IGM Financial Inc. (TSX: IGM) is the largest non-bank-affiliated asset manager in Canada. The firm is part of the Power Financial group of companies, which includes Great-West Life, London Life, Canada Life, and Putnam Investments. It has two main operating divisions - asset management (operated through Mackenzie Investments) and wealth management (via its Investors Group Wealth Management and Investment Planning Counsel subsidiaries) that provide investment management products and services. 

Key Highlights

• Consistent Dividend Distribution: Over the years, the company has maintained a consistent dividend payout, helped by solid cash flows from strong activities. This dividend pay-out practice translates into an essential factor for regular income-seeking investors with a long-term horizon.

• Healthy Dividend Yield: The dividend pay-out practice translates into an essential factor for regular income-seeking investors with a long-term horizon. Recently, the Company declared a quarterly cash distribution of CAD 56.25 cents per common share, payable on April 29, 2022. Moreover, at the last closing price of CAD 42.71 as on April 11, 2022, the stock offered a healthy dividend yield of 5.268%, which looks decent considering the current macros and interest rates.

• Growing Assets Under Management: The company’s total assets under management increased by CAD 37 billion, or 15.4%, to CAD 277 billion in FY 2021, up from CAD 240 billion in the previous corresponding year. At the same time, net inflows also reached to a new high of CAD 8.7 billion, compared to CAD 7.1 billion in pcp. Increases were mostly driven by developments in financial markets over the years and the acquisitions made by the company worth CAD 30.3 billion.

• Enjoying Lower Redemption Rate:Historically, the financial industry has witnessed a higher degree of redemption during periods of stock market volatility, economic crises, and so on, when the portfolio suffers catastrophic losses. During this phase, investors tend to flee the market in panic and halt their investments. However, with sensible counsel and clever portfolio allocations, relatively few financial organizations tend to sustain their AUM levels and maintain reduced redemption levels in the face of a volatile economic environment. The twelve-month trailing redemption rate for long-term funds at IG Wealth Management was 9.2 percent on December 31, 2021, compared to 9.8 percent on December 31, 2020.

• Decent Margin Profile: The company kept up the pace and saw robust success throughout its operational margins, as it is always working hard to preserve this winning momentum. Furthermore, it saw a higher scale on a consecutive basis, which is commendable. We anticipate that the momentum will continue in the near future, as management is taking several cautious initiatives and evaluating acquisitions to support future development. On top of that, all of these margin figures outperformed the industry median.

• Acquiring Additional 13.9% Equity Interest in ChinaAMC: On January 5, 2022, the company's subsidiary Mackenzie Financial Corporation stated that it has entered into a formal agreement to acquire Power Corporation of Canada's 13.9% shareholding in China Asset Management Co., Ltd. for CAD1.15 billion in cash. The purchase will increase the Mackenzie's stake in ChinaAMC to 27.8%, enhancing its engagement in the rapidly developing Chinese asset management market through a significant ownership stake in one of China's leading asset managers.
  

Risks associated with investment 

The company is principally susceptible to capital market asset price volatility; any negative movement could have a significant negative impact on the group's health, including a loss in average asset under management, increased redemption demands, a decline in core earnings, and other factors. 

 Financial Overview of FY 2021 

• Rise in consolidated revenue: In FY 2021, the group consolidated revenue increased to CAD 3,447.9 million, compared to CAD 3,017.9 million in the previous corresponding period. This rise was primarily attributable to the healthy performance from wealth management and assets management.
  

• Slightly higher expenses: The company’s consolidated expenses increased marginally to CAD 2,180.3 million compared to CAD 2,052.6 million, on the back of higher advisory and business development expenses, the total expenses were partially offset by lower operations and support cost.
  

• Robust increase in net earnings: In the reported period the company’s net earnings available to common shareholders increased to CAD 978.9 million, against CAD 764.4 million in pcp, however it clocked higher income tax expense.
  

Top-5 Shareholders

The top 5 shareholders have been highlighted in the pie chart below, which forms around 68.80% of the total shareholding. Power Financial Corp. hold the company's maximum interests at 65.53%, while its strategic entities ownership stood at 65.64%.

Valuation Methodology (Illustrative): Price to Book Value based Valuation Metrics

Stock recommendation

The corporation completed 2021 with a record high total assets under management of CAD 277 billion, and net inflows of CAD 8.7 billion. These high results, along with decreased operations cost and redemption pressure, contributed to the group's annual profits per share of CAD 4.08. As the broader economy rebounds from the present slump, we anticipate an increase in total AUM, driven by more retail traction and stronger mutual fund returns. Furthermore, we expect strong organic growth in its digital marketing business.

Furthermore, despite the challenging operating environment, the group continue to distribute the dividend, which is encouraging from an income investor’s point of view. At the last traded price, the stock was offering a dividend yield of 5.268%, which is significantly higher, considering the current interest rate environment in the country. 

Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the closing price of CAD 42.71 as on April 11, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 7, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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