IGM Financial: Lowering Moat Rating to None, but Lifting Fair Value Estimate by 5%

While we no longer believe that IGM Financial has an economic moat, we have raised our fair value estimate to CAD 42 per share from CAD 40 to account for revised near-term expectations for assets under management, revenue, and profitability. We've become increasingly concerned that a greater-than-expected correction in the equity markets over the next 5-10 years and/or an even more aggressive push by the Big Six banks—Royal Bank of Canada, Toronto-Dominion Bank, Scotiabank, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada—to use price to drive growth and take more share of the Canadian fund market would leave firmwide returns on invested capital well below the weighted average cost of capital in some years during the next decade. This is the case in most years of our bear-case scenario, which includes equity market declines greater than our base-case market corrections in 2026-27 and 2031-32, but no aggressive push by the Big Six—just a continuation of existing competitive pressures.