CI Financial Corp.

CI Financial Corp. (TSX: CIX) is a financial service provider which offers asset management and wealth management advisory services. The Group's primary asset management businesses are CI Investments Inc. and GSFM Pty Ltd., and the Company operates in wealth management space through Assante Wealth Management (Canada) Ltd., CI Private Counsel LP, WealthBar Financial Services Inc., BBS Securities Inc., etc.

The Group recently acquired two U.S. registered investment advisor, namely, Congress Wealth Management, LLC and Boston and The Cabana Group, LLC. The acquisition has added a total of $5.0 billion in assets to CI's wealth management business

Operational Highlights for June 2020: CIX declared its monthly highlights wherein total assets under management stood at CAD 125.5 billion, reflecting a growth of 2.5% over May 2020. Monthly average asset under management stood at CAD 125.1 billion, up 3.7% on the month on month basis. On a quarterly basis, average asset under management stood at CAD 120.1 billion, down 5.6% on a quarter on quarter basis. CI's assets under management increased by 1.7%, while Canadian wealth management assets increased by 0.8%. U.S. wealth management assets increased by 63.3%, reflecting the impact of the recent acquisition. Canadian retail segment, excluding products closed to new investors, had CAD 1.0 billion of net redemptions, improved by CAD 0.3 billion and CAD 0.9 billion on a sequential and annual basis, respectively. The Group's institutional business reported net redemptions of CAD 0.8 billion as one institution transitioning a CAD 700 million mandate to the in-house investment team. At the end of June 2020, the Group reported a gross debt of CAD 1,995 million and a cash balance of CAD 535 million.

June 2020 Operational Snapshot (Source: Company Reports)

Risk: The Company’s performance is correlated with the performance of debt and capital markets, and volatility in the market would dampen the investor’s sentiment leading to higher redemptions.

Valuation Methodology: Price to Book based Relative Valuation (illustrative)

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

Stock Recommendation: The stock of CIX corrected ~17% so far this year due to volatility in the equity market on account of COVID 19 pandemic. Despite the challenging environment, the group's total assets under management improved in the month of June 2020. The company is expanding its footprint in the US as it has acquired two registered investment advisor (RIAs) recently and looking for more opportunities. The RIA has done exceedingly well in the US in the recent past, and the group is likely to introduce cross-border services to the Canadian clients, which augurs well for higher customer satisfaction. The group is prioritizing upon growth strategies like the innovation of the product and services, expanding its wealth management segment across other geographies, which is likely to drive growth in the near to medium term. Further, the group is offering a dividend yield of 4.0%, which is attractive, considering the current interest rate environment. The stock of CIX soared ~31% in the last three months, outperforming the Benchmark index by ~18% and closed above the 50-day and 100-day SMA of CAD 16.25 and CAD 16.47, respectively. We have valued the stock using the Price to Book based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). For the said purpose, we have considered industry (financials) average on NTM. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 17.94 as on July 10, 2020.

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

IGM Financial Inc.

IGM Financial Inc. (TSX: IGM) is an asset management and wealth management company with total asset under management of CAD 165.4 billion and derives its primary income from management and advisory fees, administration fees and Distribution fees. The Company will be reporting its second-quarter FY20 results would on August 06, 2020.

On 29 June, the Company reported that it would be selling its equity interest in Personal Capital Corporation to Great-West Lifeco at ~USD 176.6 million and expect the transaction to be completed in the second half of 2020. The group holds 24.8% interest in Personal Capital Corporation. IGM initially purchased a stake of Personal Capital in 2016 and followed this with subsequent purchases in 2017 and 2019 for a total cost of USD 144.8 million.

Key Operational Highlights for the Month of June 2020: IGM announced its monthly data, wherein the Company reported Total Assets under Management at CAD 165.40 billion, as compared to CAD 163.16 billion in May 2020. The group reported net client’s outflow of CAD 42.6 million. Gross sales during the month stood at CAD 1,486.7 million, while net new money stood at CAD 78.2 million. Investment Funds Net New Money were reported at CAD 646.4 million. Total Mackenzie Investments, during the Month of June 2020, stood at CAD 73.22 billion, depicting a growth of 6.7% on y-o-y basis, aided by a 5.2% y-o-y growth from investments funds, which is impressive looking at the current economic environment.

June’2020 ended Financial Snapshot (Source: Company Reports)

Risks: Due to the current economic environment, and volatility in the equity markets, the group might face higher redemption, which might lead to a decline in the total Asset Under Management.

Valuation Methodology: Price to Book based Relative Valuation (illustrative)

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

Stock Recommendation: The stock of IGM corrected ~14% so far this year due to the weak market sentiment on account of COVID 19 pandemic. The Company has an array of financial products, and the performance is directly related to the performance of the equity market. As the equity market is showing signs of recovery, we believe the flows to increase, which in turn result in higher assets under management. Higher AUM would result in a higher management fee.  Mackenzie Investments reported investment fund net inflows of CAD 756 million in June 2020 as compared to the net inflows of CAD 164 million in June 2019, which is impressive. The stock of IGM carries a dividend yield of ~6.99%, which is encouraging from an income investors point of view. The Stock of IGM appreciated ~25% in the last three months, outperforming the index by ~13%. We have valued the stock using the Price to Book based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). For the said purpose, we have considered peers like CI Financial Corp, Ameriprise Financial Inc, Fiera Capital Corp etc. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 32.17 on July 10, 2020.

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

*Please be aware that dividends are variable and not guaranteed.

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.