market folly

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Kim Shannon, co-CIO of Sionna Investment Management.  She pitched CI Financial (CIX.TO), seeing 68% upside.


Kim Shannon's Capitalize For Kids Presentation: Long CI Financial

•    “Disruption Trap or Contrarian Value?”
•    Thinks tech disruption of a theme is too far, too fast
•    Mentions the Gartner Hype cycle and thinks the expectations are too high for this company.
•    Some do get disrupted, many don’t. Thinks more companies are victims than would be true. Reminds her of the wake of dot-com bubble where there were good opportunities
•    Factfulness is a great book that she thinks is relevant for this situation and it goes over human errors and emotions. More negative and fearful than one needs to be.
•    Lots of quotes of historical misjudgements of future trends. “You’ll never make money on the internet” Bill gates to Steve jobs in 1995. This is one of the quotes she shared on it
•    Humans are clearly not great at extrapolating tech disruption

•    The Stock
o    Is cheap - 8.6 PE
o    P / CF is 8.3x
o    37% below 52 Week high
o    48% ATH, Low financial risk - Net debt to equity is .43
o    Interest coverage is 25x times
o    2.3x debt re-payability
o    Solid profits and earnings, high ROIC, ROE >20%, Growing EPS will continue to grow
o    Should trade at a premium multiple.
o    Insiders been buying YTD, no sales. Buying accelerated. Company plans to increase share repurchases
o    CI Financial
o    Unlikely supporter as they used to be a big subadvisor in 2006. 90% of revenue at the time. Shows some articles about the squabble
o    Amazing sales machine and cost control and great serial acquirers. Watched spectrum united deal after it closed. Took out most of its costs.
o    Just bought Sentry and cut cost there too.
o    Skillful, aggressive capital allocators. One of the firsts into the “income trust” game


•    Why has it fallen?
o    Dividend cut
•    Typically shows weakness in ops
•    But they chose that they’d rather buy back stock as its accretive. Don’t want to be constrained by dividend payments when they can buy back shares or make acquisitions
•    This is the market taking the wrong signal from this action.
o    Negative perception of fund management
•    Regulatory pressure
•    Fee pressure
•    Redemptions
•    Lower fee substitutes
•    Secular vs. cyclical pressure on returns
•    Over done?


•    Suggests active management death debate is overblown
•    Still has profit margins >30%
•    Despite fee pressure of -3-4% per year
•    Can balance the fee pressure with synergies from acquisitions, cost control thru tech
•    Indications that alts which have not out performed S&P500 last decade may stop taking asset flows
o    Maybe peaked due to capacity constraints
•    Largest independent fund manager in Canada
•    Believe at $19 is a contrarian value buy
•    Worth $32, 68% upside
•    In Jan, was as cheap as $30
•    Potential takeover target - as it has significant scale in Canada and would be attractive to global player looking to make headway in the market


Be sure to check out the rest of the presentations from Capitalize For Kids 2018.