BUSINESS
Guardian Capital Group Limited, together with its subsidiaries, operates as a diversified financial services company in Canada and internationally. The company operates through Investment management, Wealth management, Corporate activities and investment segments. The Investment management segment provides investment management services provided to clients. The Wealth management segment is involved in investment management and advisory services to high and ultra-high net worth clients, commissions on life insurance products, mutual funds ,and other securities. The Corporate Activities and Investments segment comprises of investment of securities holdings, as well as corporate management and development activities.
INVESTMENT RATING
GCG.A is expected to be a modest Value Eraser reflecting capital returns that are forecasted to be below the cost of capital.
Guardian Capital Group has a current Value Trend Rating of C (Neutral).
The Value Trend Rating reflects contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. Guardian Capital Group has a slightly negative Appreciation Score of 34 but a good Power Rating of 74, resulting in the Neutral Value Trend Rating.
Guardian Capital Group’s stock is selling at targeted value. The current stock price of $45.69 compares to targeted value 12 months forward of $46.
This moderately low appreciation potential results in an appreciation score of 34 (66% of the universe has greater appreciation potential.)
Guardian Capital Group has a Power Rating of 74. (This good Power Rating indicates that GCG.A has a better chance of achieving attractive investment performance over the near to intermediate term than all but 26% of companies in the universe.)
Factors contributing to this good Power Rating include: the Security Brokers & Dealers comparison group is in a strong phase currently; and recent price action has been favorable. An offsetting factor is earnings estimate behavior for GCG.A has been slightly negative recently.
INVESTMENT PROFILE
GCG.A’s financial strength is high. Financial strength rating is 84.
Relative to the S&P 500 Composite, Guardian Capital Group Ltd has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that GCG.A is normal risk. Low financial leverage is a positive for GCG.A. Relative weaknesses include: low forecasted profitability, low expected growth, and high earnings variability. GCG.A’s valuation is moderate: moderate dividend yield, high P/E ratio, and low price/book ratio. GCG.A has unusually low market capitalization.
CURRENT SIGNALS
Guardian Capital Group’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Guardian Capital Group’s current technical position is very strong. The stock price is in a 16.8 month up move. The stock has appreciated 106.0% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Extremely significant negative changes in Guardian Cap Grp’s investment behavior have recently occurred: price decline on very heavy volume, and negative upside/downside volume.
Modest change in Guardian Cap Grp’s fundamentals has recently occurred: significant quarterly sales acceleration.
CASH FLOW
In 2023, Guardian Capital Group generated a slight increase in cash of +$11.7 million (+6%). Sources of cash were slightly larger than uses. Cash generated from 2023 EBITDA totaled +$135.8 million. Non-operating sources contributed +$2.0 million (+1% of EBITDA). Cash taxes consumed -$9.2 million (-7% of EBITDA). Re-investment in the business amounted to -$482.8 million (-356% of EBITDA). On a net basis, debt investors received -$6.8 million (-5% of EBITDA) while equity investors supplied +$372.8 million (+275% of EBITDA).
GCG.A’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the third quartile and second quartile. Currently, Guardian Capital Group is at the upper quartile at +1% of EBITDA (+$2.0 million).
GCG.A’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the third quartile and lower quartile. Currently, Guardian Capital Group is substantially below median at -7% of EBITDA (-$9.2 million).
GCG.A’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the second quartile and top quartile. Currently, Guardian Capital Group is lower quartile at -356% of EBITDA (-$482.8 million).
GCG.A’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the third quartile and lower quartile. Currently, Guardian Capital Group is slightly above median at -5% of EBITDA (-$6.8 million).
GCG.A’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Guardian Capital Group Peer Group. (Since 2020 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Guardian Capital Group was in the second quartile and third quartile. Currently, Guardian Capital Group is upper quartile at +275% of EBITDA (+$372.8 million).
GCG.A’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the top quartile and second quartile. Currently, Guardian Capital Group is substantially above median at +9% of EBITDA (+$11.7 million).
GCG.A’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Guardian Capital Group Peer Group. In most years, Guardian Capital Group was in the top quartile. Currently, Guardian Capital Group is upper quartile at +67%.
PROFITABILITY
GCG.A’s return on equity has eroded very significantly since 2014. The current level is 8.1% versus the high of 7.6% and the low of -8.0%.
This very significant erosion was due to very strong negative trend in pretax operating return and very small negative trend in non-operating factors.
The productivity of GCG.A’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend even as it experienced a very sharp recovery after the 2022 low.
Reinforcing this trend, pretax margin experienced a strong overall downtrend but it experienced a very sharp recovery after the 2022 low.
Non-operating factors (income taxes and financial leverage) had a very small negative influence on return on equity.
GCG.A’s return on equity is above median (8.1%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (6.8%) reflecting asset turnover that is at the upper quartile (0.17X) and pretax margin at the upper quartile (39.9%).
Tax “keep” rate (income tax management) is at the lower quartile (85.2%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is lower quartile (1.40X).
GROWTH RATES
There are no significant differences between Guardian Cap Grp’s longer term growth and growth in recent years.
Guardian Cap Grp’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 9.1% per year.
Total asset growth has been 11.4% per year.
Annual E.P.S. growth has been 7.4% per year.
Equity growth has been 11.8% per year.
No consensus growth rate forecast is available for Guardian Cap Grp.
Relative to the Guardian Capital Group Peer Group, Guardian Capital Group’s historical growth measures are consistently top quartile. Revenue growth (9.1%) has been upper quartile. Total asset growth (11.4%) has been upper quartile. E.P.S. growth (7.4%) has been at the upper quartile. Equity growth (11.8%) has been at the upper quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Guardian Cap Grp’s stock price performance has been good. Between July, 2013 and May, 2024, Guardian Cap Grp’s stock price rose +243%; relative to the market, this was a +15% gain. Significant price move during the period: 1) March, 2020 – March, 2022: +118%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 12.1% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through April, 2024 of 12.1% is at the upper quartile relative to Guardian Capital Group Ltd Peer Group.
Current 5-year total return performance of 17.4% is upper quartile relative to the S&P 500 Composite.
Through April, 2024, with upper quartile current 5-year total return of 17.4% relative to S&P 500 Composite, Guardian Capital Group’s total return performance is upper quartile relative to Guardian Capital Group Ltd Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, GCG.A’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/earnings before interest and taxes, then by the price/earnings ratio, then by the ratio of enterprise value/assets. The lowest factor, price/equity ratio, is lower quartile.
Relative to Guardian Capital Group Peer Group, GCG.A’s overall valuation is quite low. The highest factor, the ratio of enterprise value/assets, is below median. Price/equity ratio is below median. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is at the lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
Guardian Capital Group has a major value gap compared to the median. For GCG.A to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 4.00X to 9.65X. If GCG.A’s ratio of enterprise value/revenue were to rise to 9.65X, its stock price would be higher by $74 to $120.
For GCG.A to achieve upper quartile valuation relative to the Guardian Capital Group Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 4.00X to 14.86X. If GCG.A’s ratio of enterprise value/revenue were to rise to 14.86X, its stock price would increase by $143 from the current level of $46.
VALUE TARGETS
GCG.A is expected to be a modest Value Eraser reflecting capital returns that are forecasted to be below the cost of capital.
Guardian Cap Grp’s current Price Target of $47 is little changed from the current price of $45.69.
This moderately low appreciation potential results in an appreciation score of 34 (66% of the universe has greater appreciation potential.)
Notwithstanding this moderately low Appreciation Score of 34, the high Power Rating of 74 results in an Value Trend Rating of C.
Guardian Cap Grp’s current Price Target is $47 (+5% from the 2023 Target of $44 and +2% from the 05/01/24 price of $45.69). This plateau in the Target is the result of a +5% increase in the equity base and a +0% change in the price/equity multiple. None of the Value Drivers has an impact on the price/equity multiple. The forecasted increase in growth has no impact on the multiple. The forecasted increase in cost of equity also has no impact and the flat return on equity didn’t either.
PTR’s return on equity forecast is 4.0% — in line with our recent forecasts. Forecasted return on equity erratic but little changed between 2015 and 2023. The current forecast is below the 2019 peak of 9%.
PTR’s growth forecast is 22.0% — slightly above our recent forecasts. Forecasted growth exhibited a slight, erratic increase between 2015 and 2023. The current forecast is significantly above the 2020 low of 9%.
PTR’s cost of equity forecast is 5.1% — in line with recent levels. Forecasted cost of equity exhibited a slight, erratic increase between 2015 and 2023. The current forecast is below the 2019 peak of 7.5%.
At Guardian Cap Grp’s current price of $45.69, investors are placing a negative value of $-7 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 19.0% per year, and a return on equity of 4.0% versus a cost of equity of 4.8%.
PTR’s 2025 Price Target of $47 is based on these forecasts and reflects an estimated value of existing assets of $56 and a value of future investments of $-9.
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