Morningstar | IGM Financial Posts Mixed 2Q Results; No Change to Our CAD 42 per Share FVE
There was little in narrow-moat-rated IGM Financial's second-quarter results that would alter our long-term view of the firm. We've left our CAD 42 per share fair value estimate in place.IGM Financial closed out the June quarter with CAD 159.1 billion in managed assets, reflective of a 2.2% sequential increase in total assets under management. Year over year, the firm's managed assets were up 7.1%. Investors Group, which accounts for around 55% of the firm's AUM, reported a 1.9% sequential and 5.3% year-over-year increase in its managed assets, despite posting its first outflows since the third quarter of 2016. Mackenzie Investments, which accounts for around 40% of AUM, recorded a 1.2% sequential and 11.0% year-over-year increase in its managed assets, with the firm generating positive flows from both its mutual fund and ETF operations, which helped offset institutional outflows. Investment Planning Counsel, which is IGM Financial's smallest segment, reported a 0.9% sequential and 10.1% year-over-year increase in its managed assets, despite posting its first outflows in five years.
While average AUM was up 5.2% year over year during the second quarter, management fee income increased just 2.9% compared with the prior year's period, due primarily to ongoing fee compression. Total revenue was up 2.2% during the period, as lower distribution fee revenue and investment income affected results. Year-to-date top-line growth of 2.0% was at the lower end of our forecast for low- to mid-single-digit revenue growth for 2018. As for profitability, IGM Financial has had a slightly more difficult time keeping expenses from growing faster than revenue. Even so, adjusted pretax operating margins were flat year over year at 31.0% during the first half of the year. Our long-term forecast continues to call for pretax margins to be pressured by increased competition from the Canadian banks, as well as the changing regulatory landscape.
IGM Financial is engaged in the provision of financial services. Co.'s Investors Group segment provides financial and investment planning services to Canadians through its network of consultants across the country. Co.'s Mackenzie segment is engaged in the provision of investment advice and related services offered through investment applications, distributed through channels focused on independent financial advice. Co.'s Corporate and Other segment includes net investment income earned on unallocated investments and other income, operating results for Investment Planning Counsel as well as inter-segment eliminations. As of Dec 31 2010, Co. had total assets of C$8,892,563.
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