Fiera Capital Corp T.FSZ

The Upgrades are Coming in

[savyinvestor333]

Third Quarter Suggests the Worst in Outflows Is in Rearview Mirror and Inflection Point Is Imminent

OUR TAKE: Positive. The quarter provides an early data point that supports our thesis that the worst of the company’s outflows are behind them and that momentum is building with an inflection point to positive inflows now imminent. The stock has rallied almost ~45% from its lows in August and September in the wake of record outflows reported in Q2/24.

Weak flows have likely weighed on investor sentiment for some time, but we expect the successful demonstration of improved sales momentum and inflows to act as a catalyst to reverse this trend and support recent multiple expansion.

Raising our target price to $11.00 but maintaining Sector Perform rating. Fiera offers a high degree of diversification by business line and AUM, and an attractive ~8.5% dividend yield. That said, with the recent strong run and lingering uncertainties in the market outlook, we see better risk-reward opportunities across our coverage universe.

KEY POINTS

Q3/24 Adj. EPS of $0.25 was stronger than the street at $0.22 and our estimate of $0.23 with the beat driven mainly by stronger-than-expected performance fees. Adj. EBITDA of $51.7M, was also ahead of the street at $45.7M and our forecast of $46.0M.

A key highlight from the quarter was improved sales momentum with the rate of net redemptions coming in lower than expected and marked a dramatic improvement from recent trends. Q3/24 outflows of ~$300M (-0.2% of beg. AUM) compared to our estimate of $1.4B and last quarter’s net redemptions of $7.8B (-4.7% of AUM) and $3.7B (-2.2% of AUM) in Q3/23. Excluding redemptions from mandates sub-advised at PineStone, the company would have recorded inflows of $215M.

We think momentum is turning at Fiera and that investors misread the spike in outflows for PineStone in Q2/24 as foreshadowing further weakness, rather than a pull ahead of large redemptions that had been anticipated over the next 12 to 18 months.

With headwinds from PineStone receding, and momentum and pipeline building as a result of Fiera’s new regional model and growing alternatives platform, we believe an inflection point to positive flows is imminent. We forecast positive flows for Q4/24 which would mark the 1st quarter of net sales since Q1/21. Further, we expect the improved momentum to persist with 2025 expected to mark the first calendar year of positive inflows since 2019.