CI Financial Corp.
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In-line Q2/21 with another RIA deal announced
Our view: Q2/21 adjusted EPS was largely in line with our forecast and consensus. The key takeaway for us is that it appears CIX may be closer to returning to positive net sales than we previously expected. Net sales were positive in Q2/21 and were positive in July 2021, which we attribute to very strong industry net sales, significant improvements in overall fund performance vs. peers (based on 1-year quartiles) and new product launches. While it’s too early to conclude CIX is definitely back to positive net sales, it’s clear that CIX has seen a substantial improvement in net sales this year. Furthermore, CIX remains active acquiring RIAs, including another one announced today. Big picture, we think there is still significant valuation upside in the stock and that additional disclosure on the U.S. RIA strategy could provide further valuation upside. We increase our target to $30 (was $26) and maintain our Outperform rating.
Key points:
Q2/21 adjusted fully diluted EPS of $0.74 was a penny below our forecast and consensus of $0.75 (consensus range of $0.72 - $0.77). In Q2/21, CIX re-classified certain compensation-related expenses from investment dealer fees expense to SG&A expense, something that was not reflected in our forecast and drove most of the variance in several income statement items. On a segmented basis, EBITDA at Asset Management and Wealth Management were largely in line with our forecast.
July 2021 net sales were positive at +$295MM (+$43.3MM in Canadian retail, +$9.6MM for Canadian Institutional, +$115.4MM for International/ Australia and +$126.9MM for the U.S. (RIA)) and compares with CIX’s Q2/21 net sales of +$356MM and Q3/20 net redemptions of -$2,300MM.
Wealth Management adjusted run-rate EBITDA reached $196MM with $170B in AUA. This includes all announced RIA acquisitions and does not include synergy or growth assumptions. CIX also disclosed the Wealth Management segment had organic net inflows of +$4B in H1/21 and that it is in the early stages of integration with an initial focus on compliance, technology (e.g., CRM) and marketing/branding.
CIX announced the acquisition of Budros, Ruhlin & Roe, a U.S. RIA firm based in Columbus, Ohio with US$3.4B in assets.
Increasing target to $30 (was $26) and maintaining our Outperform rating. The increased target reflects a higher valuation multiple (8.0x P/E, was 7.0x), in part as net sales seem to be improving significantly better than our forecast.