RBC Comments today
January 13, 2022
Fiera Capital
Thoughts following Natixis share sale
Our View: Natixis’ sale of its stake in Fiera increases the float (and potentially share liquidity) and provides clarity over Natixis’ intentions regarding its Fiera stake. Bigger picture, as noted in our January 4, 2022 sector outlook report “Canadian Diversified Financials – The Blind Side: 2022 Outlook”, we think Fiera could have significant valuation upside if it can generate consistent positive net sales and demonstrate increasing adjusted EBITDA margins given the shares trade at the low end of peers. Maintaining Sector Perform rating and $12 price target.
Key points:
Summary: Natixis sold its 10.68MM shares in Fiera at $9.80/share, with Fiera buying back 3.56MM shares (and receiving a transaction fee from Natixis) and the remaining 7.12MM shares sold via block trade into the market. The May 2019 distribution agreement between Natixis and Fiera, whereby Fiera is Natixis’ preferred Canadian distributor of its investment strategies, remains in force, subject to certain amendments. Furthermore, in light of the significant share buyback from Natixis, Fiera intends to amend its NCIB so it can increase the maximum number of shares it can repurchase to 10% of the public float of Class A shares.
Thoughts heading into 2022: While EPS growth should arguably be the key driver for valuation, we think net sales performance is likely to be the key driver. Recent net sales performance has been mixed, although we think it is slightly better if we exclude the redemption noise due to the Bel Air team departure. Nevertheless, we think demonstrating more consistent positive net sales performance would be a positive catalyst for the stock. We note that 3-year overall fund performance remains very strong although 1- year performance weakened in 2021. Fiera has been able to deliver more consistent adjusted EBITDA margins at 30% or better in the past 2 years and we think evidence of increasing margins could also be a positive catalyst for the stock. In terms of financial leverage, Fiera has de-levered in the past couple of years with net debt/NTM EBITDA ~2.5x (below the prior peak of ~3.5x) and although we forecast further de-leveraging, we believe the current leverage ratio is sustainable. Finally, on the dividend, Fiera has an 8.3% dividend yield with a payout ratio of ~60% and we forecast the dividend to increase going forward.
Maintaining Sector Perform rating and 12-month price target of $12.