Analyst Coverage... Scotia Capital analyst Phil Hardie thinks the operating environment for the Canadian asset & wealth management sector has become “increasingly challenging through 2022 with heightened market volatility and a range of lingering uncertainties.”
However, heading into third-quarter earnings season, he thinks valuations “remain discounted.”
“A difficult market backdrop and an uncertain economic outlook have likely eroded retail investor confidence and negatively impacted retail flows,” said Mr. Hardie in a note. “Industry-wide outflows of long-term assets (ex-money markets) improved sequentially in Q3, but net redemptions accelerated in September following some improvements earlier in the quarter.
“Despite the near-term pain of this environment, the opportunity for wealth managers is to demonstrate the value of sound advice to clients through a complex environment. The difficult backdrop also likely offers asset managers the chance to successfully demonstrate the value of active management strategies and tailored solutions over basic passive approaches.”
He made a series of target price adjustments on Monday:
- AGF Management Ltd. “sector perform” to $8.50 from $7.50.
- CI Financial Corp. “sector perform” to $17 from $18.
- Fiera Capital Corp. “sector perform”) to $11 from $10.
- Guardian Capital Group Ltd. “sector outperform” to $40 from $42.
“We have the sector on our radar, but given the current environment and an uncertain outlook, we remain on the sidelines for now, except for Guardian, which we view as the least sensitive to AUM fluctuations,” said Mr. Hardie. “Our top beta plays in a broad market recovery scenario include CI Financial and AGF. CI likely offers significant upside potential in a blue-sky market rebound scenario, with a number of potential catalysts on the horizon including the IPO of its U.S. wealth management platform. That said, given its ongoing transformation, CI also likely has a set of unique risks, and presents the biggest downside risk across our asset managers. We continue to believe that IGM offers the most defensive attributes of the group, but likely yields less upside potential relative to the group given our current outlook.
“We continue to believe Guardian’s discount is too steep to ignore, and it remains our top small-cap value play.”