CI Financial Corp

CI Financial Corp (TSX: CIX) is a Canada-based financial services provider, which operates through two business segments: Asset Management and Wealth Management.  The company had CAD 136.4 billion in fund assets under management, and another CAD 100.0 billion in assets under advisement, at the end of February 2021, making it one of the largest nonbank affiliated asset managers in Canada.

Key Highlights 

• Total assets reached a record CAD 240.6 billion:The company recently reported preliminary assets under management (AUM) for March 2021. As on March 31,2021, the total AUM stood at CAD 137.5 billion, reflecting a growth of 24.7% on a Y-O-Y basis while the wealth management assets were at CAD 102.1 billion, posted a YoY growth of 128.9%. The group’s total AUM from both segments grew 54.5% to CAD 240.6 billion, against CAD 155.7 billion in the previous corresponding period. The growth was attributed to client specific changes, advanced sales and marketing strategy and new product management.

Source: Company

• Growing Presence in the US Wealth Management Market: Recently, the company announced acquiring Brightworth LLC, a registered investment advisor with approximately USD 4.7 billion in assets. With Brightworth and other recently announced transactions, CIX is expected to more than double its US assets to around USD 55 billion.

• Consistent dividend distribution: 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. Recently, the group declared a quarterly dividend of CAD 0.18 per share, payable on July 15, 2021. Moreover, the stock is yielding relatively higher on TSX with a dividend yield of 3.77% compared to TSX Composite average dividend yield of 3.11%.

Source: Refinitiv (Thomson Reuters)

Financial overview of FY2020

Source: Company

• The group reported total revenue of CAD 2,050 million in FY 2020, decreased by 3.4%, as against CAD 2,122 million in the previous corresponding period. The decline was primarily due to a decrease in management fees, as average AUM declined 2.2%, offset by acquisitions made in the Wealth Management segment during 2020.
• EBIT reported by the company stood at CAD 642.7 million, decreased by 11.6%, against CAD 726.8 million in pcp, primarily due to lower revenue, partially offset by low SG&A expenses and lower trailer fees.
• The company posted net income of CAD 475.5 million, against CAD 537.5 million in the previous corresponding period due to the reasons discussed above.

Risks associated with investment

The group’s financial performance is exposed to equity market risk. Any volatility in the financial market or lack of sustained growth in such markets may result in a corresponding decline in the performance of the company’s Investment funds and may adversely affect its AUM, management fees and revenues. 

Valuation Methodology (Illustrative): Price to Earnings

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

Stock recommendation

The Company is one of the leading independent investment fund managers in Canada with total assets under management of CAD 240.6 billion at the end of March 2021. Despite a resurgence of COVID-19 cases and renewed lockdowns in many regions, markets trended upward during the fourth quarter of 2020, boosted by growing optimism from the U.S. presidential election and significant COVID-19 vaccine progress, which has favored the Company's businesses. Moreover, recent U.S acquisitions reflects the strategic priorities of globalizing the firm and expanding its wealth management platform. This has positioned CIX as a dominant player in the U.S. wealth management space. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 19.09 on April 14, 2021. We have considered IGM Financial Inc, Fiera Capital Corp and Canaccord Genuity Group Inc etc., as a peer group for the comparison.

1-Year Price Chart (as on April 14, 2021). Source: Refinitiv (Thomson Reuters)

Real Matters Inc

Real Matters Inc (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The Company helps its clients make intelligent decisions about real estate by leveraging technology to deliver better quality, transparency, and efficiency.

Key highlights

• The management laid 2025 Performance Targets: On the back of onboarding new customers and increasing market share with its existing clients, the administration raised the bar by setting the new targets through the end of fiscal 2025. Here, they expect to achieve a net revenue margin between 26-28% and an Adjusted EBITDA margin between 65-70% for the U.S Appraisal segment. While for the U.S Title segment, the net revenue margin would be in a range of 60-65% and the Adjusted EBITDA margin between 50-55%. Furthermore, the group aim to convert 70-75% of Adjusted EBITDA into free cash flows, which is a key positive.

Source: Company

• “U.S Appraisal segment” significant contributor in revenues: The company derives 58% of revenue from the U.S Appraisal segment. Furthermore, the group has witnessed higher market volumes and new client additions in this segment, resulting in Net Revenue and Adjusted EBITDA margin expansion. 

Source: Company

• Scaling title business: The company is continuously raising its title business. Moreover, it makes the necessary investments to support its growing footprint and expand the breadth of operations to meet clients and regulatory requirements. Recently, the company has opened two new title offices in Dallas and Phoenix.

• Event Update: The company will be releasing its Q2 2021 financial results on Wednesday, April 28, 2021, before market open.

Financial Overview of Q1 2021 (In thousands of USD)

Source: Company

• In Q1 2021, the company reported consolidated revenues of USD 120.29 million, against USD 103.78 million in the previous corresponding period. The rise in revenues was mainly due to higher revenues from the U.S. Title segment due to higher market volumes for refinance activity, market share gains and net new client additions.

• As a result of strong operating performance, Income before income tax stood at USD 10.24 million, compared to USD 8.68 million in previous corresponding period.

• Net income reported by the company in Q1 2021, stood at USD 7.08 million, compared to USD 5.13 million in the previous corresponding period. The increase was primarily due to higher revenue, market share gains, new client additions and higher market volumes.

Risks associated with investment

Residential mortgage volume in North America is a crucial driver for the Company's financial performance, and cyclical trends and seasonality influence this, which could impact the Company’s operations and cash flows.

Valuation Methodology (Illustrative): EV to Sales

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

Stock recommendation

The Company registered higher market volumes and new client additions in its U.S. Appraisal segment, which resulted in Net Revenue and Adjusted EBITDA margin expansion. It is also targeting to double the market share of the U.S. Appraisal segment from by FY2025. Moreover, the Company is scaling its title business by making the necessary investments to support its growing footprint and expand its breadth to meet clients and regulatory requirements. Therefore, based on the above rationale and valuation, we recommend "Buy" rating at the closing price of CAD 16.06 on April 14, 2021. We have considered Evertz Technologies Ltd, Altus Group Ltd, Open Text Corp, etc., as the peer group for the comparison.

1-Year Price Chart (as on April 14, 2021). 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.