Description
CI Financial Corp. (CIX CN)
CI Financial is a low-risk investment manager with a very attractive valuation of 4x FCF with numerous long term catalysts. The absurdly low valuation is not lost on management which has bought stock personally and just completed a massive repurchase of over 17% of the float.
CIX was posted on VIC by AA123 in August 2021. I recommend reading this writeup for background information. Since AA123s writeup, the stock has declined ~40% and the valuation has declined from 7.5x FCF to 4x FCF. Also, the business has improved, the company has deleveraged from 4x to 3x EBITDA, the company has aggressively reduced its share count by ~23%, the chairman has bought ~$18M of stock, and the company raised money in an advantageous preferred offering to Bain Capital, Abu Dhabi and Ares.
Today, at 4x FCF and a current stock price of $14.55 versus a reasonable SOTP of $24-29 and a 3 year SOTP of $36-41, I believe the stock is compelling.
The business is comprised of three reporting segments:
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Canada Asset Management - C$119B in AuM (Q3 2023) and C$1B in 2023 T12M adj. Revenues. Assets are mainly balanced, equity, fixed income Canadian mutual funds. Net management fees/AUM are 0.84%.
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Canada Wealth Management - C$81.5B in AUM (Q3 2023) and C$859 in 2023 T12M adj net revenues. Wealth management fees/client assets in this segment are 0.90%
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US Wealth Management (Corient) - C$197B AuM (Q3 2023) and C$866M in 2023 T12M revenue: This segment is comprised of registered investment advisors (RIAs) which have been acquired over the past ~3 years. The RIAs charge 0.49% fees/client assets on average.
The two Canadian segments are interdependent, so I consolidate them in my analysis.
The Canadian segment generates C$677M of TTM EBITDA and approximately C$2.60 in 2024 earnings. The business has an attractive debt structure with just 67 and 79MM of debt maturities in 2024 and 2025, and the vast majority of debt due in 2030 and 2051 with 3.2% and 4.1% coupons, respectively. At 5/6/7x earnings, this segment is approximately worth C$13, $15.5 and $18 per share. The value of this segment covers the current stock price.
The US wealth management segment is currently earning US$228M in EBITDA. For context, Focus Financial went private at 12x EBITDA in 2023. 12x CI Financial’s US segment’s current EBITDA minus the US$1.5B liquidation preference for the Bain preferred stake results in a valuation of the US segment of C$11 per share. If the US business continues to grow by acquisitions, AUM growth and synergies, it is reasonable to see the US business earning $350M in EBITDA in a few years. This implies a 15% growth rate, versus the segment’s historic 30+% growth rate. 12x this segment’s EBITDA, minus the US$1.5B liquidation preference for the Bain preferred stake, would result in a valuation of the US segment of C$23 per share.
Adding up the Canadian and US values, the SOTP on current EBITDA is $13-18 for Canada and $11 for US, or C$24-29/share.
If the US business grows at a reasonable rate for 3 years, the SOTP in 3 years is $13-18 for Canada and $23 for the US business or $36-41 per share.
The aforementioned calculation is based on the current sharecount of 156.2M shares. If past is prologue, the sharecount will be more like 135M shares in 3 years.
Starting in January, the company will increase the dividend to 0.20/quarter from 0.18/quarter, for a yield of ~5.3%.
Insiders own over US$250M of stock, and the Chairman has bought ~$18M of shares since March 2022.
I hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
The company has been quiet on the IR front as management has been focused on repurchasing stock without competition. With a $100MM tender offer just completed this week, I believe management will be more promotional next year.
If the valuation remains lackluster, it is possible management partners with the Bain Capital consortium to take the company private.
In the event CI US is not public by 2029, the preferred holders have the right to request CI Financial to begin to explore an IPO or sale of CI US commencing in 2029.