from $198.9 million a year earlier. Earnings per share fell 6.5%, to $0.72 from $0.77, on fewer shares outstanding. IGM spent more on advertising during RRSP season. As well, new accounting rules forced it to change the way it recognizes its pension costs. That increased its pension expenses by $1.6 million in the latest quarter.
IGM’s mutual fund sales should keep improving as low interest rates prompt income-seeking investors to switch from bonds to higher-yielding funds. Improving stock markets will also raise its assets under administration. That’s good news for IGM, as it earns higher fee income when the value of the mutual funds and other securities it manages rises.
The stock trades at a reasonable 15.4 times the company’s likely 2013 earnings of $3.06 a share. The annual dividend rate of $2.15 yields 4.6%.
IGM Financial is a buy.
