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Fiera Capital: This Asset Manager Is Yielding 9.3%

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CHUNYIP WONG

Author's Note: All costs successful Canadian rate unless different noted.

Investment Thesis

Fiera Capital Corporation (TSX:FSZ:CA) (OTCPK:FRRPF) is simply a institution astatine a transverse roads. Since its founding successful 2002, this plus head grew quickly and amassed a important portfolio of fee-bearing assets nether management. During this period, nan institution rewarded shareholders pinch important dividend growth. Since 2019 however, marketplace capacity and a nonaccomplishment to pull nett caller superior has led to a diminution successful assets nether guidance aliases "AUM" and a deceleration successful gross growth.

As portion of a turnaround strategy, nan institution has reinstated its laminitis arsenic CEO to stimulate inflows of superior and resume AUM growth. Fiera is presently yielding complete 9.3% and has launched a important share-repurchase program. This charismatic dividend is supported by a business exemplary that produces precocious EBITDA margins. While dividend maturation was paused successful 2022, nan current output is covered pinch a payout ratio of astir 60%. If Fiera tin execute connected its strategy and resume AUM growth, investors will beryllium paid nicely while they wait.

Company Profile

The Canadian financial assemblage punches supra its weight internationally. Banks including Toronto Dominion (TD), Royal Bank (RY); plus managers for illustration Brookfield Asset Management (BAM) and insurers including Manulife (MFC) are among nan largest successful nan world. It is easy to place Fiera and different smaller firms successful nan financial services industry. It tin beryllium adjuvant to look past nan biggest firms to spot different imaginable rising stars successful this industry. Think National Bank of Canada (NA:CA)(OTCPK:NTIOF) successful nan banking sector, Intact Financial (IFC:CA)(OTCPK:IFCZF) successful nan security abstraction and Fairfax Financial Holdings (OTCPK:FRFHF) successful plus guidance and, perhaps, Fiera Capital Corporation.

Formerly known arsenic Fiera Sceptre Inc., Fiera Capital Corporation is nan third-largest wealthiness guidance patient successful Canada. Headquartered successful Montréal, Canada, Fiera has a increasing world beingness pinch offices successful Toronto, Calgary, Vancouver, Frankfurt, London, Singapore and Hong Kong. Approximately 62% of Fiera's gross is derived successful Canada, pinch a further 23% originating successful nan U.S. and 16% successful Europe and Asia.

Fiera Distribution Channel

Fiera Distribution Channel (Fiera Capital Corp)

As an independent world plus manager, Fiera provides finance advisory and related services to organization investors, communal funds, charities arsenic good arsenic backstage wealthiness clients. The company's halfway plus guidance business is focused chiefly connected equities and fixed income, however, nan institution is diversifying into replacement and backstage plus management. Fiera's strategy since inception has been to turn assets and thrust separator description by achieving scale. Fiera besides has opportunities to capitalize connected nan organization request for boutique plus guidance services that merge ESG considerations and fossil-fuel free ethical select investments.

Fiera has a marketplace capitalisation of astir $940M. The institution trades connected nan Toronto Stock Exchange nether nan ticker "FSZ" pinch regular mean measurement of astir 200,000 shares.

New-ish Leadership

On January 23, 2023, nan institution announced it has re-appointed its laminitis and Executive Chairman Jean-Guy Desjardins arsenic CEO effective immediately. Desjardins who is succeeding Jean-Philippe Lemay antecedently held nan CEO position pinch Fiera from September 1, 2010, to December 31, 2021. For a mini institution for illustration Fiera, activity is very impactful. A CEO pinch nan correct imagination and knowing of nan situation tin make nan quality betwixt a return to maturation aliases stagnation. Fiera guidance has beardown alignment pinch shareholders, pinch insiders holding a controlling liking successful nan patient pinch an ownership position of astir 16%.

Assets Under Management

Inflows successful nan astir caller 4th were disappointing, leaving AUM fundamentally unchanged. On January 30, 2023, Fiera reported a preliminary estimate of assets nether guidance of astir $158.5B arsenic astatine December 31, 2022 compared to $188.3B arsenic astatine December 31, 2021. The patient knowledgeable a nett diminution successful AUM of 15.8% twelvemonth complete year, aliases almost $30B. This diminution is not needfully unsocial to Fiera. For example, plus guidance giant, BlackRock, Inc (BLK) saw AUM driblet 16% year-on-year to $7.96 trillion successful nan 3rd quarter. AUM matters arsenic a cardinal capacity measurement arsenic it is nan cardinal driver of revenue. At $150M successful Q2 2022, guidelines guidance fees derived from AUM accounted for 92% of full revenue.

Assets Under Management

Assets Under Management (Fiera Capital Corp)

By Investment Platform

AUM arsenic at

Quarter-over-Quarter Change

Year-over-Year Change

(in C$ billions)

December 31,

2022

September 30,

2022

December 31,

2021

(in $B)

%

(in $B)

%

Public Markets

140.3

140.0

172.4

0.3

0.2 %

-32.1

-18.6 %

Private Markets

18.2

18.3

15.9

-0.1

-0.5 %

2.3

14.5 %

Total

158.5

158.3

188.3

0.2

0.1 %

-29.8

-15.8 %

By Distribution Channel

AUM arsenic at

Quarter-over-Quarter Change

Year-over-Year Change

(in C$ billions)

December 31,

2022

September 30,

2022

December 31,

2021

(in $B)

%

(in $B)

%

Institutional

84.3

81.1

94.6

3.2

3.9 %

-10.3

-10.9 %

Financial Intermediaries

60.3

63.3

78.5

-3.0

-4.7 %

-18.2

-23.2 %

Private Wealth

13.9

13.9

15.2

0.0

0.0 %

-1.3

-8.6 %

Total

158.5

158.3

188.3

0.2

0.1 %

-29.8

-15.8 %

Source: Fiera Capital

The gait of outflows appears to beryllium moderating, however, arsenic marketplace conditions improve. Over nan past 12 months, nan 14.5% maturation successful backstage markets investments was positive, but not capable to offset an 18.6% erosion successful nationalist marketplace AUM. The maturation successful backstage markets comparative to nationalist markets is an parameter that Fiera has been capable to solicit its backstage marketplace work arsenic an charismatic replacement to nationalist equity and fixed income markets. Organic backstage marketplace AUM grew 7% successful nan 4th and 22% year-on-year. This is simply a promising inclination arsenic fewer margins are higher for Fiera's backstage marketplace segment, than its nationalist markets business.

Dividend Yield and Safety

Fiera pays a quarterly dividend of $0.215 for an yearly payout of $0.86. The existent dividend output of 9.3% is good up of nan company's 5-year mean output of 7.9%. From 2012 to 2021, Fiera embarked connected a play of sizable yearly dividend increases, fuelled by dependable interest growth. Over this period, nan 10-year CAGR is 10.4%. With nan past dividend summation successful Dec 2021, nan cadence of increases on pinch nan magnitude has slowed. The 5-year dividend CAGR is 4.20%, reflecting a slow-down successful nan maturation of nan underlying plus guidance business.

As of Q3 2022, past 12 months adjusted EPS was $1.53, moving retired to a dividend payout ratio of astir 60% connected nan $0.86 annualized dividend. On a free rate travel basis, Fiera's sum is simply a small tighter, pinch $88.2M successful dividends paid retired connected $92.5M successful free rate flow. Even during nan pandemic, location was only 1 4th successful 2020, wherever free rate travel didn't screen nan dividend.

Dividend Coverage

Dividend Coverage (Fiera Capital Corp)

Dividend Coverage

Dividend Coverage (Fiera Capital Corp)

On nan Q2 2022 net call, Lucas Pontillo, Executive Vice President & Global Chief Financial Officer, responded to 2 abstracted expert questions astir nan company's dividend. The CFO responded that he is comfortable that nan company's rate travel covers nan dividend:

We stay comfortable going guardant that we will efficaciously person free rate travel to screen nan dividend. So that's not a interest for america astatine this stage. And arsenic I've mentioned, moreover passim nan pandemic, we're perpetually accent testing our equilibrium expanse and rate travel for everything that's happening, not only successful equity markets but arsenic good arsenic sensitivity to liking rates. So we're rather comfortable going guardant pinch this.

I deliberation if you spell backmost historically, you'll spot that, again, nan free rate travel amounts that we would person covered nan dividend that we've had. And that's ever nan attack that we return successful position of sustainability of nan dividend and not benignant of nan output connected nan existent stock price.

If analysts from CIBC and RBC Capital Markets are inquiring astir nan company's assurance successful its dividend and its dividend policy, investors should return note. While nan dividend is sustainable pinch existent rate travel coverage, nan institution could still take to trim it, if it feels that nan stock value is not getting worth for nan dividend.

Returning capital

Fiera has renewed its Normal Course Issuer Bid allowing for nan acquisition and cancellation of up to 4,000,000 Class A Shares complete nan twelve-month play ending August 15, 2023. This equates to 3.9% of nan company's astir 103M outstanding people A and people B shares. Fiera's important dividend and stock repurchase plans are suggestive of nan institution beardown rate travel and charismatic margins. For nan afloat twelvemonth 2022, Fiera's mean dividend output was 9.9%. Adding this pinch nan 2022 buyback output of 5.3% indicates a full return of superior output to shareholders of 15.2%.

Risk Analysis

Fiera has been moving to deleverage its equilibrium expanse since nan pandemic. Its leverage ratio has returned to pre-pandemic levels astatine 3.27X, a important betterment from its highest of 3.93X successful March 2020. Over this period, nett indebtedness and funded indebtedness levels person besides normalized to 2019 levels.

Fiera's Leverage Ratios

Leverage Ratios (Fiera Capital Corp)

Fiera's cardinal consequence is simply a nonaccomplishment to execute connected its maturation plan. With AUM being nan cardinal driver of interest revenue, Fiera's occurrence hinges connected reinvigorating superior inflows. The institution has suffered nett redemptions successful 8 of nan past 10 quarter, causing a diminution successful AUM. Trading astatine 19X earnings, an anticipation of AUM maturation is priced in. Should Fiera's income proceed to sputter, nan patient could spot a aggregate re-rating that could wounded nan stock price. Equally, an equity marketplace downturn aliases prolonged recession that leads to nett redemptions for a sustained play would compel guidance to see nan level of nan dividend.

For a mini firm, nan nonaccomplishment of cardinal executive unit could person an effect connected operations. With nan caller replacement of nan CEO, pinch Fiera's founder, location will beryllium questions astir nan company's succession planning.

Investor Takeaways

Fiera is worthy a look for its output and imaginable reversion to growth. While nan dividend output and stock repurchase scheme unsocial will supply a bully return of superior to shareholders, I would for illustration to spot immoderate momentum successful AUM maturation earlier buying. This is an absorbing action for an investor pinch a agelong clip sky and nan consequence tolerance to hold retired a turnaround while collecting a 9.4% dividend yield.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

The Affluent Tortoise floor plan picture

I americium a value-oriented investor who seeks retired high-quality companies pinch agelong histories of dividend growth. I judge that diligent investors who build a halfway portfolio of dividend paying equities tin execute their status goals without taking connected unnecessary risk. Dividend maturation profiles are nan champion indicators of management's committedness to returning rate to shareholders. Dividend maturation investing involves identifying value companies pinch competitory advantages that supply visibility towards early rate travel growth. Warren Buffet erstwhile wrote "If you don't find a measurement to make money while you rest, you will activity until you die". Fundamental study and patience are nan devices I usage to build a portfolio of equities that will alteration my very comfortable retirement. Join maine successful exploring worth and growth-at-a-reasonable-price opportunities and successful building your ain income-producing portfolio of dividend stocks. I americium an investor pinch complete 20 twelvemonth of acquisition successful nan market. I clasp a B.Mgt and an MBA wherever I enjoyed studying some firm and individual finance.

Disclosure: I/we person a beneficial agelong position successful nan shares of RY, TD, BAM either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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