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Stockchase Insights Fiera Capital Corp FSZ-T HOLD Nov 11, 2024

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

The $4B withdrawal is fairly serious, though FSZ does have $166B, and it continues a trend of some assets leaving the company (including money that earlier flowed out to Pinestone following Nadim Risk's departure in 2021). On the plus side, it is coming at a time of good markets, and FSZ has seen some positive momentum recently (we have comments on its quarter posted). The 10% drawdown seems a bit much on the news, but any large $$ exit is never good for sentiment. But the drop may have been partly profit-taking as well, as shares have been on a roll prior to this event.
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$9.700

Stock price when the opinion was issued

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WEAK BUY

Really likes the investment management sector. It should be pretty good business in a time of a decent market and reflation. Great company. Decelerating revenue growth. Relative underperformer. Dividend is attractive at 8%. When a group gets into gear, you want to look at the leaders. He owns BX, CIX, BLK, IGM, and POW. You could also look at the IAI ETF.

BUY

Unusually high dividend should get your spidey senses tingling. Market doesn't believe dividend is sustainable, but he does and thinks it will grow slowly over time. Unique asset manager in that they've created some growth. Strong leadership. Dividend is compelling, doesn't foresee huge capital appreciation. Comfortable buying for income.

COMMENT

FSZ vs. ZWU Both pay around an 8% dividend, which at that level it's probably not pure dividend you're getting on a long-term basis. About 6.5% is the limit for a sustainable dividend level. Plus, you get worries about the future of hydrocarbon demand. He himself doesn't see this, but it's a scenario to consider. Both FSZ and ZWU, you're getting some of your capital back to fund their dividends--this is not sustainable. ZWU has underperformed the equal-weight bank ETF since inception. So, the covered call portion isn't adding value, but is an additional-fee generator. He's rather buy the underlying stocks. Fiera has done a ton of purchases, not all of them cheap or good. Their wealth management business has been positive in the last 18 months, but you risk a market correction and a major re-pricing of assets, more so than any Canadian bank.

DON'T BUY

Believes company has done good job in growing & diversifying business. Largest portion of business in equities. Excited about move into private business models. Weak financial numbers lately a concern. Would not recommend buying company. Stick to Blackstone instead.

BUY ON WEAKNESS

Canadian asset manager that has seen low share price (higher interest rates).
AUM growth has been weaker due to choppy markets.
Cyclical business that will recover with flat interest rates.

DON'T BUY

Company seeing outflows in business.
Lots of debt negatively affected by rising interest rates.
Current share price very cheap.
Business moving sideways (not growing).
Prefer CI Financial/Guardian Capital.

COMMENT

It is in the field of asset management and manages $164 billion in assets. It has grown by acquisition in the last while but the stock price is too low now for them to use it as currency for more acquisitions. It needs to be bigger in this type of business and there are better places to be.

DON'T BUY

Doesn't pay a high dividend and carries a lot of debt. They do debt-fuelled acquisitions. He doubts they can maintain their dividend.

WATCH

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

EPS of 24c beat estimates of 19c; revenue of $162.9M missed estimates of $166M. Revenue is still declining, 1.1%, despite big market gains this year. But assets under management did rise 1%. EBITDA rose 0.9% and did beat estimates. There is good leverage on earnings with cost control. Assets seem to have stabilized, which was a big concern earlier. The stock is very cheap and the yield is still 6.4%, despite the 50% dividend cut. Still, it is hard to get too excited here. It has been a harsh value trap in the past. EPS is expected to surge this year but then only rise about 5% in 2026. The quarter was an improvement but we would like to see some further consistency here.
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