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CI Financial profits rise despite net redemptions

CI Financial Corporation President Stephen A. MacPhail speaks during the annual general meeting of shareholders in Toronto March 25, 2010.

Mike Cassese/Reuters/Mike Cassese/Reuters

CI Financial Corp. Tuesday reported a 19-per-cent increase in third-quarter profit, helped by cost controls as the mutual fund giant suffered from net redemptions during the recent market turmoil.

The silver lining to the market sell-off is that it has created more potential for acquisitions, CI's chief executive officer Stephen MacPhail told analysts during a conference call.

"I think the market downturn created a situation where a lot of companies really struggled," he said. "We are seeing more [for sale] but…we don't want to make acquisitions for the sake of making one. We do believe there are businesses that could be a good fit for CI whether it be on the synergy front, expanding product lines or giving us access into markets that maybe we aren't in right now."

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CI, Canada's third-largest investment fund company, earned a profit of $90.8-million, or 32 cents a share, in the latest quarter, compared with $75.9-million, or 26 cents a share, a year ago. The earnings were in line with consensus expectations.

The firm, however, kept expenses in check during the latest quarter, and that should leave it in a strong position for the fourth quarter and 2012, Mr. MacPhail said.

Net redemptions, however, totalled $91-million in the third quarter compared with net sales of $210-million in the same period last year.

The net outflows are higher than "our assumption of net redemptions of $74-million," CIBC World Capital Markets analyst Paul Holden wrote in a note to clients. "This supports our view that net sales for CI are going to come in lower for the sixth consecutive year. Growth is becoming more challenging."

While stock markets have rebounded off their recent lows, the S&P/TSX composite index tumbled 12 per cent during the quarter, while the S&P 500 and MSCI World indexes fell 13.9 per cent and 16.5 per cent, respectively.

Assets under management rose slightly to $67.4-billion in the third quarter from $66.8-billion a year ago. The recent rally, however, boosted assets under management to $70.4-billion by Oct. 31.

"While the outlook remains quite challenging for the asset managers, we remain confident that ultimately declining volatility and rising valuations will help overall profitability," said Barclays Capital analyst John Aiken who maintains his one-year target of $22 a share on CI stock. "CI retains the best upside leverage of the group."

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Toronto-based CI generated $104.2-million in cash flow during the three months ended Sept. 30, compared with $91.5-million in the third quarter of 2010.

During the latest period, the cash was used to reduce net debt by $12.6-million, while $64.7-million went to pay out dividends and $34.6-million for the repurchase of 1.7 million shares.

The company also declared monthly cash dividends of 0.075 cents a share payable on Dec. 15, Jan. 13, 2012 and Feb. 15, 2012.

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