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Fee cut will hurt IGM margins, say analysts

Total assets under management for Winnipeg-based IGM tumbled 8 per cent to $118.7-billion from a year earlier.

J.P. Moczulski/Reuters/J.P. Moczulski/Reuters

IGM Financial Inc.

A move by Investor Group Inc. to cut fees on its mutual funds is expected to hurt profit margins and put pressure on other rivals to do the same, analysts say.

Several of them slashed targets on IGM Financial Inc. after its Investors Group unit announced Friday that it plans to cut fees on many funds sold by its own network of advisers, and also lower their commission-based compensation on certain offerings.

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"While we agree a lower management fee should help gross sales, we have found that performance in the funds and adviser compensation tends to matter more to captive sales forces," said GMP Securities analyst Stephen Boland.

"The performance of many [Investor Group]funds has struggled recently," he wrote on Tuesday. "We believe this announcement could put additional pressure on industry participants to also reduce fees. We have updated our financial forecast to account for the lower expected management fee margin, a modest pickup in sales and also a modest reduction in consultant compensation."

Downside: Mr. Boland, who maintains a "hold" rating, cut his one-year target by $2 a share to $43.50.

Kirkland Lake Gold Inc.

Dundee Securities analyst Ron Stewart expects production by the gold miner to keep rising in fiscal 2013, but he cut his price target for the company due to a falling commodity price and market volatility.

Downside: He maintains a "buy" rating, but reduced his one-year target to $16 a share from $19.

HudBay Minerals Inc.

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After the base-metals producer withdrew its high-yield notes offering because of poor market conditions, the long-term funding to bring its Peruvian copper project into full construction later this year is "still a question in our minds," said TD Securities analyst Greg Barnes.

Downside: He maintains a "hold" rating, but dropped his one-year target to $11 a share from $12.

Pure Industrial REIT

The pure-play industrial REIT, which has doubled in size through acquisitions since 2010, reported a 13-per-cent first-quarter increase in funds from operations per unit from a year ago.

Upside: Dundee Securities analyst Brad Cutsey maintains a "buy" rating, but raised his one-year target to $5.50 a share from $5.25. That translates into a 30.6-per-cent total return.

Urban Outfitters Inc.

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The clothing retailer's first-quarter profit beat consensus expectations, but warmer weather in the period likely pulled sales forward, said Canaccord Genuity analyst Laura Champine. She expects consolidated comparable retail sales to decline in the second quarter.

Downside: She maintains a "hold" rating, but reduced her one-year target to $26 a share from $27.

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