Pacific Trader: Canaccord Genuity goes back to market

The $1.1-billion management buyout at Canaccord Genuity Group (TSX:CF) announced in January has been officially shelved. The question is could there be some value left on the negotiating table for patient investors?

Credit: Canaccord Genuity

Canaccord Genuity’s 2022-23 results were down with the markets. But markets always recover

What now for the storied investment bank, since management called off its takeover?

The stock: The $1.1-billion management buyout at Canaccord Genuity Group (TSX:CF) announced in January has been officially shelved. And with that, the stock has sunk back to its pre-bid trading range around $8.15 as of the close on June 20 (down from a high of $11.64 in February).

The question: Could there be some value left on the negotiating table for patient investors? The insiders behind the bid, not to mention the board that ultimately rejected their $11.25-per-share offer, evidently felt there was.

The drivers: It’s hard to be an independent financial services outfit of any size in Canada, where the big banks are allowed to compete on almost every front. Canaccord, which has been operating under one name or another in Vancouver since 1950, has so far escaped the fate of its dwindling breed. In recent years, the company invested in its wealth management division, operating in Canada, the United Kingdom and Australia, to counteract the cyclical nature of its traditional capital markets business. Wealth management now represents just under half the group’s revenues.

Still, profits suffer in adverse investment markets, including the past year’s. The company lost $7.2 million on revenues of $430.4 million in the fourth quarter ended March 31. Full-year revenue was down 26 percent to $1.5 billion, with a $101-million net loss. However, client assets held their ground for the year at $96 billion.

This week Bloomberg reported that Canaccord had cut its employee bonuses, bringing total compensation costs down by a quarter over fiscal 2023. The promise for investors is that markets will recover, as they always do, and with them Canaccord’s earnings and share price, without the firm’s best talent heading for the exits first.

Word on the street: With the collapse of the buyout, TD Securities analyst Graham Ryding lowered his target to $10 but still rates the stock a “buy.”

Coming and going: Long-time quantum computing moonshot D-Wave Quantum (NYSE:QBITS) said earlier this month it will move its headquarters from Burnaby to the U.S. The announcement comes as accounting firm PwC Canada elected not to renew its relationship with the company. In the preamble to D-Wave’s 2022 annual report, the accountants noted that the firm’s ongoing losses and deteriorating balance sheet raised “substantial doubt about its ability to continue as a going concern.”