Morningstar | Market Gains Offset Outflows in CI Financial's 1Q; No Change to CAD 24 per Share FVE
There was little in narrow-moat CI Financial's first-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 March 2019 with CAD 131.3 billion in AUM, reflective of a 5.6% sequential increase and a 5.7% year-over-year decline in the company's fund assets. Assets under administration, which includes assets held by Assante Wealth Management and Stonegate Private Counsel, increased 9.2% sequentially and 7.0% on a year-over-year basis during the first quarter. Net outflows continued to plague CI Financial during the March quarter, with the company losing another $2.3 billion to net redemptions. Our expectation is that these outflows will continue for some time, with organic growth averaging negative 6% annually during 2019-23 (albeit improving slightly over time to negative 4% at the end of our five-year forecast).While average AUM was down 9.2% year over year, management fees declined 10.6%, with total revenue down just 8.1% on the backs of stronger administration fees year over year. While this was lower than our full-year forecast for a mid- to high-single-digit decline in revenue during 2019, the firm does face easier comparables in the back half of the year. As for profitability, CI Financial continues to have a difficult time keeping expenses from growing faster than revenue, with first-quarter adjusted pretax operating margins of 35.5% being down 220 basis points when compared with the prior-year period. While this is at the lower end of our longer-term forecast calling for pretax margins of around 35%-38% on average, it does demonstrate the pressures that the stand-alone asset managers are facing with ongoing fee pressures as well as the need to spend more heavily to improve investment performance and enhance distribution. This increased spend is blunting much of the operating leverage that has historically been inherent in CI's asset-management business.
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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