EUR 850.00 For Business Accounts Only

Morningstar | Industry Sales Softness Affects CI Financial's 2Q Organic Growth; No Change to CAD 30 FVE

There was little in narrow-moat CI Financial's second-quarter results that would alter our long-term view of the firm. We've left our CAD 30 per share fair value estimate in place. CI Financial closed out the June quarter with CAD 138.2 billion in total assets under management, a 0.7% decline and 14.1% year-over-year increase in fund assets. Excluding the acquisitions of Sentry Investments and BBS Securities, which closed during the fourth quarter, the company's assets under management declined 1.6% year over year. Organic growth remained in negative territory during the second quarter, albeit spiking somewhat higher than first-quarter results due primarily to a falloff in sales as opposed to an increase in redemptions (which mirrored the discussion about soft second-quarter sales that we've heard from the other Canadian asset managers). As for assets under advisement, which includes assets held by Assante Wealth Management and Stonegate Private Counsel, the firm closed out the quarter with CAD 43.7 billion.

While average AUM was up 13.7% year over year, second-quarter revenue increased 10.7% as shifting product mix and declining fee rates limited growth in management and other fees. For the first half of the year, CI Financial's top line was up 12.4%, leaving it above our forecast for mid- to high-single-digit revenue growth for 2018. That said, we see the firm facing somewhat higher hurdles in the back half of the year, so see no need to alter our expectations. As for profitability, CI Financial's operating expenses increased at a slightly faster rate than revenue (while its interest expense nearly doubled), leaving first-half pretax margins down some 200 basis points at 38.1%. Profit margins have generally been down since 2014, and we expect this trend to continue, with first-half results more or less tracking with our forecast.