CI Financial Corp. (TSX:CIX, Financial) is Canada's largest non-bank asset and wealth management company. CI operates primarily in Canada, but it also has U.S. operations, which it has recently set its sights on expanding.
In Canada, it has $150 billion in assets under management (AUM) and $79 billion in Canadian wealth management assets and operates a diversified business model across asset classes, investment strategies, product types and distribution channels.
In the U.S., it now manages $102 billion of U.S. wealth management assets, which has been amassed since it recently began pursuing a strategy to acquire U.S. based Registered Investment Advisory firms (RIA's) starting at the beginning of 2020.
The active asset management business is shrinking overall due to the popularity of passive investment strategies like ETF's, which is why the company is growing its wealth management business by focusing on high-net-worth clients.
According to the Globe & Mail newspaper, INK Research, which provides insider research services in Canada, has named William Holland, a board chairman of CI Financial Corp. (TSX:CIX, Financial), as INK Research’s "Insider of 2021." This selection was based solely on which officer or director of a Canadian public company had the most public-market insider buying since Jan. 1, 2021. INK reported that, "Mr. Holland racked up $20.1-million worth of public-market share buying this year." During the year, Holland bought 750,000 CI shares at an average price of $20.46.
Source: GlobeandMail.com
CI's stock has not been a good performer over the last decade but has recently revived following good execution of its U.S. wealth management acquisition strategy.
The following chart shows CI's revenue, net income and free cash flow on the first y-axis and the stock price on the second y-axis. Revenue is up strongly, though net income and FCF are still lagging. However, the stock price has gained lately, and shares are selling at an attractive forward price-earnings ratio of 7.5.
Another thing to note is that the acquisition strategy relies on increasing debt. This has raised the risk profile of the company. The company generates healthy free cash flow, and so debt is not yet too fearsome in my opinion, but if growth were to slow down (or if the stock market were to crash), the company could be in big trouble.
The company is buying back stock, which is another encouraging sign that could mean insiders are confident in the company's future. In the last three years, the company has bought back an impressive 8.2% of outstanding shares per year.
Analysts on Wall Street are expecting the company's income to grow 20% a year in the next two to three years.
Conclusion
While CI Financial's strategy of expanding from Canada to the U.S. using acquisitions with debt increases the risk profile of the company, the company's heavy stock buybacks and insider buying demonstrate conviction and confidence in the strategy. Additionally, the low forward price-earnings ratio and several other valuation metrics from the GuruFocus valuation panel are signaling undervaluation, as shown below.
I love seeing company insiders eat their own cooking. This together with the undervaluation makes the stock a buy in my opinion.
