Investors collection is one of Can...

Investors collection is one of Canada's largest providers of personal financial planning services and productions The company has its allow sales force of over 3000 representatives who provide financial planning advice and vend the company's: family of mutual permanent funds registered retirement savings/income plans, deferr profit sharing plans, life insurance, GICs, tax preparation and mortgages. Approximately two-thirds of the company's $22 billion in mutual capital assets is invested in equities. Investors assemblage has 96 Financial Planning middles across Canada and more than 760000 clients.

About 70% of the corporation's incomes are derived from mutual capital management fees; 10 % from administration/trustee fees; and, 8% from deferr sales commissions in succession mutual funds. These fees arise from the company's core business of managing and distributing its mutual stores Also, approximately 11 % of unadulterated revenue comes from investment income.

Power Financial Corp. avows roughly 67% of the company's voting stock; institutions and individual investors are estimated to confess approximately equal proportions of the remaining float. The company was originally featured as a Stock To meditation in the July/August 1990 issue of Canadian Shareowner when the stock was trading in the $5 range (adjusted for pair stock splits).

STUDYING A STOCK

There is general agreement among stock market participants that: (1) across the longer term, growth in share price is 'driven' by means of growth in earnings per share ("EPS"); and, (2) across the longer term, growth in EP is 'driven' from growth in revenues. Investors use the Stock Selection Guide to contemplation these 'drivers' of share price to help answer three questions:

1 What subsequent time share price might be produc by way of future revenue and EPS growth?

2 Does this hereafter price provide an adequate rate of revert for the risk?

3 Is the stock's generally received price too high?

QUESTION #1: coming SHARE PRICE FROM FUTURE sprouting IN REVENUES AND EPS

Estimated High Price on the Fiscal Year 2000

A high price for Investors' belonging to all voting shares ("IGI" TSE) is obtained on first estimating the company's EP in 2000 and then multiplying this EP number through an estimated Price Earnings ("P/E") ratio for that year. However, because EP cannot be rely uponed to grow faster than rewards over the longer term; it is advisable to estimate income growth before estimating EPS expansion

(a) Estimating Revenue increase to 2000. As indicated in the accompanying Guide, incomes (fee income plus net investment income) grew at a mingle rate of 14% per year during the last 10 years 1 During the latter part of the period, accelerated annual extension of about 18% per year was driven by: (1) lower interest rates; (2) affect about the future availability of guidance pensions; (3) `baby boomers' beginning to save for retirement; (4) heavy marketing of mutual capitals by the industry-including the chartered banks which set downed the business during the late 1980s; and, (5) doubling the size of the company's sales force. receipts growth between the first brace quarters of fiscal 1996 and 1995 was 25%

Revenue produce during the next five years is anticipated from further focusing onward providing an entire life period of financial planning products and services from one side a highly trained sales force working with the latest sales technology (laptop computer and financial planning software). As well, the company has begun to exchange non-proprietary mutual funds (e.g. Merril Lynch Rothschilds, Beutel and royal mace funds) and plans to expand its sales force to 4500 by dint of the year 2000.

Allowing for more [i]or[/i] less unfavourable competitive or corporate evolutions (e.g. increased competition from Canadian banks and U mutual permanent fund companies expanding into Canada), an initial O depth could project revenues to bourgeon by about 15% per year between 1996 and 2000 to $1 billion.

(b) Controlling the price of Making and Selling produces The company's Operating Expense Ratio2 ("OER") was somewhat mixed between 1986 and 1993 (see Part 2(1) of the Guide). This situation is attributed to the re-engineering of its back office and significant expenditures forward a number of productivity-improvement investments including: training and equipping the sales force with the latest technology; establishing a strange call centre; and, updating to a state-of-the-art computer accounting combination of parts to form a whole for unitholders.

The fresh return to a lower OER is calculate uponed to continue and even be improved through further cost reductions through initiatives in the same state [i]or[/i] condition as strategic alliances with third parties to out-source various administrative services. Furthermore, there is little expectance of future reductions in mutual stock management fees.

(c) Controlling Interest preciousnesss Investors' use of debt3 has declined significantly above the study period (see Part 2(2) of the Guide), in part because of a $100 million share issue in 1991 In addition, the company has accumulated considerable equity, spontaneously, end the retention of approximately 60% of significant profits quite through the study period.