INDUSTRIAL ALLIANCE DOWNGRADED DESPITE PRAISE FOR HOLLISWEALTH DEAL

Industrial Alliance Insurance and Financial Services Inc. was downgraded to hold from buy at Desjardins Capital Markets, despite analyst Doug Young’s praise for its recent agreement to purchase HollisWealth from Bank of Nova Scotia.

“The acquisition is in line with management’s strategy and looks like a good deal for IAG,” Young told clients, hiking his price target on the stock to $59 from $56.

However, with IAG up 20 per cent in the past three months, the analyst’s total return outlook for the stock is only 6.2 per cent.

The all- cash transaction will see IAG pay approximately 0.70 per cent of assets under advisement (AUA), which equates to $238 million.

Young noted that price tag is slightly below what would be expected for a dealer network, and less than comparable deals of the past.

HollisWealth has roughly 800 advisers and about $34 billion in AUA. Prior to the deal, IAG has more than $40 billion in AUA.

The deal is being financed with a $ 139 million equity bought deal at $55.65 per share.

Young anticipates it will be slightly dilutive to IAG’s earnings per share in 2017, but management expects modest accretion in 2018 and five cent per share accretion in 2019.

“The HollisWealth transaction looks like a good deal for IAG, and is in line with management’s strategy of growing in the wealth space,” the analyst said.