From the G & M this morning... Volatility is weighing on multiples for Canadian asset managers heading into fourth-quarter reporting season, according to Barclays analyst John Aiken, who also emphasized the impact of the recent market selloff on assets under managers and earnings.
“Industry-wide sales were strong but December data showing signs of weakness: Preliminary data for the fourth quarter indicates that industry-wide mutual fund sales remained strong; however, sales moderated significantly towards the end of the year as market volatility weighed in investor sentiment,” he said. “Industry-wide net sales as a percentage of opening balance AUM was 70 basis points for the fourth quarter, still strong, but lower than the 101.6 bps during the same period last year. This was largely driven by fixed income fund redemptions in December, while overall flows were still positive for December they were 88 per cent lower than last year. The robust sales environment and higher savings rates should bode well for the asset managers as they head into the RSP sales season; however, the recent market volatility could weigh further on investor sentiment and dampen flows.
“Recent market volatility weighs on valuations. Despite equity markets ending the year significantly higher and the continued robust industry sales levels in 2021, the market sell-off in January has weighed on the S&P TSX by 4 per cent and the S&P 500 by 9 per cent so far this month, significantly dampening the outlook for the asset managers and leading to broad multiple retracement for the group.”
With that view, Mr. Aiken made a series of target changes: CI Financial Corp. “overweight” to $29 from $34. The average is $33.44.
“We see continued volatility in the near term in both equity and fixed income markets but see significant value in CI as it continues to trade below the group average despite its growing and meaningful exposure to the highly attractive U.S. RIA market,” he said. “CIX remains well positioned for growth and undervalued: While industry sales and demand for investment products has increased, retail fees and margins remain under pressure. In our view, CI remains well positioned as it maintains peer leading efficiency, has built a solid U.S. wealth management platform through acquisition, and its valuation does not reflect the growth or profitability of its newly minted U.S. segment. In our view, the recent pullback in valuation provides longterm investors with an attractive entry point. Furthermore, CI has had three consecutive quarters of positive flows in its domestic retail business and, while our positive view is based on growth in CI’s wealth management business, we believe sustained positive flows in CI’s domestic retail business provides another dimension for upside for its valuation.”