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What are we looking for?

For decades, the firms that managed our money were also good places to invest. With the rise in exchange-traded funds, bitcoin and other non-traditional assets, do we still want to buy the stock of asset managers as part of our portfolio? Today’s screen may help investors with this question, as we look at valuations for the 10 largest asset management companies trading on the TSX.

The screen

We use StockCalc’s screener to select the largest TSX-listed asset managers. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique in which cash flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.

If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month).

What we found

The 10 largest asset management companies trading on the TSX

CompanyTickerMkt. Cap. ($ Mil.)Recent Close ($)StockCalc Val. ($)Diff. (%)DCF Value ($)Price Comps ($)ABV ($)Analyst Tgt. ($)1Y Rtn. (%)Div. Yld. (%)
IGM FinancialIGM-T9,212.538.6640.715.347.8113.7142.1840.7184.95.8
CI FinancialCIX-T3,851.818.4322.3621.340.3823.5428.1022.4353.93.9
Fiera CapitalFSZ-T1,049.010.1210.574.416.118.898.8412.4184.28.3
Clairvest GroupCVG-T975.164.7557.48-11.266.4450.2453.91n/a55.20.2
Guardian CapitalGCG-T818.329.5031.085.324.5929.0730.5938.0067.42.2
Senvest CapitalSEC-T802.2308.00266.11-13.6n/a234.92174.44n/a180.0n/a
Cdn. Gen. InvestmentsCGI-T761.436.5035.39-3.148.5033.7936.45n/a99.72.3
Alaris Eqty. Ptners.AD-UN-T728.816.2315.97-1.612.3015.7218.9420.38121.47.5
AGF ManagementAGF-B-T518.27.417.896.514.723.147.368.25154.34.3

Source: StockCalc

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from our models and analyst target data.

Asset managers offer asset administration, investment advice, portfolio or mutual fund management and venture capital. When valuing firms such as these we use models similar to those employed to value banks, insurance companies and even real estate investment trusts, with a heavy reliance on balance sheet methods such as adjusted book value.

Given the timing of this article, roughly a year after the market began its dramatic recovery from the pandemic crash, note that one-year price returns are unusually high compared with average long term returns in the industry (average annual returns for the past five and 10 years for these companies were 11 per cent and 14 per cent, respectively).

Let’s look at a couple of these companies:

Toronto-based CI Financial Corp. provides wealth management and investing services along with retail brokerage services. It is a good example of a consolidation trend evident in the industry.

In Canada, CI bought Sentry Investments in 2017, and a majority stake in Aligned Capital Partners last year. Also in 2020, CI made several direct registered investment adviser (RIA) acquisitions in the United States, totalling US$20-billion in assets under management. Just last month, CI said it acquired Barrett Asset Management, a New York-based RIA, with US$2.5-billion in assets under management. And on Monday CI said it had reached a deal to acquire full ownership of Lawrence Park Asset Management, a Toronto-based alternative asset manager. All of our valuation models for CI are greater than current price.

Headquartered in Montreal, Fiera Capital Corp. has a focus on institutional, financial intermediary and private wealth clients. Fiera has more than $180-billion in assets under management, with almost half in fixed income. About 10 per cent of its holdings are in private alternative assets that include real estate, infrastructure, and private equity. Our valuation models range from $8.84 to $16.11 for the stock, with our overall valuation at $10.57. Note that Fiera has the highest dividend yield in the table and has maintained its quarterly dividend of 21 cents throughout the pandemic.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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