Even though the financials do not have as strong fundamentals as other sectors, there is value to be found in select companies. Laurentian Bank, which was my last pick in the financial has returned over an 18% gain since January. Using similar metrics I have picked 3 Canadian financial firms which I believe will outperform the TSX Financial Index.
1) GMP Capital Trust (TSX:GMP.UN) is a Sector Outperform at $19.30
The most attractive of the Financials is GMP Capital Trust. GMP is an investment banking house, which operates in three business segments: the Capital Markets segment, which consists of the investment banking, equity research, and sales and trading capabilities of the Fund; the Wealth Management segment, which consists of the full-service investment brokerage services of the Fund, and the Private Capital Management segment, which consists of the capital, strategic direction, business and financial advice provided to mid-market and early stage companies by EdgeStone Capital Partners, L.P.
GMP has an Return on Equity of 50% and a Net Profit Margins 32%. Furthermore, they are experiencing growth rates north of 30% and have been consistently raising their dividend payouts over the past few years, with a current yield north of 11%. At a current P/E of 8 times earnings this company presents tremendous value.
2) TSX Group (TSX:X) is a Buy
TSX Group Inc. owns and operates two national stock exchanges, Toronto Stock Exchange, which serves the senior equity market and TSX Venture Exchange, which serves the public venture equity market; Natural Gas Exchange Inc. (NGX), which is an exchange for the trading and clearing of natural gas and electricity contracts in North America, and Shorcan Brokers Limited (SBL), which is a fixed income inter-dealer broker.
While the recent acquisition of the Montreal Exchange is slightly dilutive, it now makes the TSX the only exchange in Canada for all equities and derivative contracts, giving it pricing power and eliminating any competition. The TSX has a 35% Net Profit Margin, a Return on Equity of 74% and is experiencing good earnings growth. While expensive for a financial at 20 times earnings, the fundamental profitability and growth warrant a higher multiple. The TSX has been constantly raising dividends, the dividend payout has increased over 450% over the last 5 years, with a current yield of 3.3%.
3) CI Financial Income Trust (TSX:CIX.UN) is a Buy
CI Financial Income Fund (CI) is a diversified wealth management firm. The principal business of CI is the management, marketing, distribution and administration of mutual funds, segregated funds, structured products and other fee-earning investment products for Canadian investors through brokers, independent financial planners and insurance advisors, including Assante Capital Management Ltd., Assante Financial Management Ltd. and IQON Financial Management Inc. CI operates through two business segments. The Asset Management provides the majority of CI’s income and derives its revenues principally from the fees earned on the management of several families of mutual, segregated, pooled and closed-end funds, structured products and discretionary accounts.
CI Financial has an Return on Equity of 37% and a Net Profit Margins 34%. Furthermore, they are experiencing growth rates north of 15% and have been consistently raising their dividend payouts over the past few years, with a current yield of 8.5%. At a current P/E of 11 times earnings this company presents reasonable value.
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