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 Updates:

• Robust Financials: The company’s performance has remained solid over the years, across economic cycles. IAG has successfully increased its net premiums, premium equivalents and deposits and also its Assets Under Management (AUM) amidst economic turbulence, which is a key positive and indicates operational resiliency. From FY10 to FY20, the company registered ~8% CAGR in net premiums, premium equivalents and deposits, while AUM witnessed a CAGR of ~11% during the same period.      

Source: Company Presentation

• Operational Efficiency and Organic growth: The company has performed well in the recent past, while long-term business prospects are likely to remain positive supported by the lucrative opportunity from the Insurance industry. The company reported organic growth through several innovative strategies like new product offering, attractive commissions to distributors etc. Moreover, the company also introduced new digital tools in the recent past, which have resulted in the improved operational efficiency of ~20%.                                      

Source: Company Presentation

• Impressive Guidance: For FY21, the company expect is core EPS within the range of CAD 7.60 to CAD 8.20, while core ROE is expected in between 12.5% to 14.0%. During FY20, core EPS was CAD 6.41, while core ROE (TTM) recorded at 11.9%. The management believes its core EPS to grow by ~10% per year till 2024, while expects its core ROE in the range of 13% to 15% in FY23.

Source: Company Presentation

• Result Updates: The group would disclose its Q1FY21 result on May 06, 2021.

FY20 Financial Highlights:

• IAG announced its full year result, wherein the company posted revenues of CAD 17,639 million, higher than CAD 15,265 million in FY19. The increase was primarily driven by a higher gross premium (CAD 12,132 million v/s CAD 9,757 million in FY19).
• Total expenses were recorded at CAD 16,877 million, higher than CAD 14,378 million in the previous year. The increase was driven by higher costs related to net transfer to segregated funds (CAD 2,872 million v/s CAD 917 million in FY19) coupled with increase in insurance contract liabilities (CAD 5,760 million v/s CAD 4,773 million in FY19). Moreover, the period was marked by higher commissions (CAD 1,788 million v/s CAD 1,654 million in FY19) and an increase in general expenses costs (CAD 1,668 million v/s CAD 1,472 million in the previous year).
• Net income recorded at CAD 632 million, lower than CAD 699 million in FY19.
• The group reported its asset under management (AUM) at CAD 197.5 million, higher than CAD 189.5 million in FY19.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The operations are directly linked with the capital market and interest rate movements, and volatility would likely to dampen the company’s performance. Moreover, the arrival of a new player with better product offerings would result in a decline in company’s market share.

Valuation Methodology (Illustrative): P/BV based valuation

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

Stock Recommendation:

The company is enhancing its presence across the US and targeting to derive ~20% of the total income from it in 2025, from the current contribution of less than 10%. Moreover, with its new digital capabilities, the company witnessed better client/advisor experience and catered several clients residing across remote areas, which is a key positive and augers well for organic growth. 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 67.95 on April 21, 2021.

One-Year Price Chart (as on April 21, 2021). Source: Refinitiv (Thomson Reuters)

Innergex Renewable Energy Inc

Innergex Renewable Energy Inc (TSX: INE) is an independent Canadian renewable power producer. It develops, acquires, owns, and operates hydroelectric, wind, and solar facilities in Canada, the United States, France, and Chile.

Key highlights

• Proven track record: Notwithstanding the turmoiled period in 2020, the Company saw the energetic exhibition across its production, income and Adjusted EBITDA. It reported the production proportionate at 97% of the LTA, expanded by 20% over a year ago, and income proportionate grew 12% primarily because of a higher commitment from the hydroelectric power generation segment. The Adjusted EBITDA Proportionate expanded by 8% at CAD 560.3 million against the past comparing time frame.

Source: Company

• Strong development pipeline for long-term growth: The company has a vigorous development pipeline permitting a few chances in the years to come, with 12 projects for a total of 685 MW installed capacity, currently at an advanced stage. By 2023 the organization would be expanding its ability to 4,323 MW age. In the wake of considering the forthcoming tasks of MW 6,875, it would be 11,198 MW.

Source: Company

• Healthy guidance:On the back of increasing net installed capacity to 3,172 MW in 2021, from 2,742 MW and on a higher number of operating facilities, the company expects a growth in its production, revenues and Adjusted EBITDA proportionate by 15%, 12% and 12%, respectively. Furthermore, by 2025 the company would be clocking free cash flow per share of CAD 0.97. 

Source: Company

• Consistent dividend distribution: Over the years, the company reported consistent growth in its dividend payment, backed by resilient cash flows. The company’s operation is buoyant in nature, as it caters to the utility segment. Recently it paid a quarterly dividend of CAD 0.18 per share on April 15, 2021.

Source: Refinitiv (Thomson Reuters)

Financial overview of FY 2020 (In millions of CAD)

Source: Company

• The company presented decent numbers in FY2020, revenues registered a growth of 10% to CAD 613.2 million, against CAD 557.0 million in FY2019. All the segments of the company reported an increase in production and revenues on a yearly basis.

Source: Company

• EBITDA stood at CAD 422.1 million in the reported period compared to CAD 409.1 million in pcp. EBITDA was partially offset by higher operating expenses at CAD 131.4 million V/s CAD 98.4 million in pcp.
• The company posted negative EBT of CAD 10.2 million in FY2020, against CAD 65.8 million in pcp. On the back of higher depreciation and amortization coupled with impairment charges pushed the EBT into negative territory.
• The net loss stood at CAD 29.1 million, against CAD 31.2 million in pcp.

Risks associated with investment 

The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors are lower demand, lower production, adverse weather conditions etc. There is also a risk that its contract counterparties could fail to meet their obligations.  

Valuation Methodology (Illustrative): EV to EBITDA

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

Stock recommendation

The company is engaged in the electricity generation business, which is immune to the business cycles, as it comes under the essentials. The company continues to have its financial position in excellent shape. Recently, the company acquired six wind farms in Idaho, United States, for CAD 77.3 million with a total installed capacity of 138 MW. Furthermore, it is having a robust development pipeline and increasing net installed capacity. The company would be clocking free cash flow per share of CAD 0.97 by 2025. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 23.09 on April 21, 2021. We have considered Brookfield Renewable Partners LP, Boralex Inc, Northland Power Inc. as the peer group for the comparison.

1-Year Price Chart (as on April 21, 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.