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Saxon prescribes plan for growth

CMA-controlled firm plans to market its mutual funds through brokers and dealers


For many Canadian doctors and their families, the Saxon Mutual Funds brand has become top of mind.

That's because the business arm of the Canadian Medical Association controls 30 per cent of Saxon Financial Inc., which manages the funds, and also owns a financial planning firm catering to physicians.

Now Saxon, which also sells its no-load funds direct to investors and through discount brokers, plans to aggressively market its offerings through brokers and fund dealers.

Its multidistribution network, with a history of solid investment performance and rising asset growth - not only from mutual funds but also from institutional and private client investors - underpin why analysts and some fund managers are upbeat on Saxon's stock.

Shares of the Toronto-based Saxon closed unchanged last Friday at $22.25. While they pulled back recently in the market downdraft, its stock is still up 20.6 per cent, including dividends, over the past year.

Carl Hoyt, a fund manager at Vancouver-based Cypress Capital Management Ltd., is bullish on Saxon partly because of its "unique distribution relationship" with the CMA's financial planning unit.

"They have a captive distribution network," and that gives them a competitive advantage, said Mr. Hoyt, who holds Saxon stock in his AGF Diversified Dividend Income Fund and AGF Monthly High Income Fund.

"Shelf space and distribution is a bit of an issue. The banks own a lot of investment dealers, and they tend to push their own products."

But the Saxon funds also have to have an attractive performance record, or the CMA-affiliated advisers won't sell the funds, Mr. Hoyt said. "They do have good results."

Saxon's goal of pushing into the broker and fund dealer network means it is now casting a "broader net" and "gives them another vehicle for growth," Mr. Hoyt said. "They also have conservative investing style, a traditional value approach ... and it helps develop a loyal unitholder base."

Saxon emerged as the new financial entity following the merger in 2003 of Toronto-based Howson Tattersall Investment Counsel Ltd. with the CMA, a voluntary group that advocates on behalf of physicians.

Because the broker-dealer network is a key part of Saxon's expansion strategy, the company is also in the process of switching to a new back-office service provider to deal with this distribution channel.

"The world has become more complex, and people are relying on more advice from qualified brokers and advisers," Saxon's chief executive officer Allan Smith said.

The mutual funds account for $2.3-billion - or less than 20 per cent of assets under management - but more than 50 per cent of net sales stem from MD Management Ltd., CMA's financial planning unit.

Saxon has already begun to tap the broker channel through the sales of principal-protected notes based on the Saxon Balanced Fund in partnership with Bank of Montreal. It plans to bring additional notes to the market based on other mutual funds.

And the firm is now in the process of hiring an adviser to help find an acquisition candidate that will be a good cultural fit and have synergies with Saxon to help boost earnings per share, Mr. Smith said.

So far, Saxon has been firing on all cylinders. Last week, Saxon reported a 22-per-cent increase in second-quarter profit to $4.6-million on revenue of $14.2-million. Assets under management stood at $13.1-billion. And Saxon raised its quarterly dividend to 23 cents - the third time since going public in 2005.

"It's our ninth-consecutive record-setting quarter," Mr. Smith boasted.

National Bank Financial analyst John Aiken, meanwhile, rates Saxon stock a "market outperform" with a one-year target of $27. "Saxon Financial arguably remains the most diversified asset manager available on the public markets," he wrote in a note to clients.

Saxon's growth potential also stems from its "annuity-like sales" generated on the institutional side from the CMA - its largest client, he added.

BMO Nesbitt Burns analyst John Reucassel also has an "outperform" rating on Saxon with a target of $27.50. "Despite continued investment infrastructure, the company is projected to generate a two-year compounded earnings growth rate of 15 per cent," he wrote in a report.

Saxon facts

Saxon's assets under management at June 30: $13.1-billion

MD Management Ltd.'s financial advisers: about 200

52-week high: $24.89 in May

52-week low: $19 in August, 2006

IPO price in 2005: $16.50

P/E ratio: 18.24

Dividend yield: 4.18 per cent

Market capitalization:


© 2007 The Globe and Mail. All rights reserved.

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