iA Financial Corporation Inc.

iA Financial Corporation Inc. (TSX: IAG) is a life and health insurance company that offers products like life and health insurance products, savings and retirement plans, mutual funds, securities, auto and home insurance, mortgages, and others.

Key Highlights:

• Price Trading in a Rising Channel Formation: On the daily chart, IAG prices are trading in a rising channel formation from almost 4 months and now the prices are taking the support of the lower band of the pattern. The stock prices are forming a series of higher tops and higher bottoms for more than a year, indicating an upside direction in the stock. Moreover, the price is trading above its 50-period simple moving average, which may act as a crucial support zone at lower end in short term. Furthermore, the momentum oscillator RSI (14) is trading at ~50.40 levels, which is favorable for an uptrend.                 

Technical price chart, Analysis by Kalkine Group

• Strong traction from Individual Wealth Management Segment: Despite the ongoing sluggish economic growth, the group has reported solid traction from Individual Wealth Management, wherein Net Premiums, Premium Equivalents and Deposit stood at CAD 2,547.5 million in Q1FY21, higher than CAD 1,771.0 million in Q1FY20, supported by record sales from both segregated and mutual funds. Notably, within the segment, the group has reaffirmed its leading position in terms of gross and net sales.

Q1FY21 Financial Highlights:

• IAG announced its quarterly result, wherein the company posted net premium of CAD 3,375 million compared to CAD 2,755 million in Q1FY20.
• Income before income taxes stood at CAD 233 million, climbed from CAD 44 million in pcp. The increase was driven by the significant decrease in insurance contract liabilities of CAD 3,820 million, as compared to a decline of CAD 702 million in pcp. However, gross benefits and claims on contracts stood higher at CAD 2,624 million, as compared to CAD 1,613 million in pcp. Additionally, the quarter witnessed a higher Commissions expense (CAD 529 million v/s CAD 441 million in pcp) and a rise in General expenses (CAD 438 million v/s CAD 412 million in pcp).
• Net income was recorded at CAD 174 million, soared from CAD 46 million in Q1FY20.
• The group reported its asset under management (AUM) at CAD 201.3 billion, grew 15% on y-o-y basis.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The operations are directly correlated with the capital market and volatility in interest rate and capital market would affect the performance of the group.

Valuation Methodology (Illustrative): Price to Book Value

(Note: All forecasted figures and peers have been taken from REFINITIV).

Stock Recommendation:

For FY21, the company expects Core earnings per common share within the range of CAD 7.60 to CAD 8.20, while ROE is expected in between 12.5% to 14.0%. The stock of IAG carries a decent dividend yield of ~2.8% amid a low interest rate environment. We have valued the stock using the Price to Book based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Laurentian Bank of Canada, Sun Life Financial Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of IAG at the last closing price of CAD 70.00 on May 27, 2021.

One-Year Technical Price Chart (as on May 27, 2021). Analysis by Kalkine Group

Cominar Real Estate Investment Trust

Cominar Real Estate Investment Trust (TSX: CUF.UN) is a Canadian REIT, which operates in ownership and management of properties across the Canadian provinces. 

Key Highlights:

• Stable Dividend Payment: The group has a solid history of consistent dividend distribution, which is supported by stable cash flows. Moreover, at the last closing price, the stock was offering a decent dividend yield of ~3.6% amid low interest rate environment.

Five years dividend distribution, Analysis by Kalkine Group

• Total Debt is on a downtrend: In the recent past, the company has successfully reduced its total debt, amidst a challenging operating environment. This is a healthy sign and a reflection of prudent capital management. Also, the company reported lower finance costs in Q1FY21, which has further supported the company’s profitability.

• Ample Liquidity: The company has ample liquidity to support its upcoming capital needs, both long-term and short-term, which is a key positive. Notably, at the end of Q1FY21, the company reported its available liquidity at CAD 381.4 million, which includes CAD 361.0 million of availability under the unsecured credit facility and cash and cash equivalents balances of CAD 20.4 million.

Q1FY21 Financial Highlights:

• The group posted its quarterly result, wherein the company posted operating revenues of CAD 169.721 million, down from CAD 173.885 million in Q1FY20. The decline was primarily attributable to lower income from Office properties and Retail properties, partially offset by a slight improvement in industrial and flex properties.
• Net Operating Income improved to CAD 86.471 million from CAD 85.725 million in the previous corresponding period (pcp). The increase was driven by improved performance from the industrial sector, which grew 6.8% on y-o-y basis.
• The company reported a net income of CAD 50.264 million, significantly higher than the net income of CAD 44.974 million in Q1FY20. The growth was primarily driven by higher net operating income coupled with significantly lower finance charges (CAD 31.820 million v/s CAD 39.252 million in pcp), while higher trust administrative expenses (CAD 5.543 million v/s CAD 4.144 million in pcp) remained a drag.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to the unfavorable scenario, the group might witness a fall in the rent collection, which would hinder the operating performance of the company. Delay in execution of construction projects due to added restriction would further impact the company’s overall performance. 

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company is focusing on implementing strategies to develop or redevelop identified sites in order to create long-term value. We believe this would lead to long-term value creation for the business. Moreover, the company has a decent presence across the regional urban mall, which would support the group’s performance once the lockdown period gets over.

Data Source: Company

The group is managing its capital prudently and has lowered the cash distributions to unitholders, which would support the company’s liquidity. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like InterRent Real Estate Investment Trust, Killam Apartment REIT etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 9.88 on May 27, 2021.

One-Year Technical Price Chart (as on May 27, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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.