IGM FINANCIAL CORP. $46 (Toronto symbol IGM; SI Rating: Above average) sells mutual funds and other financial services through three main divisions: Investors Group, Mackenzie Financial and Investment Planning Council. IGM is currently Canada’s largest mutual fund company, with $94.1 billion in mutual fund assets under management. Power Financial Corp. owns 56% of IGM.
In the third quarter of 2005, IGM earned $0.66 a share, up 13.8% from $0.58 a year earlier. Revenue grew 11.4%, to $587.0 million from $527.1 million, as improving equity markets fueled demand for mutual funds.
Mutual fund sales should continue to rise in 2006, particularly during the busy RRSP season in the first two months of the year, which accounts for over half of the mutual fund industry’s annual sales.
Dividend tax cuts and greater certainty over income trusts should boost investor interest in Canadian equities. Proposed changes that will let investors avoid capital taxes if they re-invest the proceeds within six months of a sale could also spark fund sales. The removal of foreign content limits in RRSPs should also fuel more demand for mutual funds that invest in international securities.
IGM’s stock recently hit a new all-time high of $49, but still trades at reasonable 18.0 times the $2.55 a share it probably earned in 2005. The company has raised its dividend every six months for the past few years. The current rate of $1.38 yields 3.0%.
IGM Financial is a buy.