Shaky Markets Could Negatively Impact CI Financial

If RBC Capital Markets' ongoing concerns over the economy and equity markets are realized, the impact may prove especially ugly for asset managers like CI Financial Income Fund (CIXUF.PK).

According to analyst Geoffrey Kwan, the asset management sector has already been among the hardest hit by roiling markets, with total returns ranging from -17% to -34% since Oct. 2007, compared to -11% for the S&P/TSX Composite.

In a note to clients, reducing his 12-month targets and EBITDA/share forecast for his asset manager coverage universe, Mr. Kwan said:

Reflecting their sensitivity to equity market performance and relatively less diversified sources of earnings, we remain cautious on the near-term outlook for the asset managers as we believe there is increased variability to our financial forecasts (compared to our bank and lifeco coverage universe), resulting in higher share price volatility.

Regarding CI Financial, he reduced his rating from "sector perform" to "underperform" and lowered his price target from C$27.50 per unit to C$20.50 per unit.

Mr. Kwan said that CI Financial's historical premium valuation to the asset manager group should eventually narrow, even after factoring in the diminishing income trust premium.

There is little separating CI from its nearest competitor Investors Group [IIGI] when it comes to organic retail assets under management growth and EBITDA/share growth over the past few years the analyst said, adding Investors Group consistently delivers higher asset management EBITDA margins.