Morningstar | CIX Updated Forecasts and Estimates from 02 Apr 2019
There was little in narrow-moat CI Financial's fourth-quarter results that would alter our long-term view of the firm. We are leaving our CAD 24 per share fair value estimate in place. The company closed out 2018 with CAD 124.4 billion in AUM, reflective of an 8.9% (13.1%) sequential (annual) decline in the company's fund assets. Assets under administration, which includes assets held by Assante Wealth Management and Stonegate Private Counsel, fell 5.7% (2.1%) sequentially (year over year) during the fourth quarter. With the Canadian fund market seeing its worst quarter of fund sales and investment performance in a decade during the December quarter, it was no surprise to see CI Financial lose another CAD 2.2 billion (by our estimates) to outflows during the period. This brought full-year firmwide organic growth to negative 4.0%, the company's worst showing on an annual basis since the 2008-09 financial crisis.While average AUM was down just 5.6% year over year, fourth-quarter revenue decreased 11.0% as shifting product mix and declining fee rates limited top-line growth. Full-year revenue growth of 5.9% was in line with our expectations. We expect ongoing fee pressures (and a lack of additional acquisitions) to push top-line growth to a negative mid-single-digit annual rate on average during the remainder of our five-year forecast. As for profitability, CI Financial's operating expenses increased at a slightly faster rate than revenue (while its interest expense nearly doubled), leaving full-year pretax margins down 60 basis points to 37.7%. While CI Financial strives to limit the impact of fee compression through cost containment, ongoing pressure on fees, as well as the need to spend more heavily to improve investment performance and enhance distribution, will blunt much of the operating leverage that has been inherent in its asset-management business, with pretax margins likely to remain range bound between 35%-38% of revenue during 2018-22.
CI Financial is a wealth management firm and an independent investment fund company. The principal business of Co. is the management, marketing, distribution and administration of mutual funds, segregated funds, exchange-traded funds, structured products and other investment products for investors. Co. has two main business segments: Asset Management, which is engaged in the management of families of mutual, segregated, pooled, exchangetraded, and closed-end funds, structured products and discretionary accounts; and Asset Administration, which is engaged in the sale of mutual funds and other financial products, and ongoing service to clients and capital market activities.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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