Heading into first-quarter earnings season for Canadian diversified financial companies, RBC Dominion Securities analyst Geoffrey Kwan revealed his top three “best ideas” for the industry while making a series of target price adjustments.
His best picks are
No.1: Element Fleet Management Corp. (“outperform”) with a $31 target (unchanged). The average on the Street is $27.33.
Analyst: “With the share price flat year-to-date, here are some things we think are being overlooked: (1) we think EFN is likely to increase 2024 guidance when Q1/24 results are reported; (2) with OEM production normalizing in H2/23, 2024 should see much stronger origination activity, which should significantly increase both financing and service (e.g., titling, insurance, registration, upfitting, re-marketing) revenues that were subdued during the OEM production shortage; and (3) with almost 65 per cent of EFN’s business coming from the U.S., EFN should significantly benefit from the rally in the USD vs. CAD. Furthermore, we forecast ROEs to increase from 15 per cent today to 23 per cent in 2028, so we view the stock as mispriced, trading at just 14 times P/E and 8.5-per-cent FCF yield.”
No. 2: Brookfield Asset Management Ltd. ( “outperform”) with a US$53 target, up from US$50. Average: US$43.31.
Analyst: “We see significant potential valuation upside driven by strong FRE growth (BAM said it expects ‘outsized’ FRE growth in 2024) and a 3.4-per-cent dividend yield. Furthermore, additional valuation upside could come from BAM’s 23.5 times FRE multiple being a substantial discount to its closest peer (each 1 times improvement = US$2 or 5-per-cent upside per BAM share).”
No. 3: Brookfield Corp. ( “outperform”) with a US$51 target, down from US$53. Average: US$50.07.
Analyst: “BN’s shares trade at a substantial 23-per-cent discount to NAV (which already includes our 30-pr-cent discount to BN’s Real Estate IFRS fair value). While investor concerns regarding Real Estate is understandable, the current share price implies zero value for BN’s Real Estate investments plus a 12-per-cent discount to IFRS fair value for BN’s non-Real Estate private assets (e.g., Insurance). We think BN benefits from multiple catalysts including successful fundraising at BAM, improving financial performance within its Real Estate segment, insurance segment demonstrating consistent organic growth and other options (e.g., share buybacks, monetizations) that could further narrow its discount to NAV.”
His other target changes are:
- Brookfield Business Partners LP ( “outperform”) to US$32 from US$33. Average: US$29.57.
- CI Financial Corp. ( “sector perform”) to $20 from $19. Average: $19.94.
- Definity Financial Corp. (, “outperform”) to $50 from $49. Average: $47.45.
- Goeasy Ltd. ( “outperform”) to $201 from $195. Average: $208.33.
- Intact Financial Corp. ( “sector perform”) to $236 from $229. Average: $236.50.
- Sprott Inc. ( “sector perform”) to $59 from $54. Average: $53.50.
- TMX Group Ltd. ( “sector perform”) to $38 from $36. Average: $38.