Canadian Financial Services Stocks

IGM Financial Inc Valuation – July 2018 $TSE-IGM

Company Profile (excerpt from Reuters): IGM Financial Inc. is a Canada-based financial services company. The Company’s principal businesses are Investors Group Inc. and Mackenzie Financial Corporation, which operate within the advice segment of the financial services market. It operates in three segments: Investors Group, Mackenzie Investments, and Corporate and Other. The Investors Group provides a range of financial and investment planning services through its network of consultants across the country, and its products and services include Personal Financial Planner, Symphony Strategic Investment Planning Program and Mutual Funds. The Mackenzie Investments segment is engaged in the provision of investment management and related services offered through diversified investment solutions, distributed through multiple distribution channels. The Corporate and Other segment includes share of earnings of its affiliate, Great-West Lifeco Inc. (Lifeco) and operating results for Investment Planning Counsel Inc.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-IGM – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,342,275,260 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 4.98% Fail
5. Moderate PEmg Ratio PEmg < 20 19.87 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.07 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.92
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $27.81
MG Value based on 0% Growth $16.30
Market Implied Growth Rate 5.68%
Current Price $38.11
% of Intrinsic Value N/A

IGM Financial Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.01 in 2014 to an estimated $1.92 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.68% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into IGM Financial Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $2.25 per share, for a yield of 5.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.87, which was below the industry average of 21.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

IGM Financial Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $0.00
PEmg 19.87
PB Ratio 2.07
Dividend Yield 5.90%
TTM Dividend $2.25
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $2,025,000,000
Total Assets $15,695,480,000
Intangible Assets $3,844,736,000
Total Liabilities $11,262,545,000
Shares Outstanding (Diluted Average) 241,081,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate
Dec2017 $2.50
Dec2016 $3.19
Dec2015 $3.11
Dec2014 $2.98
Dec2013 $3.02
Dec2012 $2.97
Dec2011 $3.24
Dec2010 $2.77
Dec2009 $2.12
Dec2008 $2.76
Dec2007 $3.29
Dec2006 $2.90
Dec2005 $2.56
Dec2004 $2.24
Dec2003 $2.03
Dec2002 $1.85
Dec2001 $1.05
Dec2000 $1.35
Dec1999 $1.12
Dec1998 $0.89

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.92
Dec2017 $2.90
Dec2016 $3.09
Dec2015 $3.05
Dec2014 $3.01
Dec2013 $2.96
Dec2012 $2.87
Dec2011 $2.83
Dec2010 $2.67
Dec2009 $2.66
Dec2008 $2.87
Dec2007 $2.82
Dec2006 $2.49
Dec2005 $2.17
Dec2004 $1.89
Dec2003 $1.64
Dec2002 $1.38

Recommended Reading:

Other ModernGraham posts about the company

IGM Financial Inc Valuation – Initial Coverage $IGM

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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