Intact Financial Corporation

Intact Financial Corporation (TSX: IFC) is a property and casualty insurance company which provides written premiums in Canada. The company distributes insurance under the Intact Insurance brand through a network of brokers and a wholly-owned subsidiary, BrokerLink, and directly to consumers through Belairdirect.

Key Highlights:

• Acquisition of RSA Insurance Group: During Q4FY20, the group announced the acquisition of RSA Insurance Group, which is expected to boost the company’s overall operations. The above acquisition would bolster the company’s Canadian presence, unlocking synergies and opportunities through higher commercial lines and both direct and broker channels. Moreover, the group would mark its entry into the UK & Ireland with an attractive commercial and SME portfolio along with a successful operating model.

• Sequential Growth: The group reported total revenue of CAD 3,241 million, operating income of CAD 471 million and net income before extraordinary items of CAD 392 million, in Q4FY20, as compared to CAD 3,154 million, CAD 426 million and CAD 334 million in Q3FY20, respectively. The growth was supported by a strong operating model and focus on multi-channel distribution strategy, the company’s mobile and fully integrated digital solutions, etc.  

FY20 Financial Highlights:

• IFC declared its full-year result, wherein the group reported total revenue of CAD 12.303 million, higher than CAD 11.207 million in the previous year. The improvement was driven by higher net earned premiums (CAD 11.241 million versus CAD 10.275 million in FY19), slightly offset by a lower Interest income (CAD 358 million versus CAD 374 million in pcp).
• Income before income taxes surged to CAD 1,359 million, significantly higher than CAD 833 million in Q4FY19, supported by higher revenues, coupled with a marginal decline in net claims incurred, an increase in net gains (CAD 182 million versus CAD 165 million in FY19), while a higher underwriting expense (CAD 3,696 million versus CAD 3,172 million in FY19) remained a drag.
• Net income attributable to shareholders was reported at CAD 1,082 million, against CAD 754 million in FY19.
• Cash and cash equivalents were reported at CAD 917 million, while the company’s total assets were recorded at CAD 35,119 million.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: Any increase in the total claims incurred and underwriting expenses would take a toll on the company’s performance and would dampen the overall margins of the group.

Valuation Methodology (Illustrative): Price to Book based

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock Recommendation:

The stock of IFC appreciated ~16% and ~25% in the last nine months and one year, respectively and closed above the long-term moving averages of 100-days, 150-days and 200-days, which further suggests a strong bullish uptrend. The group has in-house investment management, which provides greater flexibility to support the company’s insurance operations at a competitive cost. Moreover, the recent introduction of Artificial Intellegence and machine learning expertise allows the company to create sophisticated algorithms to price for risk more accurately than the market, which is likely to support the company’s underwriting performance. The group has increased its dividend distribution during FY20 to CAD 3.32 per share, as compared to CAD 3.04 per share in FY19, which is worth mentioning. We have valued the stock using Price to book based relative valuation method and have arrived at a target upside of single-digit upside (in percentage terms). For the said purposes, we have considered peers like Element Fleet Management Corp, ECN Capital Corp etc. Hence, considering the above facts, we recommend a ‘Hold’ rating on the stock of IFC at the closing market price of CAD 152.28 on March 15, 2021.

One year-Price Chart (as on March 15, 2021). Source: Refinitiv (Thomson Reuters)

TransAlta Renewables Inc.

TransAlta Renewables Inc. (TSX: RNW) is an electric utility company that owns and operates energy generation and transmission facilities. The operating business segments are Canadian Wind, Canadian Hydroelectric, and Canadian Gas.

Key Updates:

• Strong Q4FY20 Performance: The group reported a strong sequential up move in Q4FY20 as compared to Q3FY20. Revenue and gross profit grew to CAD 128 million and CAD 104 million from previous quarter, reflecting a solid growth of ~34.74% and ~36.84%, respectively, on a Q-O-Q basis. Operating income and net income during Q4FY20, surged to CAD 47 million and CAD 53 million, respectively, as compared to CAD 15 million and CAD 6 million, respectively, in Q3FY20. 

• Stable Dividend Payout: Over the years, the company paid a consistent dividend to its shareholders, and reported a 3% CAGR growth from FY13 to FY20, backed by stable cash flows due to the company’s resilient business model. Moreover, the stock of RNW carries an attractive dividend yield of ~4.7% amid a low interest rate environment. 

Dividend Payout (Source: Company Presentation)

FY20 Financial Highlights:

• RNW announced its full-year result, wherein the company posted total revenues of CAD 436 million, as compared to CAD 446 million in FY19.
• Gross margin was reported at CAD 359 million, stood close to CAD 363 million in FY19.
• Fuel, royalties and other costs stood at CAD 77 million, dropped from CAD 83 million in FY19. The group reported stable operations, maintenance and administration cost throughout the year, which stood at CAD 89 million versus CAD 87 million in FY19.
• Operating income stood at CAD 125 million, as compared to CAD 134 million in the previous year.
• Net earnings were recorded at CAD 97 million, significantly lower than CAD 183 million in FY19. The decline was primarily attributed to loss from change in fair value of financial assets amounting to CAD 59 million, as compared to a gain of CAD 49 million in FY19.
• Cash and cash equivalents were recorded at CAD 582 million, while total assets stood at CAD 3,656 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks:  Apart from Canada, the group has operations across the U.S. and Australia, and currency volatility may hurt overall performance of the company.

Valuation Methodology (Illustrative): Price to CF based 

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

Within the renewable segment, the company successfully added five wind farms and a solar farm in the U.S. over the last five years. Moreover, the group has more than one GW of U.S. wind projects in the development pipeline. For FY21, the group expects Comparable EBITDA within the range of CAD 480 million to CAD 520 million, while adjusted funds from operations are expected within CAD 335 million to CAD 365 million. Meanwhile, the group highlighted that the cash available for distribution would be within CAD 285 million to CAD 315 million. Renewable energy production from the company’s wind, solar and hydroelectric assets are expected within the range of 4,100 GWh to 4,500 GWh.

We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Brookfield Renewable Partners LP, Enbridge Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 19.85 on March 15, 2021.

One-Year Price Chart (as on March 15, 2021). Source: Refinitiv (Thomson Reuters) 

Fiera Capital Corporation 

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

Key Highlights:

• Acquisition of Global Equities capability: On March 08, 2021, the group declared the acquisition of Global Equities capability from AMP Capital. With the above acquisition, the group would add Asset Under Management of USD 500 million, coupled with an experienced team of investment professionals having a presence across London, Hong Kong and Sydney.
• Sequential Growth to Support Overall performance: The group has reported revenue and operating income of CAD 170.7 million and CAD 23.1 million, respectively, in Q3FY20, higher than the revenue of CAD 166.9 million and an operating loss of CAD 3.9 million, respectively, in Q2FY20. Moreover, the group reported net income before income taxes at CAD 9.8 million, higher than a loss of CAD 17.1 million in Q2FY20. 

Q3FY20 Financial Highlights:

• FSZ announced its quarterly result, wherein the company posted revenue of CAD 170.7 million, reflecting a growth of 10.7% on y-o-y basis. The increase was primarily due to higher base management fees amounting to CAD 9.4 million, supported by a higher average AUM. Moreover, the group reported organic growth in the Institutional channel’s U.S., Canadian and European markets and a CAD 2.1 million share of earnings in joint ventures and associates generated by Fiera Real Estate UK.
• Adjusted EBITDA stood at CAD 53.4 million, as compared to CAD 51.9 million in Q3FY19, while Adjusted EBITDA margin improved marginally to 31.3% from 31.1% in pcp.
• The group reported net earnings of CAD 4.7 million, as compared to a loss of CAD 14.7 million in pcp.
• Asset Under Management (AUM) at the end of September 30, 2020, stood at CAD 177.7 billion, versus CAD 171.0 billion as of June 30, 2020, reflecting an increase of CAD 6.7 billion or 3.9%. The growth was primarily supported by a favourable market impact amounting to CAD 8.7 billion and gross new mandates of CAD 1.9 billion.

Q3FY20 Financial Snapshot (Source: Company Report) 

Valuation Methodology (Illustrative): Price to Book Value

Note: All forecasted figures and peers have been taken from Thomson Reuters

Risks: The operations of the company are correlated with the performance of the equity and debt markets. A volatility in the equity market and interest rates might dampen the company’s overall performance. Moreover, due to any adverse economic scenario, the group’s performance could be marred by the higher withdrawal of funds, impacting the AUM.

Stock Recommendation: In the recent past, the group has significantly increased its public and private clients through both organic initiatives and strategic acquisitions. Moreover, by capitalizing on the company’s robust investment platform, the company was able to deliver impressive investment solutions to its clients. The stock of FSZ gained ~17% and ~26% in the last nine months and one year, respectively. The group is a friend of income investors and offering a dividend yield of ~7.8%, which is lucrative considering the current interest rate environment. We have valued the stock using Price to book based relative valuation method and have arrived at a target upside of single-digit upside (in percentage terms). For the said purposes, we have considered peers like Equitable Group Inc, TMX Group Ltd etc. Hence, considering the above facts, we recommend a ‘Hold’ rating on the stock of IFC at the closing market price of CAD 10.83 on March 15, 2021.

One year-Price Chart (as on March 15, 2021). Source: Refinitiv (Thomson Reuters)

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.