The Cheapest Way to Buy Canada’s Best Bank

Guardian Capital Group Limited (TSX:GCG) is an undervalued asset management firm. Management are disciplined capital allocators and opportunistic in taking advantage of situations. Could the stock provide outsized investment returns over the long-term?

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

Guardian Capital Group Limited (TSX:GCG) operates as a diversified financial services company in Canada, the United Kingdom, the United States, and the Caribbean.

It manages institutional assets for pension plans, insurers, foundations, endowments, third-party mutual funds, and exchange traded funds; and provides private wealth management services to individuals, families, and charitable organizations.

The company provides trust and corporate administration, investment management, and banking services for international clients; and an integrated wealth management platform for financial advisors to deliver professional advice on exchange traded funds, securities, and insurance. In addition, it engages in the sale of life insurance products, mutual funds, and other financial instruments.

Guardian is a diversified financial services company, which serves the wealth management needs of a range of customers through various business segments. The company is attractively priced with a price to earnings ratio of 14.65, a price to book ratio of 1.1 and market capitalization of 745 million.

Debt is very sparingly used at Guardian, as is evidenced by a debt to equity ratio of just 0.21. The company has excellent performance metrics with an operating margin of 29.9% and a return on equity of 7.76%.

Guardian has $30.0 billion of assets under management (AUM) and $19 billion of assets under administration (AUA). Included in the AUM figure above is $4.0 billion managed by Alta Capital Management LLC, a 70% owned Utah-based investment management subsidiary which was opportunistically acquired by Guardian in 2018.

In addition, Guardian has a diversified portfolio of securities, which includes the company’s investment in Bank of Montreal shares, with a fair value of approximately $627 million.

The company’s operating earnings for in Q3 2019 was $12.1 million, a 3% decrease year over year. Revenue growth outpaced the growth in AUM of 4% indicating an improving average fee rate.

The largest contribution to the revenue growth came from United Kingdom (UK) operations, which experienced a significant inflow of new client assets. Total AUM managed by the company’s UK subsidiary is now $3.5 billion. Partially offsetting the revenue growth from was the decline in contributions from the domestic investment management business.

The company forecasts increased expenses in the U.K. investment management business to support growth and increased incentive compensation costs in the U.K.

Guardian attributes a steady increase in AUM due to the combination of positive financial market performance and successes in attracting net new assets into the Fundamental Global Equity strategy, partially offset by net outflows from the domestic strategies.

The company’s shareholders’ equity as the end of Q3 2019 was $23.93 per share and the fair value of the company’s securities $24.30 per share. Guardian appears to be a great way for the retail investor to gain exposure to inexpensive Bank of Montreal shares.

The company’s asset management business appears very under-priced and management has been taking advantage of this mispricing in common shares by opportunistically buying back shares.

Guardian also has a great reputation in the value investing space. The company’s Fundamental Global Equity strategy is very popular among value focused investors and this fund could experience fast growth as institutional and pension clients looking to gain exposure to global equities trading at a cheap multiple to price to earnings and price to book.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

More on Investing

grow dividends
Investing

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally

Three TSX stocks are rising amid the elevated market volatility due to rate-cut uncertainties and geopolitical risks.

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Here’s the Average CPP Benefit at Age 70 in 2024

Canadian retirees can supplement their CPP payout by investing in blue-chip dividend stocks such as Enbridge.

Read more »

woman data analyze
Tech Stocks

1 Stock I’d Drop From the “Magnificent 7” and 1 I’d Add

Tesla (NASDAQ:TSLA) stock is part of the Magnificent Seven, but Shopify (TSX:SHOP) is growing faster.

Read more »

Gas pipelines
Dividend Stocks

Is Enbridge the Best Dividend Stock for You?

Enbridge now offer a dividend yield of 8%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, April 18

Rising metal prices could lift the main TSX index at the open today as focus remains on the ongoing geopolitical…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Coronavirus

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Supermarket aisle with empty green shopping cart
Investing

CRA: Will You Receive a Grocery Rebate in 2024?

The grocery rebate was introduced as a one-time tax credit for low-income Canadian households to offset higher prices.

Read more »

question marks written reminders tickets
Investing

BCE Stock’s Dividend Yield Hits 9%—Is it Finally Time to Buy?

BCE (TSX:BCE) stock has a super-swollen dividend yield right now as it passes 9%.

Read more »