ECN Capital Corp.

ECN Capital Corp. (TSX: ECN) is a prominent provider of business services to the United States based banks, credit unions, life insurance companies and investment funds. The company operates through three operating segments, namely, Service Finance, Triad Financial Services and The Kessler Group.

Q1FY20 Financial result: ECN declared its quarterly numbers, and posted revenues of USD 60.87 million, as compared to USD 56.62 million in the previous corresponding period (pcp). The increase was underpinned by significant growth from both portfolio origination services and portfolio management services, while lower income from the company’s portfolio advisory services remained a drag. Interest income declined to USD 5.53 million from USD 6.10 million, a year ago. The quarter was marked by a remarkably lower operating expenses of USD 50.14 million compared to USD 87.20 million in Q1FY20. The company reported lower compensation and benefits expenses, interest expense, share-based compensation and a significantly lower other expense, while higher depreciation and amortization and a higher general and administrative expenses remained a drag. Net income, during the period, stood at USD 5.02 million as compared to a loss of USD 22.94 million in the previous corresponding period. The company ended the quarter with a cash balance of USD 37.38 million while total assets stood at USD 1.7 billion.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Key Risks: Prolonged lockdown phase or a second wave of the virus might result in a higher job loss which might lead to higher credit losses for the Company.

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 ECN corrected ~11% so far this year due to a steep correction in the equity market on account of COVID 19 pandemic. The group’s offerings deemed essential and business remained operational to date. The Company reported a higher dealer advances of CAD 52.4 million against CAD 24.0 million, a year ago, shows higher confidence from the related parties, which is a key positive. The Management further expects a strong Core loan origination in coming days and reported a 3.1% growth for the month of April 2020, which is impressive considering the current scenario. Furthermore, Applications have increased by 35% month-to-date in May on y-o-y basis, which indicates the resiliency of Service Finance's business model. At the last traded price, the stock closed above its 20 days and 50 days simple moving average (SMA) of CAD 4.16 and CAD 4.11, respectively, indicating a bullish trend. We have valued the stock using the price to book based relative valuation approach and arrived at a target price offering lower double-digit upside potential (in % terms). For the said purpose, we have considered peers like Element Fleet Management Corp, Equitable Group Inc, Genworth MI Canada Inc. etc. Hence, considering the aforementioned factor and risk scenario, we recommend a 'Speculative Buy' rating on the stock at the closing market price of CAD 4.28 as on July 9, 2020.

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

Fiera Capital Corporation

Fiera Capital Corporation (TSX: FSZ) is a Canada based asset management company which deals in traditional and alternative investment products. The Business operates in investment advisory and related services, which is used by institutional investors, private wealth clients and retail investors. Fiera Capital offers a complete range of traditional and alternative investment strategies through specialized and balanced mandates to institutional clients.

Key Highlights:

• The Company reported that Canoe Financial LP, Canada based independent mutual fund companies managing over CAD 7.4 billion in assets acquired the rights to manage the company’s retail mutual funds.
• The Group will disclose its Q2FY20 results on August 14, 2020.

Q1FY20 Financial Highlight: Fiera Capital Corporation announced its first-quarter results, wherein the Company reported total revenue of CAD 161.65 million, significantly higher than CAD 142.78 million, a year ago. The increase was driven by a higher base management fees underpinned by the positive impact from acquisition coupled with organic growth from institutional markets. The Company posted a higher SG&A expense, while a decline in other net expenses partially supported the bottom-line. Net earnings stood at CAD 12.02 million, against a net loss of CAD 6.58 million in pcp. Assets under management (AUM) as of March 31, 2020, stood at CAD 158.12 billion, declined 9% from the previous quarter. The decrease was primarily attributable to the volatility in the global equity markets, followed by a negative investor’s sentiment partially offset by a favorable foreign exchange rate.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: A sharp fall in the equity market would dampen the AUM and investor’s sentiment and would lead to a higher redemption. In such a scenario, the company’s top line would be impacted.

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 FSZ corrected ~21% so far this year, due to the volatility in equity market driven weak investor sentiment. Amidst the turbulent market conditions, the Company witnessed organic growth primarily from Institutional markets and Fiera Private Alternative Investments, which is encouraging. The Company secured CAD 1.7 billion in new mandates, which is impressive, looking at the current challenging environment. Going forwards, we expect new flows to come in as the equity market is recovering from the lows witnessed in the recent past. At the last traded price, the stock of FSZ offering a dividend yield of ~9.2%, which is lucrative from income investors' point of view. The stock has witnessed a pullback rally and soared ~27% in the last three months, outperforming the index by ~16%. We have valued the stock using the price to book based relative valuation approach and arrived at a target price offering lower double-digit upside potential (in % terms). For the said purpose, we have considered peers like CI Financial Corp, IGM Financial Inc and TMX Group Ltd etc. Hence, considering the aforementioned factor and risk scenario, we recommend a 'Buy' rating on the stock at the closing market price of CAD 9.17 as on July 9, 2020.

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

Disclaimer

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