TSX Commentary

CI Financial (CIX) – $21.16 – Q4 In Line; Thoughts On A Potential BNS Transaction
Outperform, Above Average Risk, Price Target: $24.00
CIX reported Q4 normalized EPS of $0.24, in line with both RBC CM’s $0.25 forecast and consensus. On a standalone basis (i.e., excluding the Scotiabank transaction potential), RBC CM believes other asset management stocks (IGM and GS) offer greater valuation upside. CIX trades at 9.8x EV/forward EBITDA, a significant premium to IGM at 7.4x and AGF at 6.2x. RBC CM believes CIX’s valuation premium to IGM is too wide given similar growth and profitability. However, RBC CM’s Outperform rating reflects its view that CIX’s shares still offer a sufficient total return with additional valuation upside from a potential BNS transaction, although RBC CM’s target does not factor in a transaction with BNS. Excluding valuation upside from a potential BNS transaction, RBC CM believes CIX valuation upside is more likely to come from improving financial performance rather than valuation multiple expansion. A transaction with BNS still appears likely, although timing and structure are unclear in RBC CM’s view. CIX indicated it has had frequent discussions with BNS but acknowledged the progress of discussions is slower than expected. RBC CM believes two transaction possibilities are: (1) 2-step with a vend-in of BNS mutual fund assets followed later by a takeover; or (2) an outright takeover.