Intact Financial Corp

Intact Financial Corp (TSX: IFC), is a leading property and casualty insurance company providing its services in US and Canada. Its lines of business include personal auto, personal property, commercial lines Canada and commercial lines U.S.

Key Highlights

• The company intends to increase the dividend: The company is having a long history of distributing dividend, and as each year passes, we saw an increment dividend distribution, translating in an essential factor for regular income-seeking investors with a long-term horizon. The company has declared a quarterly dividend of CAD 0.83 per share payable on March 31, 2021, with a record date of March 15, 2021. The company also intend to increase its dividend in the later quarter of 2021.

• Robust growth in Book Value Per Share (BVPS): The company’s healthy operating performance and financial strength have translated into close to CAD 2.2 billion in capital returned to common shareholders through dividends and share repurchases over the past five years. On top of this, the book value per share of the company registered a 10-year CAGR of 8.3%, while it grew by 9% to CAD 58.79 in 2020.

Source: Company

• Update on RSA Acquisition:The announced acquisition of RSA is progressing well and on track for Q2-2021 closing. The company received clearance from the Canadian Competition Bureau on January 12, 2021, and RSA shareholders voted in favour of the acquisition on January 18, 2021, to be made effective by a Court-sanctioned scheme of arrangement. The acquisition is expected to generate over 15% internal rate of return, high single-digit NOIPS accretion in the first year, increasing to upper teens within 36 months, and a 25% increase in BVPS on completion.
• Long-term prospects remain positive: The group focuses on retaining its market share and is strategizing to grow the business in the foreseeable future through digital engagement, improving customer experiences and scaling its distribution network. Moreover, future growth would be supported by the Company’s deep claims expertise and a strong supply chain network coupled with strong capital & investment management expertise. The Company expects a 10% CAGR in NOI per share over the next decade.

Source: Company

Financial overview of Q4 2020 (In millions of CAD)

Source: Company

• For FY 2020, The company reported higher Net earned Premiums of CAD 11,616 million, reflecting a growth of 9.4%, compared to CAD 10,275 million in the previous corresponding period. The company posted total revenue of CAD 12,303 million, compared to CAD 11,207 million in pcp. Decent growth was witnessed by both the US as well as Canada region.
• EBIT registered a robust growth of 63% to CAD 1,307 million in 2020, excluding share of profit from investments in associates and joint ventures, reflecting strong growth in underwriting income and Distribution EBITA and Other.
• The company posted higher Net income in FY2020 at CAD 1,082 million, against CAD 754 million in the previous corresponding period. The rise in net income on annual basis was primarily driven by growth in net operating income. 

Risks associated with investment

The company is not immune to the risks present in the industry. Some of the include adverse economic conditions, which may decrease the estimated value of the collateral securing loans and leases. COVID-19 pandemic could lead to financial losses in the company's portfolio and a decrease in their net income and book value. Few other circumstances caused by turmoil in world financial markets, may have a material adverse effect on the business and financial condition. 

Valuation Methodology (Illustrative): Price to Book Value

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Based on a strong balance sheet, low pay-out ratio, healthy growth in premiums and resilient operating income, the company can support its customers, pay its dividends, while continuing to invest in its strategy reflects the strength of the company. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 146.92 on February 16, 2021.

We have considered IGM Financial Inc, Home Capital Group Inc, Equitable Group Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Fiera Capital Corp

Fiera Capital Corp (TSX: FSZ) is a Canada-based independent, full-service, multi-product investment company. It provides investment advisory and related services to institutional investors, private wealth clients and retail investors, operating through investment management services segment in Canada and the United States.

Key highlights

• The management shared healthy preliminary "Assets Under Management" numbers:Recently, the management reported its initial estimates of assets under management ("AUM") of approximately CAD 180.2 billion as at December 31, 2020, an increase of CAD 2.5 billion, compared to AUM of CAD 177.7 billion as at September 30, 2020. The institutional segment remains the bread-and-butter segment, registering a growth of 12.8% in AUM to CAD 108.6 billion in 2020. Furthermore, heading into 2021, we believe the company would remain focused on organic growth along with executing on its strategic priorities.

Source: Company

• An income play:The company has a strong history of dividend payment, which establishes that the company’s business is resilient in nature and has reported stable cash flows over the years. Recently, the company paid a dividend of CAD 0.21/share on December 21, 2020. Moreover, at the last closing price, the stock carries an attractive dividend yield of 7.7%, which is quite impressive for investors with a long-term horizon.

Source: Company

• Divesting Bel Air Investment Advisors and Wilkinson Global Asset Management:On January 4th, 2021, the group announced that it has agreed to sell Bel Air Investment Advisors, its ultra-high net worth private wealth platform, to Hightower Advisors and concurrently Wilkinson Global Asset Management, its New York-based private wealth investment manager, to Wilkinson Global Capital Partners LLC. The aggregate selling price for both transactions is approximately CAD 81 million. 

• Event Update: the company would release its financial results for the fourth quarter of 2020 on Thursday, March 18, 2021, before markets open. 

Financial overview of Q3 2020 (In thousands of Canadian dollars)

Source: Company

• In Q3 2020, the company posted Revenues of CAD 170.7 million, which increased by 6.7% compared to CAD 160.0 million in the previous corresponding period. The increase was primarily due to higher base management fees driven by higher average AUM, partially offset by the sale of Fiera Investments LP’s retail mutual funds in the second quarter of 2020.

• The Company reported net earnings attributable to the Company’s shareholders of CAD 4.7 million against a net loss of CAD 4.7 million in the previous corresponding period. The profits were primarily due to increased revenue, lower accretion and change in fair value of purchase price obligations, partially offset by an increase in selling, general and admin expenses along with higher income tax expenses.

Risk associated with investment

The company is susceptible to various risks and uncertainties, including the risk from the capital market, general economic conditions, and volatility in currencies. A further outbreak of COVID-19 might hinder the consumers' disposable income, which is likely to adversely impact the company's performance.

Valuation Methodology (Illustrative): Price to Book Value

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

Stock recommendation

The group demonstrates its financial strength through the pandemic mainly because of the depth and diversity of investment strategies, and commitment to deliver outstanding services. The company expects to continue this positive momentum by maintaining the focus and executing priorities supporting its 2022 Strategic Plan.  Recently, the management shared its preliminary AUM figures of approximately CAD180.2 billion as at December 31, 2020, an increase of CAD 10.5 billion, compared to the previous corresponding period number. Furthermore, the stock is carrying an attractive dividend yield of 7.7% which lucrative amid low interest rate environment. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 10.95 on February 16, 2021. We have considered CI Financial Corp, IGM Financial Inc, First National Financial Corp, etc. as the peer group for comparison.

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.