Canaccord Genuity Group Inc

Canaccord Genuity Group Inc (TSX: CF) is a financial services company based out of Canada. The Group’s business is divided into two reportable segments being capital markets and wealth management.

Q1FY21 Financial Highlights: CF announced its quarterly results, wherein the company posted an improved set of numbers and reported both top-line and bottom-line growth, amidst the current challenging environment. Revenue, during the quarter, stood higher at CAD 377.728 million, as compared to CAD 325.508 million. The increase was driven by higher commissions and fees, increase from investment banking coupled with significant growth from principal trading, while a significantly lower income from interest and advisory fees acted as a drag. Within the Canaccord Genuity Wealth Management segment, the company posted strong client growth from North America, UK & Europe and Australia. Compensation expense and trading costs stood higher than the previous year, general and administrative were significantly lower during the quarter. Net income before income taxes stood at CAD 37.054 million, stood higher than CAD 31.352 million in the previous corresponding period (pcp). Net income for the period came at CAD 28.964 million against CAD 24.29 million in pcp, supported by an improved net income before income taxes while higher tax expense remained as a drag. The company ended the quarter with cash and cash equivalents of CAD 782.30 million while total assets stood at CAD 4,981.475 million.

Source: Company Filings

Risks: Any management disruption could result in a loss of clients and customers, or revenues from clients and customers, and could significantly affect the Company’s business and results of operations. Economic conditions, competition and market factors such as volatility in the Canadian and international markets, interest rates, commodity prices, market prices, trading volumes and liquidity will have a significant impact on the Company’s profitability.

Valuation Methodology: P/BV Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CF appreciated ~34% in the last six months as the Global equity markets made a smart recovery from the lows during March 2020 on account of the ongoing pandemic. The company reported a decent quarter, amidst a major jolt in the economy, which is impressive. The company reported strong support from the global wealth management operations and reported an increased capital raising and advisory activity within the core focus areas in the recent quarters. The company has continued to post decent performances in the recent past, aided by improved transaction activity and growth in client assets. However, the recent volatility in the equity market may put pressure on the company’s performance. The stock closed above the 200- days simple moving average (SMA) of CAD 5.47, indicating a bullish pattern. We have valued the stock using the Price to Book Value based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Equitable Group Inc, Piper Sandler Companies etc. Hence, considering the aforesaid facts and current price movement, we recommend a ‘Watch’ recommendation on the stock at the closing market price of CAD 7.70 on August 21, 2020.

CF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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