Shares of CI Financial jumped 11.5% in the first three hours of trading Thursday on the New York Stock Exchange, after the Canadian asset manager and RIA acquirer released better-than-expected numbers in its report on first quarter results.
“In my opinion, the market reacts favorably to net investment flows,” commented James Shanahan, analyst at Edward Jones. “Repurchases exceeded sales of investments again this quarter and repurchases continued in April. However, due to strong gross sales, the pace of buyout activity has slowed significantly. ‘
Shanahan also highlighted the progress made by CI with regard to its capital structure.
“Management used C $ 113 million to repurchase shares, paid C $ 38 million in dividends and reduced outstanding debt,” said Shanahan. “The outstanding debt is C $ 2.2 billion, which is lower on a related quarter basis but still C $ 450 million higher than a year ago. Given the high debt levels and the low valuation of the stock, paying down debt and buying back stocks are in my opinion solid choices for excess capital.
CI reported adjusted earnings per share of 60 cents (C $ 0.73 per share) for the first quarter of 2021, up about 30% from the first quarter of 2021.
The company bought 18 RIAs either directly or through a sub-acquisition after starting from scratch in December 2019. The three deals CI disclosed in Q1 2021 did not close until the end of April, Q2.
“Mergers and acquisitions, by definition, are irregular in nature, both in terms of transactions and companies entering the market and the success rates of companies,” said Kurt MacAlpine (pictured), managing director of CI Financial. “We saw a lot of activity coming as a result of the third quarter of last year, where we closed a number of deals in December. The first quarter was a little quieter, and then the second quarter improved a bit as well. We’ll see what the rest of the year has in store for us. I think we have a very strong pipeline, a lot of opportunities ahead of us and we’ll just see as we move forward in this process.
Shanahan noted that CI’s nascent RIA business was not profitable in the first quarter of 2021.
“In 2020, CI deployed over C $ 525 million for wealth management acquisitions,” observed Shanahan. “Acquisition activity continued in 2021, but was relatively modest in the first quarter (only C $ 27 million). Assets in counseling have undoubtedly increased substantially. However, the segment has not contributed significantly to overall earnings, at least so far. ‘
CI Financial, like many other active mutual fund managers, faces net outflows from its funds as fee-conscious investors seek passive alternatives from companies such as Vanguard and BlackRock. The company reported total net outflows of $ 726.8 million (C $ 883 million) in the first quarter of 2021, for its 14th consecutive quarter of net outflows.
“I think the stock price is undervalued relative to the quality of the business we have and the strategic issues we have going on,” MacAlpine said. “As long as this disconnect exists, people should expect us to keep repurchasing stocks to take advantage of this disconnect that we believe exists.”
Note: This story has been updated to correct the CI acquisition activity figure for the first quarter of 2021.