NBF: IGM target at 55$ from 51$Record first-quarter highlights building momentum
Adj. EPS of $0.85, up 26% y/y and 4% below street $0.88 (NBF $0.86) The slight EPS miss to consensus appears tax-driven as IGM reported higher pre-tax profit of $262 mln vs. consensus $261 mln (NBF $266 mln). IGM delivered revenues of $800 mln in line with street (NBF $806 mln) and stronger adj. EBITDA of $286 mln vs. street $284 mln (NBF $289 mln). Operating leverage was strong as revenues increased an impressive 13% y/ y against expense growth of only 8% y/y.
Wealth management EPS of $0.48, up 4% y/y (NBF $0.49) Slightly higher asset-based compensation expense drove the modest underperformance. Bigger picture, IGM continues to perform well in the HNW segment (54% of gross sales) and managed solutions ($22 bln of iProfile funds spotlighted in Figure 4). April net flows, negative in eight of the last nine years, set a 20-year high with inflows of $131 mln.
Asset management EPS of $0.20, up 49% y/y (NBF $0.20) In line as lower third-party AUM fees (less predictable with first quarter of GLC) partially offset slightly lower expenses. Mackenzie remains on fire with record net flows in April and a net-flows rate of 8.1% vs. industry of 3.7% (in March). Mackenzie’s growth in Private Investments ($1.5 bln fundraising at Northleaf in Q1) and build-out of Greenchip AUM ($1.4 bln at Q1-21) highlight the company’s product innovation.
Strategic Investments EPS of $0.17, up 72% y/y (NBF $0.17) China AMC growth continues as earnings increased 42% y/y. Further, IGM received a $27 mln dividend, nearly double the 2020 dividend. While not an earnings driver, Wealthsimple reported AUA up 54% y/y to $12.7 bln in Q1 and client count up 132% to >1 mln. Subsequent to quarter end, Wealthsimple announced a fundraising that valued the company at C$5 bln, which drives a $900 mln increase in IGM’s share.
Reiterate Outperform; PT up to $55 (was $51) We apply a sum-of-the-parts valuation methodology to arrive at our PT using i) ~12x P/E multiple on IGM’s Wealth Management business, ii) ~11x P/E multiple on IGM’s Asset Management business, and iii) the carrying/fair value for holdings within the Strategic Investments vertical.