CI Financial Corp. (TSX: CIX) is a Canada-based independent, diversified global asset and wealth management company operating in Canada, the United States, and Australia. The Company’s primary business is the management and distribution of a range of financial products and services, including mutual funds, segregated funds, exchange-traded funds, financial planning, insurance, investment advice, wealth management, etc. It operates through two segments: asset management and wealth management.  

Key Highlights 

• Impressive assets under management: The company's total assets under management are increasing sequentially, which is a significant positive. In Q4 2021, assets under management increased by 12.6% to CAD 152.1 billion, up from CAD 135.1 billion in the previous corresponding quarter. The good news is that the group's core assets under management and US assets under management both increased dramatically during the time under review.

Source: Company Filing

• Growing Presence in the US Wealth Management Market: On both sides of the border, the company's wealth management businesses enjoyed excellent organic growth, producing CAD 6.3 billion in net flows in 2021, a record year for the wealth businesses. In addition, the company made progress on its three strategic targets. It closed eight US RIA acquisitions and made two strategic investments in the fourth quarter, adding CAD 49 billion in client assets. These transactions have increased the US business's scale, enhanced its ability to serve ultra-high-net-worth clients, and broadened the alternative investment offering.

Source: Company Filing

• Robust earning matrix: The Company continues to engage closely with clients, and as a result, its presence along AUM is growing, which is commendable. Its operations in Canada and the United States are thriving, assisting them in achieving great organic growth. Revenues increased by 34.3% to CAD 763 million in Q4 2021, compared to CAD 568 million in pcp. A similar elevation was witnessed under its EBITDA and net income.

Source: Company Presentation 

• Strong Operating cash flow and Free cash flow: The company has demonstrated its business's resiliency numerous times, reporting consistent cash flows from operations and free cash flows throughout the quarters, which is a key plus. It generated CAD 179 million in operating cash flows and CAD 187 million in free cash flows in Q4 2021, representing a healthy increase over the previous corresponding period. The group's capital management is a primary emphasis, as it invests in strategic initiatives while also conducting repurchases and paying down debt.

Source: Company Presentation

• Acquiring Corient Capital Partners: Corient Capital Partners, LLC ("Corient"), a Newport Beach-based wealth management firm that manages about USD 6.3 billion on behalf of ultra-high-net-worth individuals and families across the United States, has announced a deal under which it will be acquired by the CI Financial Corp.

• Strategic investments in two alternative asset managers: The corporation recently purchased minority holdings in two alternative investment firms namely GLAS Funds, LLC of Cleveland, and Columbia Pacific Advisors, LLC of Seattle. The GLAS Funds LLC is a leading tech-enabled platform providing investors with secure and streamlined digital access to alternative investments, having CAD 1.6 billion in assets under management and assets under contract. Columbia Pacific Advisors manages approximately CAD 4.8 billion in assets across a broad range of institutional-caliber alternative strategies.

• Consistent dividend distribution: The company has a strong history of dividend distribution, which establishes the fact that its business is resilient and has reported stable cash flows over the years. Recently, the group paid a quarterly dividend of CAD 0.18 per share, on January 14, 2022. Moreover, at the last closing price of CAD 20.71 as of February 23, 2021, the stock offered a healthy dividend yield of 3.34%, which looks decent considering the current macros and interest rates.

Risks associated with investment

The group’s financial performance is exposed to equity market risk. Any sharp volatility or lack of sustained growth in the financial markets may result in a corresponding decline in the performance of the company’s Investment funds and may adversely affect its AUM, management fees, and revenues. 

Financial overview of FY 2021 (in millions of CAD)

Source: Company Filing

• Strong revenues: Seasonal performance fees and distributions related to seed capital investments in certain funds, higher average core assets under management, as well as recent acquisitions and higher client asset balances, drove the company's total revenue up 6.8% to CAD 2,727.0 million in FY 2021, compared to CAD 2,052.8 million in the previous corresponding period.

• Rising operating expenses: The group's SG&A expenses increased to CAD 702.3 million from CAD 449.4 million in pcp. It also clocked higher Advisor & Dealer Fees, as well as higher other expenses. The impact of acquisitions, as well as greater variable expenses associated with increasing asset levels, contributed to the higher expenditures. As a result, overall expenses increased to CAD 2,140.9 million in FY 2021, up from CAD 1,410.0 million in pcp.

• Higher adjusted net income: Net income attributable to shareholders stood at CAD 409.3 million in FY 2021, compared to CAD 476.0 million in FY 2020. While an adjusted net income increased to CAD 634.8 million from CAD 528.7 million for the period mentioned above, primarily due to the impact of acquisitions and favorable market conditions.

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 29.35% of the total shareholding. Chang (G Raymond) and Holland (William Thomas) hold the company's maximum interests at 5.14% and 4.33%, respectively. The company's institutional ownership stood at 56.57% and ownership of the strategic entities stood at 10.56%. Higher institutional holding boosts the confidence in the mind of retail investors. 

Valuation Methodology (Illustrative): Price to Book-Value  

Stock recommendation

In terms of financial performance and asset acquisition, FY 2021 was the most successful year in the company's history. It had CAD 152.1 billion in total assets under management and CAD 187 million in free cash flow during the given period. These remarkable achievements are the result of the company's tremendous progress in implementing its plan and undergoing a successful transformation. Including market movements, the group added CAD 6.6 billion in additional client assets during the year. This was due to strong asset management growth and the best asset management flows in six years because of the favorable macro environment.

Furthermore, in the fourth quarter alone, the company considerably increased its wealth management business in the United States by completing the acquisitions of eight registered investment advisors and obtaining minority shares in two alternative asset managers. With CAD 151.3 billion in assets, it has established itself as a significant participant in the US wealth management market. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the current market price of CAD 19.70 at 09:46 A.M Toronto time on February 24, 2022.

Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 24, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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