Three mid cap stocks under radar - IGM, CIX and KXS

IGM Financial Inc.

Positive flows are a Key Catalyst:  IGM Financial Inc. (TO.IGM) is one of the top assets and wealth management company assisting advisors, individual and institutional investors across Europe, Asia and North America. The group has reported its January 2020 AuM details wherein it stated that it received a net inflow or net new money of $219.1 million. ETFs were the primary driver of net new flows as it recorded an inflow $172.1 million, while inflows to the mutual fund were $161 million. IGM investment fund assets under management stood at $163.8 billion as on January 31, 2020, up from $161.8 billion recorded on 31 December 2019.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: The group’s AuM increased 3% to $166.8 billion during the quarter, while the AuA also grew 3% to $190.2 billion during the same period. The company also witnessed a lower outflow as net redemption came in at $141 million compared to $225 million recorded in the previous corresponding period. During the quarter, the company reported a revenue of $823.5 million, as compared to $791.5 million reported in the year-ago period. The company reported adjusted net earnings of 84 cents per share, marking an increase of 12% on 4QFY18 number. IGM is the only Canadian firm in CDP’s (formerly Carbon Disclosure Project) A list for leadership on climate change. During the quarter, the group announced a a dividend of $0.5625 per share.

4Q19 Financial Highlights (Source: Company Reports)

Outlook: The Company remains on track to boosts to concentrate on long-term financial plans and goals. The company also expects ongoing consolidation in the mutual fund industry as smaller industry participants are expected to be acquired by the larger organizations given the challenging operating environment. The company is expected to continue its focus on organic growth by acquiring high net worth clients at IG Wealth Management and higher sales at Mackenzie Investments.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Price Chart

1-year daily price chart (as on February 17, 2020, after the market close). Source: Thomson Reuters.

Stock Recommendation: The stock is quoting at $39.41 with a market capitalization of ~$9.39 billion. We have valued the stock using relative valuation method, i.e., P/E based approach. For this, we have taken peers like CI Financial Corp (TO: CIX), AGF Management Ltd (TO: AGFb) and Ameriprise Financial (N: AMP) to name few, and arrived at a target price with a lower single-digit upside (in percentage terms). Hence, we have a “Watch” view on the stock at the current market price of $39.41, down ~0.9% as on 17 February 2020.

CI Financial Corp.

CIX Partners with DoubleLine to launch new Fixed Income portfolio: CI Financial Corp. (TO: CIX) is a diversified & independent wealth management company, proposing institutions and investors a complete and advanced selection of investment products and services. On 6 February 2020, the company entered into a sub-advisory agreement with DoubleLine Capital LP specifically, for fixed income products. As Per the deal, DoubleLine will be taking care of the investment management, or advisory side of new AuM raised by CIX under the fixed income strategy. At the same time these AuMs will be added to the CIX’s fixed income portfolio of mutual funds and exchange-traded funds.

On 3 February 2020, the company reported its preliminary assets under management for the month ending 31 January 2020. During the month, AuM grew 0.2% m/m to $132.4 billion while total assets stood at $182.8 billion. Assets under management soared 3.3% on a year over year basis. The company’s average assets under management were $133.3 billion, an increase of 0.9% m/m.

 AuM Details (Source: Company Reports)

Q4FY19 Financial Highlights for the Period ended 31 December 2019: CIX announced its quarterly results, wherein the company’s assets under management (AuM) came in at $132.1 million, up 6% year over year. During the same time span, the group’s assets under advisement (AuA) stood at $49.8 million, an increase of 19% year over year. The group reported $1.9 billion as net outflows during 4Q19. CIX reported revenue of $534.7 million, an increase of 1% year over year, primarily due to higher administration fees and gains on marketable securities. The company reported adjusted earnings of 66 cents per share, as compared to 57 cents in the previous corresponding period. The company declared a dividend of $0.18 per share, during the quarter, with a dividend yield of ~3.3%.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Price Chart

1-year daily price chart (as on February 17, 2020, after the market close). Source: Thomson Reuters.

Stock Recommendation: The stock is quoting at $25.09 with a market capitalization of ~$5.54 billion. The company remains focused to build a global diversified wealth management company. The expansion in terms of scale, expertise and reach, will aid CIX to explore new markets and introduce new capabilities, which in turn is likely to drive future growth prospects. We have valued the stock using relative valuation method, i.e., P/E based approach. For this, we have taken peers like AGF Management Ltd (TO: AGFb), Fiera Capital (TO: FSZ), Genworth MI Canada Inc (TO: MIC), to name few, and arrived at a target price with a mid-single digit (in percentage terms). Hence, we have a “Watch” view on the stock at the current market price of $25.09, down ~3.0% as on 17 February 2020. 

Kinaxis Inc.

Kinaxis Collaborates with Syncronic to transform supply chain: Headquartered in Ottawa, Canada, Kinaxis Inc. (TO: KXS) is engaged in providing a supply chain planning, sales and operations cloud-based solutions, which aids companies to run their supply chains and businesses in a more efficient manner. On January 30, 2020, the company entered into a collaborative agreement with Syncronic to transform customers business processes and achieve time-to-value via an integrated supply chain management strategy.

Together, both the companies will help enterprises to bridge the gap between business and IT, thereby offering better supply chains process and create a better planning experience.

Other Recent Updates: The company will be providing its expertise to Dr. Reddy's Laboratories Ltd in connecting its financial planning, business operations and supply chain. Kinaxis is set to report its fourth quarter 2019 results on 26 February 2020.

Q3FY19 Financial Highlights for the Period ended 30 September 2019: KXS announced its quarterly results, wherein the company reported a revenue of US$47.1 million, up 29% year over year. Revenue increased on the back of higher SaaS revenue, which soared 28% in the quarter to US$31.2 million. The company reported an adjusted EBITDA of US$12.1 million, up 29% year over year. The company’s EPS increased by ~70% to US$ 0.17 from US$0.1 reported in the previous corresponding period. The company recorded a decline of 41% in its cash from operating activities to US$ 1.8 million.

Q3FY19 Key Financial Highlights (Source: Company Reports)

Outlook: For FY19, the company expects total revenue to be in the range of US$188-190 million, with SaaS revenues expected to grow ~22%. Revenue from subscription term license is expected to be ~US$26 million. The management also targeting an adjusted EBITDA margin range of 27% to 29%.

Price Chart

1-year daily price chart (as on February 17, 2020, after the market close). Source: Thomson Reuters.

Stock Recommendation: The stock is trading at CAD 116.30 (17 February 2020), down ~0.1%. The stock is trading near to its 52-week high of CAD 117.35. The stock has delivered an annual return of ~ 40.7%, and more than 16% on a YTD basis. The stock is commanding a substantially premium against its peer group companies as LTM Price/Earnings multiple of KXS stood at 128.93x against the industry average of 20.3x. It reflects that the growth drivers are already priced in at the current market price.

Therefore, at the current price level, we have given an “Expensive” recommendation at the closing price of CAD 116.30 (as on February 17, 2020).