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Canaccord Genuity Group Inc. (OTCPK:CCORF) Q2 2024 Earnings Convention Name November 15, 2023 8:00 AM ET
Firm Contributors
Dan Daviau – President, Chief Govt Officer
Don MacFayden – Chief Monetary Officer
Convention Name Contributors
Stephen Boland – Raymond James
Graham Ryding – TD Securities
Operator
Good morning girls and gents. Thanks for standing by. I’d wish to welcome everybody to the Canaccord Genuity Group Inc. fiscal 2024 second quarter outcomes convention name.
All traces have been positioned on mute to forestall any background noise. After the audio system’ remarks, there will probably be a query and reply session. If you want to ask a query throughout this time, merely press star then the primary in your phone keypad. If you want to withdraw your query, please press star adopted by the quantity two. When you’ve got any difficulties listening to the convention, kindly press star then zero for Operator help at any time.
As a reminder, this convention name is being broadcast stay on-line and recorded.
I’d now like to show the convention name over to Mr. Dan Daviau, President and CEO. Please go forward, Mr. Daviau.
Dan Daviau
Thanks Operator, and due to everybody becoming a member of us for right this moment’s name. As at all times, I’m joined by Don MacFayden, our Chief Monetary Officer.
At this time’s remarks are complementary to our earnings launch, MD&A and supplemental financials, copies of which have been made accessible for obtain on SEDAR and on the Investor Relations part to our web site at cgf.com.
Inside our replace, sure reported info has been adjusted to exclude important gadgets to offer a clear and comparative view of our working efficiency. These adjusted gadgets are non-IFRS monetary measures. Please confer with our discover relating to forward-looking statements and the outline of non-IFRS monetary measures that seem in our investor presentation and in our MD&A.
With that, let’s focus on our second quarter fiscal 2024 outcomes.
Our second fiscal quarter was characterised by a continuance of the difficult backdrop for capital elevating actions and ongoing uncertainty round M&A completions in our core focus sectors. The S&P 500, the TSX Composite, and the MSCI World Index declined 3.3%, 2.2%, and three.3% respectively over the three-month interval. Buying and selling volumes throughout most of our core markets moderated from each the earlier quarter and 12 months in the past ranges.
Globally, CM volumes stay subdued as new components of uncertainty arose and international introduced M&A declined for 3 consecutive months. In opposition to this backdrop, our wealth administration enterprise continued to ship steady earnings contributions, which helps us ship a breakeven quarter regardless of losses incurred in our capital markets and company and different segments.
Agency-wide income for the three-month interval amounted to $337 million, which was roughly according to our earlier fiscal quarter. Income for the primary half of the fiscal 12 months amounted to $681 million, down 3% year-over-year. On an adjusted foundation, we earned pre-tax internet earnings of $16 million and $49 million for the three and six-month intervals, year-over-year decreases of 67% and 37% respectively. Excluding important gadgets, our firm-wide bills had been 3% decrease than the second quarter of final 12 months.
Compensation expense for our second fiscal quarter decreased by $22 million or 10% year-over-year, bringing our compensation ratio to 59%. Given the decreased income surroundings, adjusted non-compensation bills as a share of income was flat from the earlier quarter at 36%.
Our curiosity expense was 118% greater than the earlier 12 months’s comparability interval, primarily as a consequence of greater curiosity on financial institution loans to finance development in our U.Okay. wealth enterprise, and our communication and expertise bills elevated 6% year-over-year to assist our expanded enterprise and elevated funding in our regulatory and compliance capabilities.
Whereas value containment is at all times high of thoughts, our business is going through ever-increasing provider prices, inflation and restricted alternate options for the techniques that we depend on to execute for our purchasers and handle danger. We additionally incurred restructuring prices of $15 million in reference to the headcount reductions that we had beforehand disclosed in August.
We proceed to position a powerful deal with value self-discipline and have seen reductions in discretionary prices, notably G&A. Managing our prices higher positions us to realize our historic profitability ranges in a normalized surroundings and return capital to our shareholders. On that be aware, I’m happy to report that our board of administrators has permitted a quarterly widespread share dividend of $0.085.
Turning to the efficiency of our working companies, our international wealth administration division earned income of $187 million within the second fiscal quarter, a rise of 11% in comparison with the identical interval a 12 months in the past. Excluding important gadgets, the pre-tax internet earnings contribution from this division elevated 18% year-over-year to $33 million, and 70% of this quantity was contributed by our U.Okay. wealth administration enterprise.
The adjusted earnings per share contribution from this division was $0.12 for the second fiscal quarter, which was decrease than related income quarters as a consequence of a larger allocation of sure bills from our company and different section. On the finish of the fiscal quarter, firm-wide shopper property amounted to $93 billion, up 5% year-over-year however down 4% sequentially, reflecting decrease market values within the U.Okay. and Canada partially offset by new inflows.
We proceed to pursue optimistic internet asset contributions in all our areas, each organically and inorganically. Final week, we introduced that our U.Okay. wealth administration enterprise had acquired Clever Capital, a monetary planning agency primarily based in Glasgow with £220 million in shopper property. Pending regulatory approval and different customary closing situations, we count on completion to happen by the tip of the present fiscal 12 months. Whereas we’re at all times taking a look at potential acquisitions, our precedence is enhancing natural development, and we’ve applied a number of initiatives on that entrance.
We’re additionally experiencing stable ranges of engagement for our recruiting actions in Canada and Australia. This month, we welcome two new IA groups in our Canadian wealth enterprise and a number of other in Australia, which will probably be mirrored in our third quarter disclosures. I may also be aware that fee-based income in our Canadian enterprise accounted for 52% of second quarter income, which has helped us drive steady contributions from this enterprise regardless of the extended discount in new subject actions.
Turning to our capital markets enterprise, on a consolidated foundation income on this division was 30% decrease than the identical interval final 12 months at $145 million. Excluding important gadgets, this division recorded a pre-tax internet lack of $6 million with losses in Canada, the U.S. and the U.Okay. offsetting a modest revenue from our Australian enterprise.
With persistent inflation and central banks holding rates of interest greater for longer, the optimism that had been constructing within the capital markets started to retrench. Whereas we did expertise some optimistic momentum in deal exercise in the course of the quarter, underwriting actions stay fairly depressed when in comparison with historic ranges. Totally on the again of a extra accommodating Australian useful resource market, income from this section was $31 million for the three-month interval, according to the earlier fiscal quarter.
All geographies skilled declines on a year-over-year foundation, however our U.Okay. and Australian companies each reported will increase when in comparison with our first fiscal quarter. The mining sector accounted for 53% of whole underwriting exercise in Q2 and continues to be one of many few vivid spots for brand spanking new subject exercise, though demand was restricted to a small subset of underlying commodities.
On a consolidated foundation, income from M&A advisory actions was $46 million for the quarter, which is lower than one half of the place it was a 12 months in the past and according to the broader business, reflecting weaker completions and announcement developments. The 14% improve over first quarter income was pushed by modest M&A development in our U.S. and U.Okay. companies. The expertise sector accounted for 77% of our advisory exercise in the course of the three-month interval.
Principal buying and selling income of $20 million was according to the primary fiscal quarter and declined 25% year-over-year, primarily attributed to decrease exercise ranges within the U.S., which is our largest buying and selling operation. Fee and price income elevated by 7% year-over-year to $39 million, reflecting greater shopper buying and selling exercise and a modest uptick in new subject exercise.
Heading into our third quarter, M&A and underwriting exercise ranges are monitoring greater than within the first half of the fiscal 12 months. We now have a powerful pipeline of introduced offers and we proceed to see more healthy ranges of latest engagements, with many offers launching now. Barring one other main setback within the coming months, we’re cautiously optimistic that M&A income will meaningfully enhance within the second half of this fiscal 12 months.
Engagement ranges amongst our company purchasers and their need for capital stays excessive inside our core sectors and geographies. That stated, traders proceed to be even handed about placing cash to work. We’re seeing some elevated exercise however stay cautious in our outlook till we see a extra sustained restoration for danger capital available in the market.
Like most market members, we’re inspired by indications of enhancing sentiment as traders start to look previous the troublesome surroundings that we’ve endured for nearly two years. Nonetheless, we count on that the capital markets will proceed to be challenged for some time longer as traders await a transparent inflection level. We proceed to guard our sturdy market place and I’m very assured that we’ll seize a significant share of exercise in our core sectors when alternatives current.
Though we’re being practical in regards to the present macro pressures that we’re all going through, we proceed to spend money on our enterprise and our folks, and we regularly assess alternatives to materially enhance our enterprise. We’re absolutely supporting our capital markets enterprise via this downturn whereas we’re additionally pursuing natural and inorganic development in our international wealth administration companies. We even have a number of main workplace relocations deliberate and extra investments to advance our expertise and compliance infrastructure. That stated, we’re at all times managing our steadiness sheet fastidiously to guard our skill to offer excellent alternatives and experience for our purchasers in any market backdrop.
With that, Don and I will probably be happy to reply your questions. Operator, might you please open the traces?
Query-and-Reply Session
Operator
Thanks. Girls and gents, we are going to now conduct a query and reply session. [Operator instructions]
We now have our first query coming from the road of Stephen Boland from Raymond James. Please go forward.
Stephen Boland
Morning all. I definitely need to be delicate to what’s developed within the Center East clearly within the final month and alter. I’m simply questioning, when it comes to the U.Okay. division, the surroundings itself, is the business and yourselves type of on maintain, or are offers and–you know, whether or not it’s offers or M&A, is that on maintain, is it a wait-and-see surroundings over there, to see what–you know, hopefully it ends in some unspecified time in the future. Once more, making an attempt to be delicate within the query there.
Dan Daviau
Sorry, is it a capital markets query or a wealth administration query? Simply so I perceive.
Stephen Boland
Capital markets.
Dan Daviau
Okay. No, I don’t suppose issues are on maintain. I believe we’ve been clear in our commentary that, , cautiously optimistic. More durable to measure, as , the brand new subject enterprise, though that’s selecting up, however clearly the M&A enterprise is selecting up. We’ve seen whole lot announcement exercise, whole lot launch exercise, a number of the uncertainty related to the financing in offers has disappeared, or moderated, possibly not disappeared. Notably within the U.Okay., I believe we really feel fairly good about that market enhancing, if that’s your query.
The brand new subject aspect, you simply don’t know. I imply, we’re clearly lively, notably in a few sectors. I’m undecided that danger capital has returned to the market but. Yesterday’s announcement was optimistic and the market response was optimistic, however someday doesn’t make a pattern, so let’s see the way it performs out for the subsequent month or so.
Stephen Boland
Okay, and simply when it comes to capital, your internet working capital, I believe is below 700 – I believe I noticed that quantity, was it 699, I believe? As this exercise maybe ramps up a bit bit, are we going to see much more purchased offers? Do you suppose you’re going to begin to see extra, if it’s new subject, that it is a finest efforts kind of surroundings? What’s your thought there, relying on the area as effectively? I do know Canada and possibly Australia–
Dan Daviau
Sure, all our regulated markets have totally different capital necessities for offers, and the offers are achieved in a different way. I do know you’re acquainted with the Canadian system. We maintain reserves for capital for transactions. Clearly we didn’t earn any cash final quarter so we didn’t enhance our capital place. As well as, we’ve received quite a few massive capital expenditures coming via, massive workplace strikes. You already know we moved in Toronto, we’re shifting in Vancouver, we’re consolidating our places of work in New York, so there’s undoubtedly an funding that we’re making within the enterprise and really feel snug about that. However sure, we proceed to have adequate capital to conduct our enterprise and do underwriting, if that’s your query.
Stephen Boland
Okay, thanks. My final one will probably be simply any update–just possibly within the MD&A someplace or within the notes, I apologize if I missed it, the regulatory subject with the overseas subsidiary and the buying and selling operation, is there any replace there or any change within the provision [indiscernible]?
Dan Daviau
Sure, nice query. No, there’s no replace. There’s no replace we’ve got, not to mention replace that we will present to the road. No materials developments both approach.
Stephen Boland
Okay, that’s it for me. Thanks.
Dan Daviau
Nice questions.
Operator
Our subsequent query comes from the road of Graham Ryding from TD Securities. Please go forward.
Graham Ryding
Hello, good morning. Dan, you made some feedback about troublesome to foretell however you stated the pipeline is stronger, you’ve began seeing some offers launching now. Is that extra of a reference to the M&A aspect of the exercise and the pipeline that you just’re seeing, or is {that a} reference to each, you’re seeing some optimistic indicators on–
Dan Daviau
A little bit bit each, but when I needed to choose one, it’d be M&A. I imply, M&A, we’ve got higher visibility on, as you possibly can think about. The method is a three- or six-month course of. We’re seeing timelines are available in, we’re seeing offers launching now. We’ve clearly seen good stage of bulletins, offers introduced, awaiting closing, so I believe we’ve received extra confidence in telling you that about M&A than we do about new points. As , we’ve received plenty of corporations who wish to entry the general public markets question whether or not there’s a adequate shopping for viewers on the market to really get offers achieved, so.
As you’ve heard me say earlier than, within the final two recessions the market bottomed in October, shockingly, the month that we simply completed, but the economic system didn’t backside till six or eight months later, so we’re once more cautiously optimistic the market will enhance, the financing surroundings for small and midcap issuers will enhance, and due to this fact our enterprise will enhance, nevertheless it’s too untimely to foretell that, Graham.
Graham Ryding
Okay, that’s honest. Then I assume at a macro stage, what are you, I assume, paying most consideration to when it comes to seeing market volatility, is it deal exercise possibly with massive caps? What are you protecting your eye to present you some consolation, or your company issuer purchasers, provide you with some consolation that exercise would possibly choose up?
Dan Daviau
Sure, even on this market we’re nonetheless lively, simply not as lively, and deal sizes are smaller, so it’s reception of offers primarily. We’re reverse inquiries into corporations, there’s plenty of traders who’re very supportive of their present issuers, present corporations they’ve investments in, and we’re seeing if we will spherical out a few of that. Basic stage of market exercise, I’d argue, however I do know that’s not reply to your query. However that’s type of what we’re wanting via, and we do see, as you possibly can think about with our $93 billion of wealth property, we do see the flows inside our wealth enterprise as effectively, and that’s generally a fairly good indication of what we’re doing and the place we’re going.
The Australian market was lively, notice our summer season is their winter, so the Australia market was lively within the quarter we simply reported and continues to be lively. That’s primarily mining pushed and even within the mining pushed, it’s primarily a subset of mining – for lack of a greater time period, electrification kind shares, uranium and uncommon earths, lithium. However that’s been lively for us and can proceed to be.
Graham Ryding
Okay, that’s useful.
On the wealth aspect, might you possibly simply give us some context on what you’re seeing on common out of your purchasers, each within the U.Okay. and Canada, like is that this a market the place purchasers are more and more deleveraging and placing cash maybe into money, or are you truly seeing–and is that impacting your natural flows and your natural development in these platforms?
Dan Daviau
Sure, I believe the natural flows have been–I’ll reply your query backwards. The natural flows, we proceed to draw internet new property, that’s been the case in our tradition. It’s in our tradition within the U.Okay., it’s in our tradition in Canada and in Australia, so the query is rarely how a lot property we entice, it’s the property you lose, since you’re at all times measuring internet new property. The issue in an inflationary market is you lose property not for efficiency, not as a result of they’re being pulled out of our system, however as a result of folks want their cash or their youngsters want their cash, so we’ve seen some property pull out. However that, we’re nonetheless optimistic, internet new property are optimistic, however controversial simply life-style property are getting pulled out.
By way of their funding portfolios, we haven’t seen a cloth change. Folks don’t go away money sitting round as a lot anymore – they’re investing briefly time period mounted earnings securities versus simply leaving it in money, however in addition to that, we haven’t seen materials shifts in our purchasers’ portfolios. I’m taking a look at Don after I’m answering that query.
Don MacFayden
Sure, that’s proper. We do have money associated, or earnings kind associated merchandise, so purchasers in a low rate of interest surroundings can be extra prone to be leaving money of their accounts or investing in equities, however we’ve got various merchandise on this surroundings that can maintain the property within the system, so to talk, fairly than have them go outdoors with a view to generate that return. Shoppers have outdoors pressures the place they in any other case may need borrowed to fund one thing; now, they’re taking a look at not borrowing and utilizing their property that we might have in any other case held, so it’s a mixture of all these issues and we’re seeing that as with everyone else.
Graham Ryding
Okay, understood. One final one, if I might – simply the restructuring cost you took within the quarter, are you largely achieved on that entrance for now, and if there may be any one-time gadgets coming via within the subsequent quarter or so, is that going to be associated to your workplace relocations or are you largely achieved within the restructuring aspect of issues for now?
Dan Daviau
We’re largely achieved on the restructuring aspect of issues. There is likely to be a bit bit move via in subsequent quarters as provisions and so forth get trued up, however nothing substantive or materials. With respect to workplace strikes and so forth, I don’t suppose we are going to see something distinctive flowing via the P&L on that entrance. We’re shifting coincidental with termination of present leases and actual property, so there’s no distinctive prices on that entrance.
Graham Ryding
Okay. That’s it for me, thanks.
Operator
There aren’t any additional questions at the moment. I’d now like to show the decision again over to Mr. Daviau for closing remarks.
Dan Daviau
Effectively, thanks everybody. That can conclude the second quarter remarks, and hopefully mark a low level in our enterprise. I perceive a pair analysts are on the highway right this moment, in order you type of take heed to this name, we’re comfortable to catch up later. We sit up for our subsequent quarterly replace in February, and within the meantime, I’d like to increase my finest needs to all of you within the upcoming vacation season, and positively for our U.S. colleagues, comfortable Thanksgiving.
As at all times, Don and I can be found to reply questions later, so thanks once more very a lot.
Operator
Thanks. Girls and gents, this concludes your convention name for right this moment. Thanks for collaborating. Please disconnect your traces.
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