TD Report and Upgrade to $53.00Event Q2/21 Conference Call
Impact: POSITIVE
We are encouraged with management's commentary that driving earnings growth is a priority. We agree that execution here could be a catalyst for the shares. Record earnings this quarter is an illustration, in our view, of earnings growth potential given the strong AUMA growth. IGM is delivering strong organic net flows growth, and expense guidance is reasonable, in our view, and provides visibility towards earnings potential. Strategic investments continue to grow and demonstrate value. IGM's balance sheet is strong, and we see potential for share buybacks and acquisitions. We have increased our target price to $53 (from $52) on higher estimates. We reiterate our BUY rating.
EPS of $0.99 was a record quarter and above us and consensus ($0.96); up 17% q/q and 29% y/y. Revenue was higher than expected, and expenses were modestly lower. We have increased our estimates slightly to reflect updated AUM levels, higher income from strategic investments, and expense growth in line with guidance.
Net flows momentum is intact. $2.5bln in AUMA inflows in the quarter equate to 4.1% organic flows growth (3.9% on an LTM basis). Inflows in July were constructive as well at $359mm (includes $239mm of institutional redemptions), and $168mm of AUA inflows.
Investments within IG Wealth appear to be paying off. Net flows are clearly improving ($2.1bln over the LTM is up from nil y/y), and feedback from Investment Executives 2021 Dealer Report Card indicates improving advisor scores around technology, advisor support, and product offerings.
Strategic Investments continue to show progress. China AMC AUM is up 29% y/y and earnings are up 46% y/y (Q2/21); Northleaf (private assets) raised another $1.7bln in the quarter (11% organic growth); and Wealthsimple momentum continues (AUA up 115% y/y).
TD Investment Conclusion In our view, this quarter demonstrates the earnings growth potential within IGM. We believe that further execution here could support valuation expansion. IGM is demonstrating strong organic flows momentum at both IG and Mackenzie. Expense guidance gives us comfort towards earnings growth visibility. Lastly, the balance sheet is solid with capacity for acquisitions or share buybacks, in our view. 55 55 50 50 45 45 40 40 35 35 30 30 25 25 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 IGM-T: Price Company Profile IGM Financial Inc. is the second