CI Financial Corp. (TSX: CIX) is a diversified provider of wealth management products and services, primarily in the Canadian market. The company had CAD 129.2 billion in fund assets under management, and another CAD 221.5 billion in assets under advisement, at the end of April 2022, making it one of the largest non-bank affiliated asset managers in Canada.

Key Highlights:

• Increased total asset under management (AUM) & client assets: During Q1FY22 the company reported an increase in the total asset under management (AUM) including clients' assets to approx CAD 361 billion as compared to approx. CAD 235 billion in Q1FY21. The US wealth management segment witnessed an exponential growth of approx. 370% in assets to CAD 145.8 billion during Q1FY22 against the assets of CAD 31.0 billion in pcp. The Canadian wealth management grew by 11% in terms of assets to CAD 79.0 billion during the reported period (Q1FY22) against CAD 71.1 billion in pcp, on account of positive net flows and investment performance.

Source: Company presentation

• Planned IPO for US wealth management business: The company announced to sell up to 20% of its US wealth management business through an initial public offering and has plans to submit a Form S-1 to SEC (USA) during FY22. The proceeds from the IPO will be utilized to reduce the debt burden and CIX will remain the majority owner of the US wealth management business.

• Increased liquidity: The group posted an operating cash flow of CAD 234 million during Q1FY22, which is higher than the operating cash flow of CAD 178 million in Q1FY21. Further, the free cash flow during the reported period (Q1FY22) stood at CAD 201 million, against CAD 156 million in pcp. The strong liquidity helps the company to meet its day-to-day operational expenses along with carrying out the expansionary plans as well.

Source: Company presentation 

• Industry beating profitability margins: In Q1FY22, the company witnessed an increase in the revenues, due to the positive impact of the increased inflows, and superior investment performance, which was partially offset by the increase in fees and commissions, leading the company in attaining higher profit margins as compared to the industry median, which is represented below.

Source: Refinitiv, Analysis by Kalkine Group

Risks associated with investment

The group is majorly exposed to financial conditions prevailing across the globe, market sentiments, economic slowdown, currency volatility, etc. any serious economic slowdown could cause the withdrawals of assets under the management of the firm. 

Financial overview of Q1FY22 (Expressed in millions of CAD)

Source: Company Filing 

• The group reported an increase in the net revenues to CAD 75 million in Q1FY22 as compared to CAD 507.70 million in Q1FY21. The Canada asset management fees rose to CAD 437.62 million during the reported period (Q1FY22) against CAD 425.12 million in pcp. Also, an increase in Canadian wealth management fees and US wealth management fees helped the company to attain higher sales in Q1FY22. 

• During Q1FY22, the income before income taxes increased to CAD 185.76 million when measured against CAD 162.14 million in Q1FY21.

• The group reported an increase in net income to CAD 137.508 million in Q1FY22 as compared to the net income of CAD 124.788 million during Q1FY21.

Valuation Methodology (Illustrative): Price/ Book-value based

Analysis by Kalkine Group

Stock Recommendation:

Recently the company was awarded the winner of a 2022 Digital transformation award, which acknowledged and appreciate the CIX’s success in deploying various digital technologies across its organization. The group reported an increase in the total assets under management (AUM) including clients' assets to CAD 361 billion in Q1FY22 when measured against CAD 235 billion in Q1FY21. Further, the adjusted EBITDA of the company increased to CAD 272.9 million in the reported period (Q1FY22) versus the adjusted EBITDA of CAD 236.3 million in pcp. The group announced a dividend of CAD 0.18 per common share to be payable on October 15, 2022. The management is planning to sell out its 20% of the US wealth management business in FY22 through the IPO route and the proceeds will be used to reduce debt from its book, which is a key positive.   On the valuation front, the stock is measured on the Price/ Book-value based relative valuation multiple and we have considered Federated Hermes Inc., and AssetMark Financial Holdings Inc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock of CIX at the last closing price of CAD 14.63 on June 15, 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 June 15, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITIV

Technical Analysis Summary

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.