CI Financial Corp

CI Financial Corp (TSX: CIX) is a Canada-based financial services provider, which operates through two business segments: Asset Management and Wealth Management. The company has CAD 150.0 billion total assets under management and another CAD 170.3 billion assets under total wealth management as on August 31, 2021, making it one of the largest nonbank affiliated asset managers in Canada.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence in Delta variant cases is throwing a lot of uncertainties, it might cause the volatility in the equity market. As a result, the company might witness lower AUM which could impact its operations and cash flows.
• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across operating matrix against an industry, which exhibits the pressure on company.
• Continuously falling EBITDA margin: The company’s EBITDA margin is continuously declining on the sequential basis, which is not a healthy indication. Decline in EBITDA was primarily due to higher administration fees and higher SG&A expenses.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~77.86 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Earnings    

Stock recommendation 

The company reported another strong quarter, with adjusted earnings per share reaching new highs. Its overall assets have reached CAD 320.4 billion, and wealth management assets have surpassed assets under management. However, the resurgence of the delta variation is creating a lot of uncertainty; it may cause volatility in the equity market, resulting in reduced AUM, which might have a negative impact on the company's operations and cash flows. Moreover, the company is having lower margin profile against an industry where its EBITDA is continuously falling on the sequential basis, which exhibits the pressure on the company. Furthermore, the technical indicators point to a possible price correction or consolidation. As a result, we recommend a “Sell” rating on the stock at the closing price of CAD 26.09 on September 14, 2021, based on the above rationale and valuation.

NexJ Systems Inc.

NexJ Systems Inc (TSX: NXJ) delivers enterprise customer management solutions to the financial services and insurance industries. The company's solutions include Customer Relationship Management (CRM) for financial services and insurance; Customer Process Management (CPM) for client onboarding and Know Your Customer (KYC), and Customer Data Management (CDM) to deliver a view of customers across the line of business and regional data silos. 

Why Should Investors Book Profit? 

• Weak performance in Q2 2021: In Q2 2021, the company reported lower revenue at USD 3.7 million compared to CAD 4.2 million in Q2 2020 mainly due to degraded performance from professional service segment. Adjusted EBITDA also slipped to CAD 0.1 million V/s 0.5 million in pcp.
• Continuous falling net margin: The company’s net margin is continuously declining on the sequential basis, which is not a good indication.

• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across operating matrix against an industry, which exhibits the pressure on company.
• Higher cash cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 58.5 days against the industry median of 25.7 days.

Stock recommendation

Recently the company presented faded financial numbers for Q2 2021, where it registered lower revenue and lower adjusted EBITDA, also its net margin is falling continuously on the sequential basis, which is not a healthy indicator. Furthermore, the company is witnessing higher cash cycle days and lower margin profile, exhibits the pressure on company. Therefore, considering the above discussed rationales, risks involved with very small market capitalization and a recent healthy pullback in its stock price we recommend a “Sell” rating on the stock at the closing price of CAD 0.67 on September 14, 2021.

One-Year Technical Price Chart (as on September 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.