Canaccord Genuity Group Inc. (TSX:CF) is a Canadian investment bank that also has wealth management operations in both North America and Europe. Shares have fallen 42% in the last five years as the slowdown in both Canada’s resource and energy sectors have hit the company hard.
Canaccord serves as a vital part of the underwriting process, helping companies raise money from the public markets. Although it has operations in various parts of the world, the Canadian capital markets continue to be its most important area. 2016 was the worst year for Canadian IPOs in years.
The company is taking steps to make it through today’s tough times. It eliminated the quarterly dividend and took an axe to employee compensation. It also allocated more resources to markets outside of Canada, where activity is a little stronger. And the wealth management division continues to post steady results.
The market has noticed. Canaccord shares dipped below $4.00 each in April 2016. They’ve rallied smartly since, hitting a high of $5.50 earlier in March. These days, one Canaccord share will set you back $5.16.
This is still cheap. Remember, shares were $12.00 each as recently as 2014. Canaccord also posted $0.67 per share in free cash flow over the last twelve months, and shares currently trade at just 1.1 times book value. It has a great balance sheet as well, with just $75 million in debt versus $2.77 billion in assets.
Canaccord has a history of trading low and then shooting much higher as capital markets recover. If it does the same thing after this cycle, upside potential is anywhere from 100% to 250%.
