Fiera Capital Corp (TSX: FSZ) is a leading independent asset management firm with a growing global presence and approximately USD 172.9 billion in AUM on March 31, 2021. The company delivers customized and multi-asset solutions across Public and Private Market asset classes to institutional, financial intermediaries and private wealth clients across North America, Europe and key markets in Asia.

Investment Rationale

• An Income Play: At the last closing price, its shares were offering a very lucrative dividend yield of 7.9%, which is significantly higher compared to the S&P/TSX Composite median dividend yield of 2.96% and Canada 10-Year Government Bond Yield of 1.32%. Further, a strong recovery in the capital market on the back of fast economic recovery bolstering the performance of the company and expected to positively contribute to the top line and bottom line.

• Consistently Rewarding Shareholders: Between 2010-2020, the group’s dividend payment has increased with a CAGR of 13%, which reflects that the company is consistently rewarding its shareholders regardless of the economic cycle. Therefore, a high cash flow generation business model, together with lucrative dividend yield and consistent track record of the dividend payment, would keep Fiera shares in the investor’s limelight.

Source: Company

• Strong Investment Performance: Public market assets classes on a trailing three-month basis outperformed the benchmark with a decent spread. With 88% of equity, AUM outperformed the benchmark, and 96% of fixed income AUM outperformed the benchmark. Further, Private market assets also reported strong performance across all key strategies. In the last three years, 94% of equity portfolios outperformed the benchmark index, and 92% of fixed income portfolios outperformed the benchmark. This reflects the excellence of the fund managers managing assets at Fiera.

Source: Company

• AUM and Revenue Reported Decent Growth on YoY basis: During the three months ended March 31, 2021, the group’s asset under management was up by CAD 13.4 billion or 8% to CAD 172.9 billion. AUM is the main driver of Fiera Capital’s revenues, and revenues for the first quarter of 2021 were CAD 165.6 million compared to CAD 161.7 million for the same period last year, an increase of CAD 3.9 million or 2.4%. The increase was primarily due to higher base management fees driven along with higher AUM.

• Strong Investment Strategy: On a long-term basis, all the large-cap strategies generated positive value add compared to their benchmark and are all beating the median manager of their respective peer universe. The Company’s Small-Mid Cap Growth strategy also outperformed its benchmark in the first quarter, driven by strong security selection in Consumer Discretionary and Financial sectors.

• Outlook – Stable: Despite the continued challenges from the COVID-19 global pandemic, we are optimistic as the global distribution of vaccines gets underway. Some countries around the world are gradually lifting various lockdown measures that were implemented during the second wave of the pandemic. Fiera Capital continues to demonstrate its financial strength through the depth and diversity of its investment strategies and prudent approach to capital allocation. They would continue to build on this positive momentum. Further, realigning the company under the new global operating model, which was announced in 2020, continues to be a high priority for the organization.

• Risk Associate to Investment: The company’s business model is exposed to a variety of risks ranging from volatility capital market, forex risk, the outflow of AUM, and underperformance of the company’s funds against the relative benchmark index.

Financial Highlights: Q1FY21

• Revenues for the three months ended March 31, 2021, were CAD 165.6 million compared to CAD 161.7 million for the same period last year, an increase of CAD 3.9 million, or 2.4%. The increase was primarily on account of a 1.06% increase in the management fees and 86.6% surge in the other revenues., partially offset by a 56% reduction in the performance fees.
• AUM at March 31, 2021, was CAD 172.9 billion compared to CAD 159.5 billion as of March 31, 2020, an increase of CAD 13.4 billion or 8.4%. The higher AUM was primarily due to favourable market appreciation of CAD 32.6 billion and organic growth of CAD 4.9 billion in the Financial Intermediaries and Institutional distribution channels.
• Adjusted EBITDA for the first quarter of 2021 was CAD 47.5 million, or CAD 0.45 per share (basic) and CAD 0.40 per share (diluted) compared to CAD 43.5 million, or CAD 0.42 per share (basic) and CAD 0.41 per share (diluted), in the same period last year. The increase was primarily due to CAD 3.9 million of higher revenues.

• SG&A expense was CAD 121.4 million for the three months ended March 31, 2021, compared to CAD 118.3 million for the same period last year, an increase of CAD 3.1 million, or 2.6%. The increase was primarily due to higher employee compensation-related costs partly offset by savings from the disposition of the rights to manage Fiera Investments’ retail mutual funds in June 2020.
• For the three months ended March 31, 2021, the Company reported net earnings attributable to the Company’s shareholders of CAD 22.2 million, or CAD 0.21 per share (basic) and CAD 0.20 per share (diluted) compared to net earnings of CAD 7.6 million, or CAD 0.07 per share (basic and diluted), for the same period last year.
• Cash used in operating activities was CAD 24.4 million for the three months ended March 31, 2021, compared to CAD 26.9 million in the same period last year, a decrease of CAD 2.5 million or 9.3%. The decrease was primarily due to less cash used in working capital of CAD 6.9 million, which was partly offset by less cash generated from operating activities, excluding working capital of CAD 4.3 million.
• On May 5, 2021, the Board declared a quarterly dividend of CDA 0.21 per Class A Share and Class B Special Voting Share, payable on June 15, 2021, to shareholders of record at the close of business on May 18, 2021.

Top-10 Shareholders

Top-10 Shareholder together holds approximately 36% stake in the company, with Natixis Investment Managers Canada Holdings Ltd and Fiera Capital, L.P. are major shareholders with an outstanding position of 13.05% and 6.15%, respectively. Institutional ownership in the company stood at 14.65% whereas strategic shareholding stood at 25.6%.

Valuation Methodology (Illustrative): Price to Earning

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock Recommendation: The Company experienced strong net organic growth of CAD 3.1 billion during the quarter as a result of net sales across each of its three distribution channels. Fiera Capital is a leading independent asset management firm with a growing global presence and approximately CAD 172.9 billion in assets under management as of March 31, 2021. The Company delivers customized and multi-asset solutions across public and private market asset classes to the institutional, financial intermediary and private wealth clients across North America, Europe and key markets in Asia. Fiera Capital's depth of expertise, diversified investment platform and commitment to delivering outstanding service are core to their mission of being at the forefront of investment management science to create sustainable wealth for clients.

The performance fee segment is expected to deliver in the coming quarter, led by a solid move in the equity asset classes across the board on the back of faster economic recovery and increasing employment numbers.  Also, during the last month, S&P/TSX Composite registered multiple record highs implies a strong bull run in the broader market.

Further, FSZ is a cash cow with a dividend yield of 7.9% and a consistent track record of dividend growth since 2010, placing it well for income as well as growth investors. Based on technical analysis, the stock has support at CAD 9.05 level.

Therefore, based on the above rationale, we recommend a "Buy" rating on the stock at the closing price of CAD 10.66 on July 12, 2021.  

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Price Chart (as on July 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid at July 13, 2021 price as well.

Disclaimer

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