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Morningstar | IGM Financial Posts Mixed 3Q Results; No Change to Our CAD 42 per Share FVE

There was little in narrow-moat IGM Financial's third-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 September quarter with CAD 159.7 billion in managed assets, up 0.4% sequentially and 6.5% on a year-over-year basis. Investors Group, which accounted for 56% of the firm's AUM at the end of the third quarter, saw a 0.3% sequential and 4.4% year-over-year increase in its managed assets, despite posting its second consecutive quarter of outflows. Mackenzie Investments, which accounted for 41% of AUM, recorded a 0.6% sequential and 9.4% year-over-year increase in its managed assets, with the firm continuing to generate positive flows from its ETF operations. Investment Planning Counsel, which is IGM Financial's smallest segment, reported a 0.9% sequential decline and a 6.9% year-over-year increase in its managed assets during the third quarter, and once again posted outflows during the period.

While average AUM was up 8.6% year over year, third-quarter management fee income increased just 5.9% when compared with the prior year's period, due primarily to ongoing fee compression. Total revenue was up 7.6%, though, during the period, as a large uptick in net investment income and other revenues offset lower levels of administration and distribution fees. Year-to-date top-line growth of 3.9% was right in line with our forecast for low- to mid-single-digit revenue growth for all of 2018. As for profitability, while IGM Financial has had a difficult time keeping expenses from growing faster than revenue, adjusted pretax operating margins of 30.9% were up 40 basis points year over year during the first nine months of the year. Our long-term forecast continues to call for pretax margins for the nonbank affiliated asset managers like IGM Financial to be pressured by increased competition from the Big 6 Canadian banks, as well as the changing regulatory landscape.