Scotia Capital has raised its stock price target for
Canaccord Genuity Group Inc. (
TSX: T.CF,
Stock Forum) to $8.50 a share, an increase of 50 cents from the previous target.
“Near term conditions remain relatively challenging but we believe Canaccord’s valuation has been steeply discounted, and conditions are likely set to improve,’’ wrote Scotia analyst Phil Hardie in a research report.
Canaccord shares jumped 9.5% to $7.52 on Thursday, leaving a market cap of $764.7 million, based on 101.8 million shares outstanding. The 52-week range is $7.83 and $5.05.
The new target comes after Canaccord Genuity released fiscal third quarter earnings of 17 cents a share that were ahead of street estimates, including Scotia’s own estimate of 14 cents.
See Stockhouse report for details.
Canaccord’s geographic expansion strategy paid off in the quarter, benefitting from record results in its U.K. segment and solid contribution from its U.S. platform. Scotia notes that 68% of revenue in the quarter was generated outside of Canada.
“Diversification strategy pays off as Canaccord likely remains well positioned for a recovery in global capital markets,’’ wrote Hardie in his report.
However, he warns that the domestic retail platform remains a drag on profitability and return on equity, with further plans unfolding to help boost financial results and transform the business model.
“In contrast to the success across its UK wealth management platform, Canaccord continues to struggle with its domestic retail segment,’’ Hardie noted. “The firm recently announced that it hired Stuart Raftus to head the division.
Canaccord’s goal is to transition this unit to a more fee-based business model, similar to its U.K. business,’’ he said.
In the most recent quarter, fee-based revenue contributed just 32.4% of domestic wealth management revenue, while it contributed 63.6% of its U.K. wealth management top line.
Scotia also notes that Canaccord trades at a 25% discount to book value. “We see a rebound in Canadian capital markets as a significant catalyst for earnings growth and multiple expansion,’’ Hardie concluded.