IGM Financial Inc.

IGM Financial (TSX: IGM) is the largest non-bank-affiliated asset manager in Canada. The firm is part of the Power Financial group of companies, which includes Great West Life, London Life, Canada Life, and Putnam Investments.

Recent Highlights:

On December 01, 2020, the company announced that it has entered into an agreement to acquire Greenchip Financial Corp, which focuses on environmental thematic investing. The collaboration is likely to cater to a growing demand from both retail and institutional investors which focuses on environmental thematic investment ideas and a global energy transition theme.

Key Highlights:

• An income play: The company has a strong history of dividend payment, which is an indication of stable performance backed by robust cash flows. At the last closing price, the stock was offering an attractive dividend yield of ~6.43% amid low interest rate environment.

Ten-years Dividend History (Source: Refinitiv, Thomson Reuters)

• Record high assets under management and advisement: IGM Financial today reported preliminary total consolidated net flows of CAD 1.1 billion during November 2020. Total assets under management and advisement were CAD 205.2 billion at November 30, 2020 , compared with CAD 193.0 billion at October 31, 2020 and CAD 189.5 billion at November 30, 2019.

Q3FY20 Financial Highlights:

• IGM declared its quarterly results, wherein the corporation reported a higher top line of CAD 790.621 million, as compared to CAD 744.271 million in the previous corresponding period (pcp). The increase in the revenue was supported by a considerably higher income from net investment income (CAD 39.501 million versus CAD 2.043 million in pcp) coupled with an impressive growth from net asset management.
• IGM’s total expenses were recorded at significantly higher at CAD 555.319 million, against CAD 482.586 million in Q3FY19, primarily attributable to a higher operations and support costs, while partially supported by a decline in the Advisory and business development expenses.
• At the end of the quarter, the company reported total AUM of CAD 147.26 billion, as compared to CAD 138.95 million in Q3FY19.
• Net earnings came at CAD 190.913 million, stood lower than CAD 202.477 million in pcp.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s performance is correlated to the performance of the equity market. Due to the volatility in the equity market, the group’s AuM might take a hit, thereby reducing the management fee.

Valuation Methodology (Illustrative): Price to BV based

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

Stock Recommendation:

The company started the Canadian Robo-advice Industry in the recent past, which has reported an exponential growth since its inception, and the company would expand its Online Advice across targeted geographies, augers well for organic growth. As the overall economy recovers from the current downturn, we expect a growth in the total AUM underpinned by added traction from the retail segment and improved return from mutual funds. Furthermore, we expect solid organic growth from its digital marketing segment. At the last close, the IGM stock has closed above its long-term support of 50-days, 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish trend. We have valued the stock using P/BV based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have peers like CI Financial Corp, Fiera Capital Corp etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 34.97 on December 4, 2020.

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

Capital Power Corporation

Capital Power Corporation (TSX: CPX), is a North American power producing company which develops, acquires, operates, and optimizes power generation from a range of energy sources. It owns over 3,200 megawatts (MW) of power generation capacity at approximately 20 facilities across North America. It holds about 370 MW of capacity through its interest in the Sundance C power purchase arrangement.

Key highlights

• An income play: Despite this challenging environment, the company maintained its dividend payment amid times when most of the businesses are cutting down or suspending their dividend distribution. This shows the group's financial strength. At the last traded price, the stock was offering a dividend yield of 5.78%, which looks lucrative considering the lower interest rate environment.
• Guided for higher Dividend: the company has consistently increased the dividend payment. The group’s dividend distribution grew at CAGR of 7% since 2013. Further, they will increase their dividend distribution by 7% in FY21 and 5% in FY22.

Source: Company

• Healthy cash flows: In Q3 2020, the company generated net cash flows from operating activities of CAD 258 million, increased by23% against CAD 209 million in Q3 2019.
• Strengthened Adjusted EBITDA and AFFO:Recently, the group received 20-year contract terms for three new solar development projects in North Carolina. These projects will reinforce their contracted cash flows while increasing the average remaining contract life. These projects are expected to generate approximately CAD 23 million of adjusted EBITDA and CAD 5 million of AFFO annually on average in the first five years.

 Financial overview

Source: Company

• In Q3 2020, the company reported revenues and other income of CAD 453 million, decreased by 12% as against CAD 517 million in Q3 2019. Revenue decreased primarily due to the unrealized changes in fair value of commodity derivatives and emission credits.
• Adjusted EBITDA posted by the group in Q3 2020 stood constant at CAD 284 million as compared to the previous corresponding period. The addition of Cardinal Point, Whitla Wind, Buckthorn Wind played a crucial role to earn this Adjusted EBITDA after a fall in revenues.
• Net income attributable to common shareholders reported by the group in Q3 2020 stood at CAD 108 million against a loss of CAD 226 million, as no impairment cost was written in this quarter and lower depreciation was recorded.

Risk associated with investment

The Company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors are like lower demand, lower production, adverse weather conditions, changes in electricity prices in markets in which the Company operates, changes in market prices and availability of fuel, etc.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock recommendation

The utility segment is likely to remain stable in the coming quarters, as the sector is categorized under “essentials” and the business expects to benefit from the improved realization prices. The company has a concrete financial strength, with a cash position of approximately CAD 130 million as on 30th September 2020 and unused credit facility od CAD 1.14 billion. Therefore, based on the above rationale and valuation done using the above methodology, we have given a ‘Buy’ rating at the closing price of CAD 35.44 on December 4, 2020. We have considered TransAlta Corp, Northland Power Inc, Emera Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on December 04, 2020). Source: Refinitiv (Thomson Reuters)

RioCan Real Estate Investment Trust

RioCan Real Estate Investment Trust (TSX: REI.UN) is a Canada-based closed-end real estate investment trust. The Trusts property portfolio includes grocery-anchored, new format retail, urban retail, mixed-use, and non-grocery anchored centres.

Key highlights

• An Income play: The group announced a monthly dividend of CAD 0.12 per unit, payable on 7th December 2020 to the unitholders with a record date of 30 November 2020. Despite this challenging environment, the company continued its dividend payment, while most of the businesses are cutting down or suspending their dividend distribution, this shows the group's financial strength. At the last traded price, the stock offered a dividend yield of 8.159%, which is lucrative considering the lower interest rate environment.

• Dispositions to improve liquidity: On October 28, 2020, trust announced to sell a 50% non-managing interest in the residential rental component, eCentral, and the commercial component of ePlace, in Toronto, for a total sales price of CAD 150.8 million, the transaction is expected to close in January 2021, subject to customary closing conditions.
• Rising rent collection trend: Building on the strength and resiliency of the Trust's tenants, the resumption of business activities had a positive impact on the group's operations as reflected in rent collections. The Trust collected 93.4% of billed gross rents in Q3 2020, against 84.5% in Q3 2019.

Source: Company

Financial overview of Q3 2020 (In CAD million)

Source: Company 

• In Q3 2020, the trust reported total revenue of CAD 302.33 million, decreased by 15% as against CAD 353.8 million in Q3 2019, primarily due to less revenue realized from residential inventory sales.
• Operating cost posted in Q3 2020 was CAD 126.4 million, compared to CAD 161.1 million in Q3 2019. Operating cost as a % to revenue in the reported quarter improved to 41.8% against 45.5% in Q3 2019.
• Operating income stood at CAD 175.8 million against CAD 192.7 million in Q3 2019.
• Net income in Q3 2020, posted by the trust stood at CAD 117.5 million, against CAD 177.7 million in the previous corresponding period. The fall was mainly due to low revenue realized from the residential inventory sales, partially offset by lower other expenses.

Risks associated with investment

 The revenue and operating results of the company depend significantly on the occupancy levels and rent collection. Any fluctuation in rent collection or occupancy would affect the group’s performance.

Valuation Methodology (Illustrative) EV to EBITDA

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

Stock recommendation

With Unencumbered Assets of approximately CAD 8.7 billion, along with Cash of CAD 60 million, the group has a resilient business model and reported impressive rent collection at the rate of 93.4% in Q3 2020, improved by 890 basis points from the previous corresponding period. Further, the group is offering a lucrative dividend yield amid low interest rate environment. Therefore, based on the above rationale and valuation, we have given a ‘Buy’ rating at the closing price of CAD 17.65 on December 04, 2020. We have considered Allied Properties Real Estate Investment Trust, SmartCentres Real Estate Investment Trust, Dream Office Real Estate Investment Trust, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Timbercreek Financial Corp

Timbercreek Financial Corp (TSX: TF), is a Canada-based non-banking commercial real estate lender which provides shorter-duration, customized financing solutions to professional real estate investors.

Key highlights

• An income play: The company has a strong history of dividend payment, which establishes the fact that the company’s business is resilient and has reported stable cash flows over the years. At the last closing price, the stock was offering an impressive dividend yield of 7.85%, amid a low-interest rate environment.

Source: Company

• Well balanced portfolio: The company’s business is not concentrated across one product-line or any specific geography; this is a crucial aspect and offers excellent diversification. The group has 84.1% of income-producing properties and 50.1% multi-residential assets in a basket that provides stable and secure returns, helping the group amidst the current challenging time.

Source: Company

• Enhancing financial flexibility:The Company executed two initiatives to strengthen its financial flexibility. The first initiative was the pursuance of CAD 20.0 million in shares buy-back at an accretive price of CAD 8.05 per share under Normal Course Issuer's Bid ("NCIB"). Secondly, the Company repaid CAD 45.8 million of 5.4% convertible debentures utilizing the existing credit facility. The credit facility was also re-negotiated to the current size of CAD 535.0 million.

Financial overview of Q3 2020

Source: Company

• In Q3 2020, Net investment income decreased by CAD 0.6 million to CAD 24.06 million against 24.7 million in Q3 2019, primarily attributable to a negative fair value adjustment of CAD 0.6 million on a mortgage investment.
• Income from operations decreased by CAD 1.1 million, to CAD 20.2 million in Q3 2020, compared to CAD 21.3 million in Q3 2019, because of the reduction in net investment income for CAD 0.6 million.
• In Q3 2020, the net income posted by the group stood at CAD 14.4 million, compared to CAD 13.9 million in the previous corresponding period, primarily due to a decrease in financing cost on credit facilities. 

Risk associated with investment

The company is exposed to various risks which include changes in government regulation and oversight, changes in consumer preferences, fluctuations in occupancy levels and business volumes, competition from other players, and general economic conditions.

Valuation Methodology (Illustrative)

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

Stock recommendation

A well-diversified group with mortgage investments of approximately CAD 1.1 billion, along with Cash of CAD 69 million, the group has a resilient business model which reported impressive payment collection at the rate of 99.6% in October 2020, it reflects an impressive domestic recovery followed by strong creditworthiness and improved financial capacity of the borrowers. Therefore, based on the above rationale and valuation, we have given a ‘Buy’ recommendation at the closing price of CAD 8.79. We have considered Atrium Mortgage Investment Corp, Home Capital Group Inc, Equitable Group Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

PRO Real Estate Investment Trust

PRO Real Estate Investment Trust (TSX: PRV.UN) is an open-ended real estate investment trust, which operates across four classifications of investment properties - Retail, Office, Commercial Mixed Use and Industrial across Canada.

Distribution update:

Recently, the Board of Directors announced a monthly distribution of CAD 0.0375 per unit, payable on December 15, 2020.

Key Highlights:

• An Income Play: The company has reported a stable operational performance in the recent past, backed up by impressive rent collection coupled with ~4% annual rent increase. The company has a decent track record of dividend payment across the economic cycles. At the last traded price, the stock was offeing a dividend yield of ~7.65%, which lucrative considering the current interest rate environment.

Five-years Dividend History (Source: Refinitiv, Thomson Reuters)

• Impressive Financial Metrics to support stable Dividend distributions: Over the years, the company has reported consistent growth in cashflows, total assets, operating income etc., which has supported the company’s dividend payout. During 9MFY20, the company paid a total dividend of CAD 13.671 million, higher than CAD 12.897 million, a year ago, which is commendable considering the current economic scenario.

Financial Metrics (Source: Company Presentations)

• Balanced Portfolio: The company has a well-balanced portfolio of retail, industrial, office and commercial mixed-used, augurs well for safeguard the company’s performance during economic cycles. Furthermore, the company operations are not concentrated upon any particular region, which is a key positive too. Moreover, the company’s ~86% client base constitutes national and government tenants, which augurs well for stable cash flows.

 Source: Company Presentations

Q3FY20 Financial Highlights:

• UN announced its quarterly results, wherein the company posted Property revenue of CAD 17.302 million, higher than CAD 13.241 million, a year ago. The increase was driven by positive monthly rent collection trend due to improved macro dynamics.
• Net operating income stood higher at CAD 10.399 million, from CAD 8.525 million in the previous corresponding period, thanks to the higher income, partially offset by an increase in the property operating expenses.
• Despite a higher top-line, the company failed to retain the momentum in its bottom-line and posted a net loss of CAD 0.709 million, against CAD 6.910 million in pcp, due to higher interest and financing costs and a loss from fair value adjustment - investment properties.
• The company reported an impressive occupancy rate of ~98% at the end of September 2020.

Source: Company Presentation

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: A fall in the property rates along with lower occupancy would take a toll on the overall performance of the company.

Valuation Methodology (Illustrative): EV to EBITDA based

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

Stock Recommendation:

The company’s November’2020 rent collection stood strong at ~99.8%, reflecting the quality of tenant. The company has a well diversified portfolio with an occupancy rate at more than 98%. The stock has closed above the technical support of 50-days, 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish trend. We have valued the stock using EV to EBITDA based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered industry (Financials) median on NTM basis etc. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 5.88 on December 4, 2020.

PRV.UN Daily Technical Chart (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.