Fiera Capital Corporation (TSX: FSZ) is a Canadian asset management company that offers traditional and alternative investment and advisory services to institutional investors, private wealth clients, and retail investors. 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.

Key Investment Rationale:

• Stable dividend payment: The company has a strong history of consistent dividend payment amidst several economic cycles, backed by stable cash flow generation. Notably, the stock of FSZ carries a dividend yield of ~8.198% on an annualized basis, which looks impressive considering the futuristic interest rate scenario. In FY21, total dividend distribution stood at CAD 87.6 million, increased from n CAD 85.3 million in FY20. This is impressive as most of the companies are lowering or suspending their dividend distribution in order to retain liquidity.

Five Years Dividend distribution (Source: Refinitiv)

• Growth in AUM despite economic turbulence: At the end of Q4FY21, the company reported its Assets under management (AUM) of CAD 188.3 billion, reflecting an increase of CAD 7.5 billion, or 4.1%, over Q3FY21. The growth was driven by favorable market impact and above benchmark investment performance across most of the company’s products. Notably in FY21, the corporation saw a stable growth from private markets, institutional, financial intermediaries and public markets, which contributed to the above growth.

Asset Under Management Overview (Source: Company Presentation)

• Encouraging performance from the Private Markets segment: In recent years, the Private Markets investment segment witnessed a growing interest from the investors group due to its unique investment characteristics. This segment generated attractive returns with a lower degree of volatility and correlation to Public Markets assets combined with a steady and predictable cash flow. Notably, this segment has delivered steady returns amidst economic cycles through investing in low-risk portfolios of real estate, private debt, infrastructure, agriculture, and private equity investment strategies. Notably, since December 2018, the segment delivered ~24.7% and ~35.8% CAGR growth, respectively, in its AUM and total revenues, respectively, of CAD 15.9 billion and CAD 175.2 million, respectively.

Source: Company Report

• Growth in Base-management fees: The company derives ~80% of its revenue as Base management fees and is correlated with the company’s AUM. In Q4FY21, the company reported its base management fees of CAD 162.6 million, which improved from CAD 158.2 million in Q3FY21. Public Markets base management fees stood in line with Q3FY21, driven by a CAD 3.6 million increase in the Financial Intermediaries distribution channel, mainly from higher average AUM in Large and Small Cap Equity Strategies. On the other hand, Private Markets base management fees increased by CAD 4.5 million over the previous quarter, aided by favourable asset class mix and market appreciation in Real Estate and Private Debt.

• Surge in cash generated by operating activities: In FY21, the company the company's cash flow from operating activities was CAD 171.2 million, up from CAD 145.3 million in FY20. The increase in operating cash flows is largely attributable to an increase in robust profitability growth coupled with a gain from accretion & change in fair value of purchase price obligation. An increase in the cash flows is expected to support the company’s overall liquidity.
  

• Robust Portfolio Performance:  The company offers prudent investment strategies and has exposure in several equity markets such as Canada, the United States, International markets and selected Emerging Markets. In order to mitigate the overall risk factor, the company also offers Fixed income services to its clients. This helps the company to provide balanced investment strategies, which continue to outperform in all reported periods primarily due to strong added value from underlying strategies along with tactical asset allocation. Notably, in the last three trailing years, the company 95% of the equity AUM outperformed the benchmark, and 96% of fixed income AUM reported higher performance than its benchmark.

Percentage of Public Markets Assets Outperforming its benchmark (Source: Company Presentation) 

Risk associated with the investment:

The key performance driver of the Company’s ongoing results is the level of AUM, which is directly linked to investment returns and the Company’s ability to attract and retain clients. Moreover, a decline in the value of these investments depends on several factors, such as any adverse changes in market rates and prices, such as interest rates, equity market fluctuations and other relevant market rate or price changes.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• Higher top line: In FY21, the company reported its revenue of CAD 749.8 million, which is significantly higher than CAD 695.1 million in FY20. The surge was supported by exponential growth from the performance fees segment, coupled with an impressive performance from its base management fees.

• Slight increase in total expense: In FY21, the company reported a surge in the total expense of CAD 631.2 million, compared to CAD 626.6 million in FY20. This is due to higher Selling, general & administrative expenses, partially offset by a decline in the amortization & depreciation costs and lower restructuring, acquisition-related and other costs. Earnings before under-noted items expanded to CAD 118.6 million from CAD 68.5 million in FY20, due to higher income and prudent cost management.

• Bottom-line soared exponentially: The company’s net earnings stood at CAD 76.6 million in FY21, surged from CAD 2.0 million in FY20. This was primarily due to higher profitability, partially offset by higher tax expense.

Top-10 Shareholders:  Top ten shareholders of the company together hold approximately 36.24% stake, Natixis Investment Managers Canada Holdings Ltd, and Fiera Capital, L.P. are the major shareholders in the company with an outstanding position of 13.04% and 6.14%, respectively.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Book Value

 

Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

Despite several macro challenges, the company reported strong growth in FY21 revenue, along with disciplined cost management, which has resulted in higher net earnings and impressive cash flows. Notably, Adjusted EBITDA stood at CAD 247.7 million in FY21, grew from CAD 209.7 million in FY20, while the adjusted EBITDA margin was higher at 33% in FY21, compared to 30.2% in FY20. We have valued the stock using the Price to Book based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like First National Financial Corp, TMX Group Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of FSZ at the last closing price of CAD 10.49 on March 21, 2022. 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 March 21, 2022). Source: REFINITIV, Analysis by Kalkine Group 

*Recommendation is valid on March 22, 2022, price as well. 

Technical Analysis Summary

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Disclaimer

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