Morningstar | Great-West Maintains Momentum in 3Q
Great-West’s third-quarter results showed the company continuing to build on already strong returns. Annualized adjusted ROE of 14.7% for the quarter marked a modest improvement both year-over-year and sequentially. Overall, the business is performing well, with the one exception being Putnam in the U.S. We will maintain our CAD 36 fair value estimate and no-moat rating.Canadian operations remain Great-West’s strength, with this region generating an adjusted annualized ROE of 21.0%. We believe improving returns have been driven by the company’s cost control actions. However, management noted that the company has achieved CAD 180 million of the planned CAD 200 million in cost reductions, suggesting the benefits from this program have largely been realized and returns could flatten going forward.
Great-West’s more nascent European operations are performing well, with an adjusted annualized ROE of 16.1%. We view these operations as still something of a work in progress, but results to date suggest management’s push into the region will be value creative over time.
U.S. operations, and in particular Putnam, remain the weak link. Putnam did showcase some momentum in the quarter, with $1.7 billion in mutual fund net inflows during the quarter, its highest level since 2014. This led to a 6% year-over-year increase in assets under management. However, the business remains unprofitable, and we continue to believe Putnam does not have a path to success in its current form given industry trends. While acquisitions could improve scale and management has nodded in this direction, we continue to believe the best choice would be to divest this business. Notably, U.S. operations excluding Putnam generated a 12.3% adjusted annualized ROE in the quarter, suggesting U.S. operations would be on solid footing if Putnam was no longer a factor.
Great-West Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. Co. has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC. Co., through its operating subsidiaries, provides protection and savings products that are distributed through multiple sales channels. Products are marketed under the Great-West Life, London Life and Canada Life brands.
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