Canaccord Profit Surges on Equity Deals, Firm Drops RF Offer
(Bloomberg) -- Canaccord Genuity Group Inc. said it’s abandoning the pursuit of wealth manager RF Capital Group Inc. as it posted record earnings for its fiscal fourth quarter, with clients seeking to take advantage of soaring equity markets turning to the company to arrange a flood of share sales.
The firm is ending its pursuit of RF Capital, an approach disclosed in March, after RF Capital’s board continued to refuse to enter into discussions. Canaccord offered about C$366.6 million for the Toronto-based company and said it would have been willing to increase that proposal.
“We believe that business combination makes all the sense in the world, but the problem is you need two to tango,” Canaccord Chief Executive Officer Dan Daviau said in an interview.
Canaccord’s net income in the three months through March surged more than fivefold from a year earlier, to C$139.4 million ($115.6 million), or 93 cents a share, the company said Tuesday. The average of three analysts’ estimates compiled by Bloomberg was 61 cents a share.
Rising equity markets and investors’ demand for tech stocks are spurring more and more companies to go public or sell additional shares, pushing Canada’s market for initial public offerings to its best first quarter in 15 years. Canaccord’s investment-banking revenue advanced more than sixfold, while total revenue more than doubled to a record C$706.5 million.
“We’ve seen an immense amount of new-issue activity, primarily in our focus sectors of growth-type stocks like technology and health care,” Daviau said. “We’ve seen a massive resurgence in the mining market as well.”
The strong stock market has provided a tailwind for other Canaccord business lines as well. An increase in retail activity in the markets helped principal trading revenue more than double to C$87.8 million, while global wealth-management revenue climbed 44% to C$199.2 million.
Canaccord rose 1.3% to C$13.31 at 9:43 a.m. in Toronto. The shares have advanced 19% this year, compared with a 15% increase for the S&P/TSX Composite Index.
While technology and health-care stocks have helped results in recent quarters, Daviau sees the mining industry, a key focus area for Canaccord, picking up strength on the prospects for a post-pandemic economic boom and weakening U.S. dollar.
“Those are early stage cyclical stocks,” Daviau said. “If you think the economy is getting better, you tend to buy mining stocks.”
The firm has made a number of moves to bulk up its global mining team in the past year, including hiring Raj Khatri from Jefferies Financial Group Inc. to lead those efforts in Europe, the Middle East and Africa, and adding Eric Zou from Bank of Montreal to head up its work in China.
Mergers and acquisitions in Canada also had a record start to the year, and Daviau said there is still a “huge amount” of activity that will be taking place this year.
Even without RF, Canaccord will continue to expand its wealth unit by recruiting advisers, buying other firms or adding ancillary businesses that complement its existing services, he said.
“There’s lots of ways to grow that business,” Daviau said. “That’s where we’re going to focus our efforts at this stage.”
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