CI Financial Corp.
American Dream: Q3/21 EPS in line with consensus. U.S. wealth platform continues to scale
Our view: Q3/21 EPS was in line with consensus, but below our forecast. Net sales were better than forecast and remained positive into October. We still believe more enhanced disclosure regarding the U.S. RIA segment is required to improve earnings visibility and doing so would positively benefit the share price. Bigger picture, we think the asset management business is demonstrating more signs that it has turned the corner plus the growth potential of the U.S. RIA strategy could drive significant valuation upside in the near-term. We increase our target to $34 (was $32) and maintain our Outperform rating.
Key points:
Q3/21 adjusted F.D. EPS of $0.79 was below our forecast of $0.84, but in line with consensus of $0.79 (range of $0.75 - $0.85). Management fee revenue and other revenue were lower-than-forecast with SG&A expense higher-than-forecast, which was partially offset by lower-than-forecast investment dealer fee expenses. On a segmented basis: Asset Management adjusted EBITDA of $204MM was below our $223MM forecast; and Wealth Management adjusted EBITDA of $56MM was ahead of our $50MM forecast.
October 2021 net sales were positive at +$69MM (+$94MM in Canadian retail, -$133MM for Canadian Institutional, +$33MM for International/ Australia and +$76MM for the U.S. (RIA)).
CIX announced a new corporate structure for its CI Private Wealth platform, whereby acquired RIAs receive a minority interest in CI Private Wealth rather than equity in CIX. CIX will be the majority owner of CI Private Wealth and intends to use equity in CI Private Wealth for future acquisitions.
Wealth Management adjusted run-rate EBITDA reached $263MM with $200B in AUA, up Q/Q from $196MM with $170B in AUA. This includes all announced RIA acquisitions and does not include synergy or growth assumptions.
Increasing target to $34 (was $32) and maintaining our Outperform rating. The increased target reflects a higher valuation multiple (8.5x P/E, was 8.0x), due to stronger fundamentals (e.g., net sales performance).