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CI Financial (Valuation (CI measures its operating cash flow before the…
CI Financial
Valuation
$18.75/share, $4.7B market cap, $5.8B EV, $1.5B in debt, $350M cash
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CI measures its operating cash flow before the change in operating assets and liabilities, and the actual cash amount paid for interest and income taxes, as these items often distort the cash flow generated during the period. Free cash flow is calculated as operating cash flow less sales commissions paid, and adjusted for other provisions. CI uses this measure, among others, when determining how to deploy capital.
“CI is in a very strong position financially, with robust free cash flow of approximately $650 million a year,”
Through Q2 2018, FCF was $339M
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Business
AUM increased every year from 2011 to 2017 (100% of EBIT, 84% of revenue)
Brands: CI Investments, Assante Wealth Management + Stonegate Private Counsel, First Asset ETFs, BBS Securities, and Grant Samuel Funds Management (80% owned)
Also own a stake in Marret Asset Management (65%), Altrinsic Global Advisors and Lawrence Park
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GSFM = $6.5B in AUM....AUS government requires 9.5% savings on salary and world's 4th largest pension market
CI = $133B in assets.. 2 million investors in Canada (5.5% of population of Canada)... CI Funds = Sentry, Signature Global Asset Management, Cambridge Global Asset Management and Harbour Advisors. PLUS Institutional management through CI IAM.... 28% of CI investments are in fixed income, 59% equity... 58% Canadian Currency, 27% US.
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Comp Adv = Scale allows for more investment, customer (advisor and consumer) complacency and lack of interest
Assets Under Advisement (AUA)... (0% of EBIT, 116% of revenue)
Assante and Stonegate
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Assante has 300,000 clients and 830 advisors
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Costs: SG&A % of AUM = 0.364%... "All-in Cost"...CI uses a trailing 12-month SG&A efficiency margin to assess its costs relative to management fees earned
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Competitors
AGF Management ($322M mkt cap), $38.5B AUM... Operating margins = 12.2% in 2017
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Management
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Chairman of the board bought $3.5M worth of stock in past 3 months... he has been with CI since 1989 and was formerely CEO... he is 59 years old.
Capital Allocation/shareholder orientation looks strong evidenced by high returns on capital + CUT DIVIDEND TO BUYBACK SHARES = 20-25% of market cap over 12-18 months
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In 2017, bought back $413M in sahres (at $27/share) and paid $368M in dividends on $648M in FCF... "We believe strongly in the value of share buybacks, given the low interest rate environment and our view that CI stock is currently undervalued versus historical metrics"
"Overwhelmingly, it's in our best interest to buy our shares back at this price," Mr. Holland said. "I own 9 million shares, I'm not in the business of doing something that makes the stock go down...."We would never have put this dividend in place if we thought our shares would be trading at these levels," - Holland
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Risks
Market Correction
In financial crisis, FCF fell by 15%, Revenue fell by 27%, EBIT fell by 39%, Net Income fell by 52%..... Revenue, EBIT and FCF rebounded by 2013 (6 years), Net Income has not reached peak levels
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Redemptions = $1.5B in 2017, $5.9B in 2016.... offset by acquisitions... What is net???
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AUM decreased to $136.4B at September 30th, from $147M at end of 2017 (a 7% decline)....AUA was okay at $43M at end of September 2018
Asset manager multiples globally are trading at the low end of the range for a number of reasons, but mostly due to uncertainty in the industry. We believe this is an overreaction, providing us the opportunity to strategically and aggressively repurchase our stock; an opportunity we have and will continue to take advantage of." - CEO Q2
"Causes for these redemptions continue to be the same, short term performance in a number of our larger funds and industry-wide redemptions in major asset classes, including Canadian equity and Canadian balanced." - CEO Q2
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"Well, I can tell you what's not selling and that's anything with the word Canadian attached to it. We're seeing a lot of sales in the industry going towards global product, and so we are well positioned in that today. We have a -- we do quite a significant amount of sales in global product. It just doesn't offset the high-end redemptions that we have and the industry have in a Canadian product. " - CEO... redemptions are higher in the IIROC model than MFDA
"there is no higher priority in our company than to return to net sales within CI as fast as we can. As I said earlier, we see some really encouraging signals, including gross sales, new advisors that are doing business with CI, and performance." - CEO Q2
Why did shares outstnading increase in 2017 if they bought back so mucH?... they made the Sentry acquisition using cash and shares
Risk Summary: (1) AUM is falling, quickly. (2) fees are going lower and margins are getting squeezed, (3) Revenues declined 25% in financial crisis
Mutual Fund Flows
In the US, 90% of mutual fund holders were retail investors
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