Key stock follow up: IGM Financial

Winnipeg-based IGM Financial is one of Canada’s largest personal financial services companies. It’s one of the largest managers and distributors of Canadian mutual funds and other managed asset products.

IGM earned a little more in 2013. It raised its net sales and assets under management to over $132 billion at the end of January. The company’s earnings growth is expected to accelerate this year. It remains a buy for further long-term price gains as well as high and rising dividends. In fact, that’s why we include IGM among our best buys for income.

In 2013, IGM produced net earnings of $761.9 million, or $3.02 a share. This was up by only 1.7 per cent from net earnings of $758.8 million, or $2.97 a share, the year before.

IGM also reports its operating earnings. In 2013, IGM produced operating earnings of $763.5 million, or $3.02 a share, excluding one-time items. This was up by a better 3.4 per cent from operating earnings of $746.4 million, or $2.92 a share, the year before.

In 2013, IGM’s revenue rose by 4.4 per cent, to $2.69 billion. Even better, revenue rose in all five categories: management fees; administration fees; distribution fees; net investment income & other; and IGM’s proportionate share of an affiliates earnings.

In 2013, IGM’s expenses increased by 5.5 per cent, to $1.71 billion. Expenses climbed in all three categories: commission; non-commission and interest.

With revenue up less than expenses IGM’s pre-tax earnings were up by a modest 2.4 per cent, to $981 million. Its income tax rate rose by 1.5 percentage points, to 21.4 per cent. All this curtailed IGM’s earnings per share growth.

IGM operates companies Investors Group, Mackenzie Financial and Investment Planning Counsel. All three subsidiaries generated higher sales in 2013 than in 2012.

In 2013, Investors Group achieved net sales of $159 million. That was a turnaround from net redemptions of $724 million the year before. Investors Group’s mutual fund assets under management ended 2013 at $68.3 billion. That was up by 12.7 per cent from $60.2 billion, a year earlier. Rising investment prices also sent up the managed mutual funds’ assets.

In 2013, Mackenzie Financial’s total net redemptions came to $3.57 billion. million. This was better than total net redemptions of $4.24 billion, the year before. President and chief executive officer Jeffrey Carney said, “Solid investment performance, new product introductions and enthusiasm for our global equity offerings have created strong sales momentum.” But it was too little to turn net redemptions into net sales. On the positive side, Mackenzie Financial’s total assets under management ended 2013 at $65.3 billion. This was up by 6.2 per cent from $61.5 billion, a year earlier, thanks to price gains.

Investment Planning Counsel produced net sales of $52 million. Its total assets under management went up by 15.5 per cent, to $3.4 billion.

IGM uses its earnings to reward its shareholders. True, it only maintained its dividend at $2.15 a share in 2013. Still, this yields an attractive 4.1 per cent. And with earnings expected to rise faster in 2014, we expect IGM to raise your dividend again.

In addition, IGM rewards you by buying back its own shares. It will “continue its automatic securities purchase plan until March 19, 2015.”

IGM’s operations are on the upswing. Investors Group president and chief executive officer Murray Taylor said, “Mutual fund gross sales, up 19% over the same period last year, were the highest level of fourth quarter sales in the history of the company.” Similarly, Mr. Carney said, “This is our highest level of fourth quarter mutual fund sales since 2007.” That was the year before the financial crisis.

IGM’s earnings growth is expected to accelerate in 2014, to $3.45 a share. That would represent earnings per share growth of 14.2 per cent from $3.02 a share last year.

IGM Financial remains a buy for long-term share price gains as well as high and rising dividends.

TSX—IGM; Rating: Very Conservative; Sector: Financial; Dividend: $2.15; Yield: 4.1%; O/S shares: 252 million; MRI: 3.7; MGI: 0.4; Five-year return: 80%; 52-week range: $57.11—$42.99; Net debt-to-cash-flow: 0.3; ROE: 17.3%; Desmarais family controls; T: 204-956-3364; www.igmfinancial.com.

 

 

The Investment Reporter, MPL Communications Inc.
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