CI Financial Corp

CI Financial Corp. (TSX: CIX) is a diversified global asset and wealth management firm operating in Canada, the United States and Australia. The group’s business is engaged in the management, marketing, distribution, and administration of investment products for Canadian investors as well as providing financial advice, tax, retirement, estate and wealth planning services in the U.S. and Canada.

Key Updates:

• Y-O-Y surge on Asset under Management: The company reported is asset under management (AUM) of CAD 136,271 million in Q1FY22, which is higher than CAD 132,626 million in pcp. A higher AUM denotes a rise in the value of the investments that the organization manages on behalf of its clients. Notably, the company’s total assets also surged to CAD 360,996 million in Q1FY22, which is significantly higher than CAD 234,704 million in pcp, supported by strong traction from the U.S. Wealth Management assets, which includes fee-based advice on a variety of financial matters including retirement planning, insurance, taxes, and estate planning. These are expected to boost the company’s upcoming performance.

• Constant Rise in Free Cash flow: The company has constantly increased its free cash flow, which indicates improved operational efficiency and is a key positive. This is likely to boost the company’s liquidity level and support the company in future expansion. Moreover, the management would likely to use its cash flow to fund capital expenditures, fund acquisitions, pay down debt, pay dividends on its shares, and repurchase shares through its normal course issuer bid.

Source: Company Report

• Update on new Launches: Recently, the company launched two digital exchange trade funds (ETFs), CI Galaxy Blockchain ETF and CI Galaxy Metaverse ETF and would be trading on the Toronto Stock Exchange under the tickers CBCX and CMVX, respectively. Each has an annual management fee of 0.50%. The ETFs track underlying indexes are focused on creating innovative index-based solutions through collaborating with the leading provider of financial and investment management services in the cryptocurrency industry. Looking at the current demand for the cryptocurrency, these financial products are expected to add immense value to the company’s operating performance in the coming days.
  

Risks associated with the Investment:

The company’s performance might be hindered due to a slow economic activity, which would lead to asset management outflows on account of volatility in the capital markets. 

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• CIX announced its quarterly result, wherein the company posted its total net revenue of CAD 633.7 million, surged from CAD 507.7 million in pcp. The growth was driven by higher net asset management fees.
• Total expenses stood higher at CAD 447.9 million v/s CAD 345.5 million in pcp, due to a rise in selling, general and administrative cost along with a higher advisor & dealer fee. Interest and lease finance expense also stood higher than previous corresponding quarter. Despite higher input costs, Income before income taxes stood at CAD 185.7 million v/s CAD 162.1 million in pcp, supported by higher revenue.
• The company reported a net income of CAD 137.5 million v/s CAD 124.7 million in pcp, thanks to a higher Income before income taxes expense, partially offset by higher income tax expenses.     

Valuation Methodology (illustrative): Price to Book based metrics

Analysis by Kalkine Group

Stock Recommendation:

Despite several macro headwinds such as rise in bond yields, current geo-political scenario, correction in the global capital markets etc. the company ended its first quarter on a positive note, which is encouraging. The company’s Adjusted EBITDA stood higher CAD 272.9 million, which is higher than CAD 236.3 million in pcp. We have valued the stock using the price to book based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like IGM Financial Inc, Fiera Capital Corp etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 14.97 on May 13, 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 May 13, 2022). Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV 

Technical Analysis Summary

Endeavour Silver Corp

Endeavour Silver Corp. (TSX: EDR) is a Canada-based mining company, actively engaged in the acquisition, evaluation, exploration, and development of precious metal properties in Mexico and Chile. The company has three producing silver-gold mines in Mexico: the Guanacevi Mine in Durango, the Bolanitos Mine in Guanajuato, and the El Compas Mine in Zacatecas.  

Key Highlights:

• Increased Silver production: During Q1FY22 the company witnessed an increase of 25.46% in its silver production which stood at 1,314,955 ounces, higher than the 1,048,100 ounces in Q1FY21. The company’s Guanacevi mine reported an increase in the silver production of 1,133,850 ounces in Q1FY22 as compared to 918,217 ounces in Q1FY21, contributing approx 86% to the total silver production of the company. Below is the pictorial representation (Q1FY22) of the silver (Ag) and gold (Au) production along with the mines' contribution to the same.

Source: Company presentation

• Sequentially improving profitability margins: In Q1FY22, the group reported increased production while limiting the increase in its All-in sustain costs per ounce for the metals produced, which supported the company to outpace the profitability margins on a sequential basis.

Source: Refinitiv, Analysis by Kalkine Group

• Improved outlook: For FY22, the management estimated to achieve the silver production in the range of 4.2 million oz to 4.8 million oz, whereas the gold production is expected to be in the narrow range of 31,000 oz to 35,000 oz. Besides this, the group has planned to invest USD 32.6 million across its two mines and another USD 1.7 million for the exploration and corporate infrastructure expenses in FY22.

Source: Company presentation

• Strong liquidity: The company stated an increase in its cash flows from operations to USD 21.73 million during Q1FY22 as compared to the cash used in the operating activities of USD 3.92 million in Q1FY21. To add more, the group witnessed an increase in the cash and cash equivalents to USD 151.01 million in Q1FY22, 75% higher than the USD 85.98 million during Q1FY21. The strong liquidity helps the company to meet its day-to-day operational expenses along with carrying out the expansionary plans as well.

Risks associated with investment

The group’s major revenue is driven by silver, and any unfavorable changes in the silver prices for a sustainable period will impact the revenues negatively. Further, the company is facing other risks such as volatile gold prices, rising costs, foreign exchange volatility, changes in the mining laws and ESG norms, slow down in the economic activity which can hamper the demand for the industrial metal: silver, etc. 

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing 

• For Q1FY22, the group reported an increase in revenues from all the metals to USD 57.74 million as compared to USD 34.46 million in Q1FY21. The major contribution to the revenues was from the sale of 1.71 million ounces of silver in Q1FY22 vs the sale of 623,379 ounces of silver in Q1FY21. Though the realized sale price of silver declined to USD 24.38/oz in Q1FY22 as compared to USD 27.17/oz in Q1FY21, the increase in the quantity of silver sold in Q1FY22 helped the company to negate the impact of lower realized prices, clocking the higher revenue numbers.

• The mine operating earnings for Q1FY22 stood at USD 20.26 million, which is much higher than the USD 5.66 million in Q1FY21.

• The operating earnings during Q1FY22 were reported at USD 12.56 million which is lower than the USD 14.28 million in Q1FY21.

• The group reported a marginal decline in net earnings for Q1FY22 at USD 11.66 million against USD 12.24 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Cash-flow based

Analysis by Kalkine Group

Stock Recommendation:

The group reported an increase in the adjusted EBITDA to USD 27.09 million during Q1FY22 against USD 8.33 million in Q1FY21, which is a key positive. The production outlook shared by the management suggests the strong set of numbers, and the capital investment plans in the other two mines show the company is on the front foot of meeting the rising demand for silver. Further, the company is set to complete the acquisition of Pitarrilla, which is one of the world's largest underdeveloped silver deposits, by the end of Q2FY22, helping the company to expand its asset base for additional production of silver.  On the valuation front, the stock is measured on the Price / Cash-flow based multiple and we have considered Fortuna Silver Mines Inc., MAG Silver Corp., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the last closing price of CAD 4.52 on May 13, 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 of May 13, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

  Technical Analysis Summary

Canacol Energy Ltd

Canacol Energy Ltd (TSX: CNE) is a natural gas and oil exploration and production company. The company operates in the Lower & Middle Magdalena Basins of Colombia 

Key highlights

• Increase in demand for spot market volumes: Contractual natural gas sales volumes climbed by 2% to 181.8 MMscfpd for the three months ending March 31, 2022, from 177.6 MMscfpd for the same time in 2021. Moreover, in the reported period the average natural gas production volumes also grew by 2% to 183.1 MMscfpd, up from 179.5 MMscfpd in pcp. The increase is mostly due to higher natural gas sales volumes negotiated under firm contracts in 2022.

• Improving dynamics despite challenging macros: Even though the industry's proved reserves are declining, the company has claimed successful exploration and drilling activities in recent years, with a 36% CAGR increase in gas sales over the previous seven years. As a result, the company has emerged as one of Colombia's most prominent players. The Columbia’s overall gas supply has been sluggish in recent years and is expected to remain so in the future. However, due to a high reserve base, CNE supply is likely to stay elevated in the coming days.   

• In process of selecting contractor: The company is in the process of selecting a contractor for the new gas pipeline from Jobo to Medellin, which will add 100 MMscfpd (with expansion potential up to 200 MMscfpd) of new gas sales to the interior area in late 2024, giving Canacol responsibility for 30% (up to 40%) of Colombia's domestic gas supply.

• Robust guidance on Capex and Gas Sales for FY2022: This is a favorable remark because the company just revealed that its capital budget for 2022 which will be between USD 172 million and USD 209 million, entirely funded from existing cash and 2022 cash flows. Furthermore, realized contractual gas sales are expected to range between 160 and 200 million standard cubic feet per day in 2022. Furthermore, it will be drilling of up to a total of twelve exploration and development wells in a continuous program, of which four wells were drilled in Q1 2022.

• Lucrative dividend yield: Recently, the Company paid a dividend of CAD 0.052 per share and at the last closing price of CAD 2.68, the stock is offering a dividend yield of 7.761%, which translates into an essential factor for regular income-seeking investors with a long-term horizon.

Risks associated with investment 

The company’s operations are correlated with the prices of oil & gas. Hence, a voltility in the commodity prices would affect the company’s overall realization and cash flow. 

  Financial overview of Q1 2022 (in thousands of United States dollar)

Source: Company Filing

• In Q1 2022, the company reported total revenue at USD 82.7 million against USD 75.0 million in the previous corresponding period. The revenue increased primarily due to due to an increase of natural gas sales volumes contracted under firm contracts in 2022.
• Total operating expenses in the reported period fell to USD 46.7 million against USD 52.5 million in pcp. The fall was on the back of no exploration expenses in the reported period.
• Income before tax in Q1 2022, stood higher at USD 25.6 million against USD 14.0 million in pcp, primarily due to lower operating expenses.
• Due to above stated reasons the company transformed its net losses into profit of USD 24.4 million in Q1 2022, against a loss of USD 3.0 million in pcp, which was partially supported by lower income tax.
  

Valuation Methodology (Illustrative): EV to EBITDA

*1USD=1.30CAD

Analysis by Kalkine Group 

Stock recommendation 

The company is well positioned to produce consistent cash flows and does not hold any large debt obligations until FY24, reducing the company's immediate repayment load. Furthermore, the company is the leading supplier to the Caribbean Coast and has a competitive cost structure, which helps its profitability and margins.

Furthermore, the company is in process of drilling more wells which would open fresh avenue for cash flows. Also, the company is delivering a healthy dividend yield of 8.0%, which is another positive aspect for long term value investors. Therefore, based on the above rationales and valuation done using the above methodology, we have given a “Speculative Buy” rating at the last closing price of CAD 2.68 as on May 13, 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 May 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

  Technical Summary Analysis

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.