On today’s Breakouts report, there are six stocks on the positive breakouts list (stocks with positive price momentum), and 82 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a dividend stock that surfaced on the negative breakouts list – Fiera Capital Corp. (FSZ-T).
Since mid-2020, the share price has been range-bound, trading largely between $10 and $11.50. In recent weeks, the share price has swiftly moved down to the lower end of this trading band. Over the past three weeks, the share price has tumbled 11 per cent, putting this stock in correction territory. The share price may soon find downside support.
A brief outline on Fiera Capital is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Montreal-based Fiera Capital is an asset manager serving clients in North America, Europe and Asia. As at Sept. 30, its assets under management (AUM) totaled $180.8-billion. The company has three main distribution channels: institutional (52 per cent of AUM), financial intermediaries (40 per cent), and private wealth (8 per cent). Institutional clients include pension plans of institutions, as well as funds from municipalities, universities and charitable organizations. Financial intermediaries include funds accessed through strategic relationships. Lastly, private wealth includes high net worth investors, trusts, and estates.
In terms of geographical breakdown, as at June 30, 57 per cent of assets under management stemmed from Canada, 26 per cent from the United States, and 17 per cent from overseas.
Investment thesis
- Proven leadership with Jean-Guy Desjardins at the helm as the company’s chairman and chief executive officer.
- Reasonable valuation.
- Attractive 8.4-per-cent yield, providing a certain degree of downside protection in the share price.
- Rising dividend. History of dividend increases over the years, which investors can expect to continue in order for Fiera Capital to remain in the S&P/TSX Canadian Dividend Aristocrats Index.
- Technically oversold.
- Potential risks to consider: 1) low earnings growth limiting multiple expansion; and 2) net outflows. Last quarter, the company experienced net redemptions of $1.1-billion.
Quarterly earnings
Before the market opened on Nov. 11, the company reported better-than-expected third-quarter results that sent the share price higher by 8 per cent over the following two trading days on high volume. On Nov. 12, over 1.2 million shares were traded, well above the three-month historical daily average trading volume of approximately 385,000.
Fiera Capital reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $55.4-million, ahead of the consensus estimate of $51.5-million and up 3.8 per cent year-over-year. The adjusted EBITDA margin was 31.6 per cent, up from 31.5 per cent reported last quarter and 31.3 per cent reported during the same period last year. Adjusted earnings per share came in at 34 cents, exceeding the Street’s forecast of 31 cents but down from 35 cents reported during the same period last year. As of Sept. 30, assets under administration climbed to $180.8-billion, up 0.7 per cent from $179.2-billion reported last year. The company’s funded debt-to-EBITDA ratio improved, declining to 2.29 times - its lowest level in the past three years.
On the earnings call, president and chief operating officer Jean-Philippe Lemay highlighted management’s key objectives, “Moving forward, investment performance will remain a core and top priority for our business. Distribution, which you have heard us talk about for over a year now, will persist as an area of importance for Fiera for the delivery of our growth ambitions and the continuation of the privileged relationship we have with our clients. And ESG (environmental, social, and governance), which we look at from a responsible investing perspective and the CSR (corporate social responsibility) perspective will be an ongoing commitment. Finally, our dedication to returning value to shareholders will not change and remain a key priority.”
In the first quarter of 2022, management will be providing shareholders with its strategic business plan for the next three years.
Returning capital to its shareholders
Management is committed to returning capital to shareholders.
On Nov. 11, the company announced a 2.4 per cent dividend hike, increasing its quarterly dividend to 21.5 cents per share from 21 cents per share. This equates to 86 cents per share on a yearly basis, and a current annualized yield of 8.4 per cent.
Year-to-date, the payout ratio stands at a conservative 58 per cent based on cash flow from operations.
The company has also been actively buying back its shares. During the first nine months of 2021, the company repurchased 1.2-million shares for $13.4-million.
Analysts’ recommendations
This small-cap stock with a market capitalization of $1-billion is actively covered by eight analysts. Two analysts have “buy” recommendations and six analysts have neutral recommendations.
The firms providing recent research coverage on the company are: Barclays, Canaccord Genuity, CIBC World Markets, Desjardins Securities, National Bank Financial, RBC Dominion Securities, Scotia Capital and TD Securities.
Revised recommendations
Last month, four analysts revised their expectations.
- Barclay’s John Aiken cut his target price to $11 (the low on the Street) from $12.
- Canaccord’s Scott Chan lowered his target price to $12.50 from $12.75.
- CIBC’s Nik Priebe increased his target price to $11.50 from $11.
- National Bank’s Jaeme Gloyn bumped his target price to $12 from $11.50.
Financial forecasts
The consensus revenue estimate is $706-million for 2021, rising 5 per cent to $742-million in 2022. The consensus EBITDA estimate is $216.6-million in 2021, increasing 5 per cent to $228.5-million in 2022. The consensus earnings per share forecast is $1.42 in 2021, rising to $1.46 the following year.
Earnings forecasts have moved modestly higher. For instance, three months ago, the consensus estimates were $1.38 for 2021 and $1.44 for 2022.
Valuation
According to Bloomberg, the shares are trading at an enterprise value-to-EBITDA multiple of 7.6 times the 2022 consensus estimate, below its five-year historical average multiple of 9.1 times. On a price-to-earnings basis, the stock is trading at 7 times the 2022 consensus estimate, below its five-year historical average of 9.1 times.
The average one-year target price is $11.94, implying the share price may rise nearly 17 per cent over the next 12 months. Individual target prices are as follows in numerical order: $11 (from Barclay’s John Aiken), two at $11.50, two at $12, and three at $12.50.
Insider transaction activity
Quarter-to-date, one insider has reported trading activity in the public market.
On Nov. 25, Geoff Beattie, who sits on the board of directors, invested over $113,000 in shares of Fiera Capital. He purchased a total of 10,450 shares at a price per share of $10.89 for several accounts.
Chart watch
The stock has been a laggard.
Year-to-date, the share price is down 4 per cent, underperforming the 25 per cent return in the S&P/TSX SmallCap Financials Sector Index.
Since mid-2020, the share price has been range-bound, trading largely between $10 and $11.50, and is currently at the lower end of this trading range.
Over the past three weeks, the share price has declined 11 per cent. As a result, the stock is now in oversold territory with an RSI reading of 29.8. Generally an RSI reading at or below 30 reflects an oversold condition.
Looking at key technical resistance and support levels, the stock has a ceiling of resistance between $11.75 and $12. After that, there is overhead resistance around $13. Looking at the downside, there is technical support between $9.50 and $10.
This report is not an investment recommendation. The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty