CIBCHave a $30.00 target. GLTA
EQUITY RESEARCH
April 7, 2022 Flash Research
CI FINANCIAL CORP.
Public Listing To Unlock Value Of The U.S. Wealth Franchise
Our Take: Based on the current market value of CI’s stock, we believe the
U.S. listing could be a material catalyst that helps the company obtain better
recognition for the value of its growing wealth franchise. Based on CI’s
current P/E multiple of 5.2x, we estimate the company is receiving virtually
no value for its U.S. wealth platform today and in that context almost any
realistic IPO pricing scenario would be “accretive” to CI’s market value.
Proceeds will be used to deleverage, but the most important takeaway is that
investors will now have access to a public mark that will support an easier
and more objective way to value the U.S. franchise.
Key Takeaways
Planning to IPO the U.S. Wealth Business. CI announced its
intention to sell up to 20% of its U.S. wealth management business
via an IPO. Based on the market value of CI’s stock price, we
estimate that the company is receiving virtually no value for its
interest in the U.S. wealth franchise today. We strongly suspect this
is what prompted the company to explore a public listing, with the
intention of validating the U.S. wealth platform by third-party public
market investors and achieving a corresponding “pick-up” in the
market value of CI’s stock. We don’t believe the company’s intention
is to divest its interest in the wealth platform over time, but rather to
achieve recognition for the value of the franchise by floating a
minority interest in the public markets.
Details remain scant. At this early stage it is unclear how the wealth
business will be detached, what the capital structure of the
standalone entity will look like, and how the IPO will be valued and
priced. We expect to achieve greater clarity on this front as the
company advances towards an IPO and the S-1 is filed later this
year.
Highly likely that an IPO would be “accretive” to CI’s market
value. We plan to perform more detailed analysis on the potential
value of the standalone U.S. wealth franchise. For context, however,
the wealth platform currently generates run-rate EBITDA of
approximately $302 million. Simplistically applying an 8x to 10x
multiplier would imply an enterprise value of $2.4 billion to $3.0
billion. CI’s current market capitalization currently stands at $3.6
billion and we estimate that the wealth platform generates less than
30% of consolidated earnings. This is an oversimplification but
illustrates the extreme of CI’s valuation. The company currently
trades at a P/E of 5.2x (based on the 2022 consensus EPS
estimate.