Canaccord Genuity Group Inc. (CF.TO) announced mixed financial results for its fourth fiscal quarter of 2024, with firm-wide revenue decreasing by 5% to $409 million compared to the previous year. Despite the dip in quarterly revenue, the company's full fiscal year revenue remained steady at $1.5 billion. Adjusted earnings per share (EPS) for the quarter stood at $0.15, contributing to a full-year adjusted EPS of $0.40.
The company's compensation ratio was reported to be within the target range at 58% for the year. The Global Wealth Management Division was a bright spot, achieving a record $200 million in quarterly revenue and a record full-year revenue of $773 million. Canaccord Genuity also announced the pending acquisition of Cantab Asset Management and a non-brokered private placement of convertible debentures raising $110 million.
Key Takeaways
- Fourth-quarter revenue fell by 5% to $409 million; full-year revenue held steady at $1.5 billion.
- Adjusted EPS for Q4 was $0.15, with a full-year adjusted EPS of $0.40.
- Compensation ratio for the year was within the target at 58%.
- Global Wealth Management Division reported record revenues for both the quarter ($200 million) and the year ($773 million).
- Canaccord Genuity is acquiring Cantab Asset Management and completed a private placement of $110 million in convertible debentures.
- Company performance may be affected by geopolitical crises, inflation, and uncertainty surrounding the U.S. Presidential elections.
Company Outlook
- Performance expectations are cautious due to ongoing geopolitical issues, persistent inflation, and the upcoming U.S. Presidential elections.
Bearish Highlights
- Capital markets division saw reduced appetite for risk equities and a decline in advisory completions, leading to lower annual revenue of $683 million.
- The company is navigating a complex regulatory environment.
Bullish Highlights
- Investment banking revenue saw an increase of 21% for the quarter and 18% for the year.
- The wealth management business reported net inflows and strong asset growth across all regions.
- Employee ownership is estimated to be at least 40%, potentially aligning interests with shareholders.
Misses
- The decrease in fourth-quarter revenue year-over-year indicates a challenging period for the company.
Q&A Highlights
- CEO Dan Daviau clarified that the employee share purchase program is a tax impact catch-up with minimal effect on compensation charges.
- The board has been streamlined to five members to enhance agility and hands-on involvement.
- No changes to other compensation programs, with capital remaining available for growth initiatives.
- The company will proactively evaluate options for the HBS partner in the UK wealth business before the liquidity preference expires in July 2026.
- Plans to improve public disclosure of organic flows and net new assets in the UK wealth business.
Canaccord Genuity Group Inc. faces a complex market environment but maintains a focus on growth and value creation for shareholders. With the acquisition of Cantab Asset Management and strategic initiatives underway, the company is positioning itself for future opportunities while managing current market uncertainties.
Full transcript - None (CCORF) Q4 2024:
Operator: Good morning ladies and gentlemen. Thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group Inc. Fiscal 2024 Fourth Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being broadcast live, online, and recorded. I would now like to turn the conference call over to Mr. Dan Daviau, President and CEO. Please go ahead, Mr. Daviau.
Dan Daviau: Thank you, operator, and thanks for everyone joining us for today's call. As always, I'm joined by Don MacFayden, our Chief Financial Officer. Today's remarks are complementary to our earnings release, MD&A and supplemental financials, copies of which have been made available for download on SEDAR+ and on the Investor Relations section of our website at cgf.com. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS financial measures. Please refer to our notice regarding forward-looking statements and our description of non-IFRS financial measures that appear in our investor presentation and in our MD&A. And with that, let's discuss our fourth quarter and fiscal 2024 results. Firm-wide revenue for our fourth fiscal quarter amounted to $409 million, a decrease of 5% compared to the same period a year ago. We earn revenue of $1.5 billion for the full fiscal year, which was relatively in line with fiscal 2023. Excluding significant items, earnings per share amounted to $0.15 for the fourth fiscal quarter, bringing our full year adjusted EPS to $0.40. Although revenue was similar to the prior year, our fiscal 2024 earnings per share were impacted by higher non-controlling interest expense associated with stronger performance in our UK wealth management business and Australia operations, and an increase in the effective tax rate in connection with our share price performance. Turning to expenses, on an adjusted basis, our compensation ratio was within our target range at 58% for the fiscal year. The year-over-year decrease of 3.5 percentage points was partially related to changes in our revenue mix and decreases in the value of certain unvested stock-based compensation awards. Non-compensation expenses as a percentage of revenue were 29% for the fourth quarter and 33% for the fiscal year. This represents a modest increase of 2.7 percentage points over fiscal 2023 and primarily reflects higher interest expense, increased development costs associated with the growth of our wealth management business, and increased communication and technology expenses reflecting inflation-driven price increases from certain suppliers. Our business continues to be well capitalized and the board has approved a common share dividend of $0.085, bringing our full year dividend to $0.34. This reflects continued strong performance of our Wealth Management Division, which has been the primary driver of our resilience in 2024. On a consolidated basis, our Global Wealth Management Division earned revenue of $200 million in the fourth quarter, which was the strongest quarterly results on record, bringing revenue for the full fiscal year to a record $773 million for the fiscal year, an increase of 9%. Client assets reached a record level of $104 billion, reflecting the positive inflows from recruiting and acquisition efforts in addition to net client inflows and strengthening market valuations. The adjusted pre-tax income contribution from this division amounted to $34 million for the fourth quarter and $140 million for the fiscal year, an increase of 12% and our second highest result on record. Our UK wealth management delivered its strongest quarterly and fiscal year results on record. The adjusted pre-tax net income contribution from this business improved by 18% for the full fiscal year to $102 million and EBITDA of approximately GBP75 million. Client assets increased by 7% year-over-year to $59 billion, when measured in local currency improved by 5% to GBP35 billion. Revenue for the fourth quarter and the fiscal year amounted to $105 million and $411 million, year-over-year increases of 2% and 20%, respectively. Notably, interest revenue in this business for the full fiscal year increased substantially to $97 million. We expect that contributions in this segment have peaked as we look towards an environment of gradual interest rate reductions. And finally, last week, we announced the acquisition of Cantab Asset Management, a chartered independent financial planning business with just over GBP900 million of assets based in Cambridge, UK. Pending regulatory approval and customary closing conditions, this transaction is expected to close in the quarter ended September, 2024. And we very much look forward to supporting the continued success of the employees and clients of this business. Client assets in our Canadian Wealth business increased by 8% year-over-year to $38 billion, reflecting positive net inflows, as well as increase in market values. Notably, discretionary assets under management reached a record of $12 billion, up 34% year-over-year. This business contributed revenue of $298 million for the fiscal year, a modest decline of 1.4%, primarily reflecting the downturn in new issue activity which persisted throughout the year. For context, full year new issue revenue of $17 million in this business was more in line with our quarterly performance during periods where risk appetite is higher. As the new issue market improves and appetite for risk increases, we anticipate this revenue stream to materially improve. The adjusted pre-tax net income contribution from our Canadian business amounted to $7 million and $36 million for the three and 12 month periods. And finally, our Australian business earned revenue of $17 million and $64 million for the fourth quarter and fiscal year, increases of 14% and 2%, respectively. Managed client assets increased by 18% year-over-year to $6.4 billion and improved by 21%, surpassing the $7 billion mark when measured in local currency. Revenue from new issue activities continued to be negatively impacted by the prolonged market downturn, but this decline was partially offset by higher commission and fee revenues, which improved by 5% year-over-year to $54 million. The adjusted pre-tax net income contribution from this business strengthened to $3.2 million for the fiscal year, but remained below 2021-2022 levels. We continue to significantly recruit into this business. I will note that this activity increases development costs, which are amortized faster than in North America, thereby impacting short-term profitability. Fiscal 2024 results in our capital markets division continued to reflect a persistent sluggish backdrop which resulted in a substantially lower appetite for risk equities and a notable decline in advisory completions over our core mid-market focused sectors. When measured on an adjusted basis, this division returned to modest profitability in the second half of the fiscal year, reflecting positive contributions from Canada and Australia, which were offset by losses in our UK and US businesses. On a consolidated basis, revenue of $203 million for the fourth fiscal quarter decreased by 10% year-over-year, but improved by 7% sequentially. The increase primarily reflects a modest improvement in revenue from underwriting activities which appear to be gaining momentum into the start of our current order. Full year revenue in this division was 14% lower than last year at $683 million and largely reflects the impact of lower advisory revenue contributions primarily from our U.S. business. Despite outpacing the broader market in fiscal 2023, we experienced a more challenging backdrop for advisory completions in our core mid-market focus sectors this year. Advisory revenue for the full fiscal year decreased by 37% to $230 million. Although our US business was still our largest contributor in this segment with revenue of $130 million, it also experienced the most notable year-over-year decline of 48%. I will note that Q4 advisory revenue in our Canadian business improved by 17% year-over-year to $33 million. This is the strongest result of the last seven fiscal quarters and largely reflects the completion of a substantial transaction in the technology sector. Consistent with broader industry sentiment, we believe we have passed the trough for activity levels in the advisory segment and we look forward to delivering on a strong pipeline of mandates as market confidence improves. Investment banking revenue for the fourth quarter and fiscal year increased by 21% and 18%, respectively, when compared to the prior year's comparison periods. Fourth quarter investment banking revenue of $49 million remain well below historical levels, but also represents the strongest result in the last seven fiscal quarters. We anticipate continued improvement in new issue activity as you will have seen this trend playing out in the broader market since the start of the current fiscal quarter. And finally, our sales, trading, and specialty desk remain steady, supporting our clients through bouts of uncertainty and providing liquidity where required. We begin the new fiscal year with good momentum across all business lines. While many headwinds have tapered, giving us optimism for the coming year, our outlook is not without risk. Performance could still be impacted by ongoing geopolitical crises, persistent inflation, and uncertainty regarding the U.S. Presidential elections. We have consistently used market downturns productively with a focus on making our business more competitive and strengthening alignment with our shareholders. During the quarter, we completed a non-brokered private placement of convertible debentures with a long-term supportive shareholder for gross proceeds of $110 million. A portion of the proceeds have been allocated to supporting increased activity levels in our business and protect our ability to be opportunistic. The remainder were used to support the formation of an independent limited partnership to be owned by the employees of the company, which supports our longstanding objective of increasing equity ownership among our top producing employees. Importantly, this partnership creates a perpetual and dynamic employee investment vehicle to ensure a consistent minimum level of employee ownership in our company, while creating a heightened sense of ownership over decisions, results, and performance that aligns with our shareholders' best interests. Last night, we also announced some plan changes to our board of directors. We believe that the current slate of directors nominated for election at our upcoming annual general meeting in August possesses an optimal mix of experience to guide the long-term strategy and ongoing business operations of the company. Importantly, a smaller, focused board will improve our agility and increase accountability over strategic priorities while providing an appropriate balance of independence to ensure accountability and sound risk management. I look forward to working with our long-serving and newer independent directors as we continue to explore a range of opportunities to increase the value of our company, just as we have always done. In closing, I'd like to thank our valued shareholders for your continued support. Together with my colleagues from across our wealth and capital markets businesses, we remain steadfastly committed to operating in your best interest as we strive to increase the value of our company. With that, Don and I will be pleased to take questions. Operator, if you could please open the lines.
Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question comes from Jeff Fenwick with Cormark Securities. Your line is now open.
Jeff Fenwick: Hi, good morning, everyone.
Dan Daviau: Good morning, Jeff.
Jeff Fenwick: So Dan, just wanted to circle back on the employee share purchase program that you just articulated there for us. I see in the description there in your release that there's now a component that's I think a top-up provision. It looks like Canaccord is going to be participating as the employees pay back by topping up some from its end. So could you just maybe speak to that? I think that's a bit of a new wrinkle versus what we'd heard from you guys before.
Dan Daviau: Yeah, sorry. It certainly wasn't meant to be a new wrinkle, Jeff. So what will happen is, as you know, the very small portion of the bonuses that we pay go to repay the loan. It's very similar to our LTIP program. We used to deduct 20% of our bonuses into the stock-based program. So it's the same 20% that we used to deduct. Those obviously come in and are taxed at full tax rates, some of which, a small portion of which were recovering. We would take that down as a comp charge in our statements. It won't change our overall comp ratio at all. It's a relatively negligible number in the bigger picture of stuff. So you'll see no real change to our historical comp rates. You'll see no real change to our numbers and the guidance that we've given you with respect to comp charges. So it really is meant as a slight catch up on the tax impact of -- the after-tax effect on the bonuses, on a very small portion of bonuses. Like I say, it's a very, very negligible number in the broader picture of our comp charges. You won't see it in any substantial point through our statements.
Jeff Fenwick: Thank you. That's helpful. I was a little confused on that front. I guess going forward, does the comp model change at all going forward with respect to other stock-based comp incentives that you typically pay out? How do we think about that? I guess this is a follow on there.
Dan Daviau: No, I mean, the employee share program, the program that we just finished or just announced and we're just instituting right now, it really for a chunk of employees replaces the LTIP program that historically was there. Like I said, we used to take 20% of the bonuses and buy stock with it. Now we've kind of bought it all up front, so to speak, and then repaid the loan. So there's no substantive change in anything. The senior executives of the firm will continue to participate in the PSU program, the performance share unit program, which will depend on future results of the business. So there's no material change in any of our other comp programs. Our employee stock purchase program will stay in place. All the existing programs will stay in place and more importantly, our overall comp charges won't change materially.
Jeff Fenwick: And then maybe the follow-up on to that is a bit more of a philosophical question just about the obviously importance of retaining and incenting your existing employee base versus investing for growth. You could have raised $100 million or $110 million and put that towards acquisitions and UK wealth or Canada wealth. How do you think about where you are at this point? I mean, we haven't seen growth in some areas like Canadian wealth, for example, in a while. How do you think about managing that balance within the firm?
Dan Daviau: Yes, we still have a significantly available balance sheet for our growth programs. Our growth programs are in wealth. You say you haven't seen growth in the Canadian wealth business, but you know we've been fighting the lack of new issue markets. So although we've seen our fee based income go up, our commission based income hasn't gone up. So when you see the blended line, it doesn't look like it's moved a lot, but under the surface, there is -- the plan is executing perfectly according to plan. We've continue that capital to grow. Realize that those loans, that $80 million loan to the employee trust repays quickly, right? It repays over four or five years. So even this year it'll repay. So those proceeds are available to the company to help it grow, albeit over a four-year period. So we continue to have capital to facilitate the growth in the business.
Jeff Fenwick: That's helpful. Thank you. And then maybe just one last one on this front. Could you give us an estimate then on the -- if we think about sort of the ownership here, if we include the efforts you just did by insiders, where does it settle out I guess on a fully deluded basis?
Dan Daviau: It's honestly really hard to project because I don't have the visibility into all the employees. What I have visibility into is, this employee stock program, all of the insiders of the company who have to report, I know that, I truly have visibility into the Canadian employees too, because they all hold their accounts here. And then finally -- and when we add all that up, we think the number's at least 40% in terms of employee ownership in the business right now, maybe a little bit through that, but from what I can see, 40%, it could be higher because I can't see everything.
Jeff Fenwick: Fair enough. Well, thanks for that color. I'll re-queue.
Dan Daviau: Thanks, Jeff.
Operator: Your next question comes from [Tanvi Gabriel] (ph) with Echelon Wealth Partners. Your line is now open.
Unidentified Analyst: Hi, good morning. I'll be subbing in for my analyst, Rob Goff. And one of the first questions that I have is, could you please elaborate on your outlook in terms of both the underwriting pipelines and the advisory pipelines?
Dan Daviau: Sure, Tanvi, and good question, and as you know, an impossible question to answer, but especially as it relates to underwriting pipeline. I mean, the M&A pipeline, as I've always said, we've got reasonably good visibility on it. We feel increasingly comfortable with that going up to the right. Last quarter, the quarter that we just reported was a bit of an anomaly in that we had a fair number of transactions in and about year end, and it's really hard to project the date that something will close and that we can book in revenue. It's easy to -- more easy to project that they're going to close. So I think at the end of the quarter, we probably ran into a bit of a delay on some of the deals we're working on. Again, we continue to feel that that line is moving up and feel pretty good about our M&A pipeline going forward. I don't think we get back to pandemic levels, but we certainly -- it continues to improve from here. Underwriting, you just need to look at the underwriting tables for the last two months, that you can see that there's been a fair amount of activity, particularly in the resource sector and the mining sector, but not exclusively in the mining sector. I mean, half of our underwriting activity in the quarter that we just announced was mining related, primarily in Canada and Australia. There's a reason why Canada and Australia made money last quarter and the UK and the US didn't make money, because mining is less important to those two markets. So we continue to see a pretty robust mining pipeline. If you believe that manufacturing is picking up, which we do, then you believe that mining will continue to do well. And we've seen a fair amount of financing in that sector. Your own firm, my firm, and a lot of other firms have seen that. And as I suspect, we're one of the dominant mining underwriters in the world. So we've seen the advantages of that in a large number of trades this year alone. And again, Christine or someone can just send you a list of all the publicly announced deals. We don't see that changing. I think what we're hopeful for, and I'm not sure if we're hopeful for it this upcoming quarter or the quarter after, the quarter after that is a bit more of a return to risk capital, which is where independent firms tend to be incredibly active in, whether it's the life science, technology, or other sectors. I'm cautiously optimistic that that's coming back. It feels like it's coming back. There's early signs in our underwriting pipeline and underwriting activity that's coming back. We've done crypto transactions. We've done lots of other transactions outside of mining, and we think that that line item will improve, that we're at a typical low, that we're through the drop, and we're certainly starting to -- certainly our results to date and our pipeline going forward feels that that's going to continue to increase, but that's a more difficult question to answer, because you just don't have that forward visibility like you have in M&A.
Unidentified Analyst: Right, okay. And just on the wealth management side, and specifically in the UK, do you see any notable trends that are affecting client portfolios?
Dan Daviau: Not really. I mean, in the UK in particular, as we've said in the past, we've really been focused on net new assets and organic growth. That's been our focus for the last year and a half, two years, and it's working. We are attracting a huge number of assets into our UK wealth platform. That hasn't been the issue. The issue is, people pulling out assets out of that platform. It's not because we're doing a poor job or we're losing clients. It's people reworking their personal balance sheets or using their investment portfolios to fund their lifestyle. In particular, because we've been in a difficult economy raising rates, mortgages that have to be refinanced, and we track all the money that flows out of the system. We think that the money flowing out of the system will reduce, and we're seeing early signs of that. So as a result, you're going to see net new assets grow because you won't have the negative offset of the positives that we have. And that's what we're starting to see. We're seeing that in the UK, we're seeing that in Canada. And so we feel pretty comfortable about our asset growth, independent of just market asset growth. If you look through all of our wealth businesses this year, and it's for a variety, it really is for a variety of reasons, but when you look through our business, the UK assets grew 7%, Canada's assets grew 8%, and Australia's assets grew 18% this year. So that's not all market growth, that's other things as well, whether it's bringing on new advisors or organic growth inside our book, all of those things have helped cause our assets at a record new level this year of $104 billion.
Unidentified Analyst: Right, okay. Thank you.
Dan Daviau: Thank you.
Operator: The next question comes from Stephen Boland with Raymond James. The line is no open.
Dan Daviau: Hey, Stephen.
Stephen Boland: Good morning. Dan, I just want to talk about the changes at the board. When I look at Canaccord, this organization is more complex than ever. You've got some outstanding regulatory issues, yet this may be the smallest board that the company has maybe ever had at least from my memory over the past several years. And the two members you brought in certainly have expertise, but there's no real continuity over the past couple years. So I'm just wondering, I mean, are you -- is there any risk that you're spread too thin here? Like you're going to have these board members on multiple committees, I presume. So is there a risk that you are going to be too spread on governance and too many tasks to take on with a five-person board?
Dan Daviau: Yes, no good question, Steve. And we thought long and hard about that. And the trade-off of that is having an agile board that can operate really quickly, that we can bring together at a moment's notice and being very hands-on. And the people on the board, the five people on the board, all want to be incredibly hands-on going forward. You'll also note that of the new board, I'm the only non-independent person on the board as the CEO. Everybody else is independent. Michael Auerbach, who has been on the board for the last several years, he'll continue to be -- he'll be the lead independent director. Terry Lyons, who has been on the board off and on for 19 years, is staying on the board. I only say off, because he's off the board for a year. He chairs our audit committee. He has incredible corporate history and incredible corporate memory in terms of who's there and it was important that he stay on the board and continue to chair the audit committee. Then of course we brought on Cindy Tripp. Cindy is well known to the Canadian investment community. She worked at one of our competitors for years and more importantly of late, on the Ontario Securities Commission's board and chaired the Task Force and Securities Law Reform, so she's been important. And finally, Shannon runs a very substantial US wealth business and certainly brings that experience to our board as a lot of the trends in the U.S. play out elsewhere in the world. So I think we've got a right-sized board for how quick and agile our organization is. And that's the tradeoff between a big board and a smaller board. Everyone knows what they're getting involved in. The committees are all staffed. Really there's just two major committees, a governance committee, which Michael's chairs and audit committee -- audit and risk committee, which Terry chairs. So I think we're in a pretty good place right now to kind of drive value for the company. Our plan, to be clear, is to build value for our shareholders. Yes, we tried to go private years ago -- a year ago, and yes, there's a persistent rumor out there that we'll try again, but that's not what this board is for. This board is to allow us to as quickly as possible and as prudently possible, create immense value for our shareholders. We believe, and I think you agree, that we've got incredible asset value in our business and incredible earnings potential and our job is to realize that and make that stock go up a lot and that's -- that'll be the -- that'll be the goal here over the next year. So I think we got a board well set up. I've become Chairman, that's just a matter of efficiency. Really the job of a Chairman, as I think you know, when you have a lead independent director, our old chairman, David Cassie, he's still around, he still owns the stock, he's still involved in the business, but really the job of Chairman is to facilitate information flow between the management team, the company and the board. I can do that best and I can do that most quickly. We certainly still have all the governance associated and like I say, the board is more independent today than it's ever been at 80% independence. So, we feel pretty good about the structure here going forward and we just felt a small, efficient, cost-effective board was the right way to kind of move forward.
Stephen Boland: Okay. And so just to be clear, you don't expect to add any members during the next 12 months. [Multiple Speakers] for the next 12 months?
Dan Daviau: That's not the plan right now. The plan is to kind of operate with this board and kind of really try and drive value.
Stephen Boland: Okay. Maybe just onto some operational. I mean, I think in your comments, you definitely said that -- well, I think you said, I was going to say definitely, that you passed the trough on new issue and for new issue and advisories in the past. In past, I would say, cycles, when there's a particular segment that becomes -- where underwriting becomes very, very hot, M&A, whether it's cannabis or crypto, Canaccord has always, I would say, had a first mover advantage by adding resources to those segments. Do you see that in your horizon here that you're going to need resources, that whether it's metals, whether it's technology, something that is a certain segment that is in your mind hitting that point where we need to be prepared for material increase in activity?
Stephen Boland: Yeah. I think we're right-sized, to be honest. I think we can kind of execute on anything we need to execute on. Things can change. Things can get crazy. And don't hold me to it if I end up pulling 10 people into a team somewhere. But right now, I think we're right-sized. We've kept a significant investment in mining. We've had that for years. We continue to have that. I don't see us having to change that or increase that materially. Our tech investment has been stable throughout the entire period. We haven't really cut or added anyone there, so I feel pretty good about what our investment is in there. But you never know, something like cannabis could come up again or something could get very busy that I'm not expecting. And yes, we would -- as you rightly indicated, we would, if we're not first in, we'll be second in, but we'll come in in a very, very material way. And I haven't seen our need to do that yet. And I hope we do.
Stephen Boland: Okay. And just I want to make sure it's clear. It's probably buried in the MD&A somewhere. But is it fair to say that each wealth management business did report net inflows in the quarter?
Dan Daviau: Yes.
Stephen Boland: Okay, that's great. That's all for me. Thanks, guys.
Operator: Your next question comes from Graham Ryding with TD Security. Your line is now open.
Graham Ryding: Hi, good morning. I just wanted to -- you can hear me okay?
Dan Daviau: Yes, great Graham.
Graham Ryding: Okay, great. I just wanted to follow up on just the sort of capital markets activity and make sure I'm getting the message right. So in fiscal Q1 2025, what you've seen today, because we're almost through the quarter, is it reasonable to expect that on a sort of quarter-over-quarter basis, you've seen better activity on the equity underwriting and M&A side, but your outlook sort of going forward is cautiously optimistic. Am I framing the sort of description correctly?
Dan Daviau: I think the words can we put into one sentence, Greg? Yes. I mean, you are right. We are 66 days into a 90-day quarter, so that's a pretty good idea of what our underwriting activity is. And again, this isn't me telling all of our investors and our analysts something special, you just look at the underwriting activity levels. We'll pull them off Bloomberg or something. Yes, there's been more underwriting in our core verticals over the last 60 days. We've seen huge activity in Australia, we've seen good activity in Canada, and some improving activity in the US. The UK continues to be a little bit laggard relative to the other markets. I'm not sure if it's a market thing or a UK thing, but certainly in our biggest capital markets businesses, we continue to see good levels of activity both from the new issue side for sure and the M&A side. That being said, M&A is always a little lumpy and we have a month left in the quarter. But yes, generally up to the right. And the cautious optimism, the cautious part of the comment is, we really don't have phenomenal visibility into our next quarter outside of M&A, right? It's just -- you never know. We've seen stops and starts in the new issue market so far. Now you've seen Canada cut rates. We expect the UK and Europe to cut rates here over the summer. Obviously we're into an election year in the US, so that creates some uncertainties. So if you're hearing a little bit of the cautious side of me, which you are hearing, it's what goes on beyond this quarter is where my cautiousness would kick in. But equally speaking, it could go very, very well.
Graham Ryding: Yep, okay, that's fair. You mentioned 40% -- you estimate employee ownership at 40%. Is that after the recent -- like are you factoring in the recent 80 million of shares that were taken up by the employee trust?
Dan Daviau: I think a more accurate statement would be at least 40%. I can identify 40% and there's a bunch I can't identify. So, if I pulled a number at a thin arrow, it would be higher than 40%. But what I can say on a recorded conference call is 40%.
Graham Ryding: Okay, understood. And on the compensation ratio line, I think for fiscal 2024, you were 58%, which is low for you guys relative to sort of looking at the last five years. Is that because the share price was weaker this year? Was that a factor? Because I've always thought sort of closer to 60% is what you would target. And is that still the right number?
Dan Daviau: Yes, our range hasn't changed. It should be around 60%. There was two things that would have driven down our comp ratio this year. One is exactly as you identified, when the stock price goes down we recover money that we would have otherwise charged against it because those things get mark to market, you know, through a very complicated formula, get marked to market. The second thing, and it's a more nuanced thing, is as interest income goes up, we don't pay comp on interest income. So when interest income ends up being a more substantial part of our revenue mix, and it was this year, it was $80 million, that doesn't attract comp charges, so that brings down the comp ratio.
Graham Ryding: Okay, that makes a lot of sense. My last question would just be on the HBS partner in your UK wealth business. Can you remind us of the timeline for the -- I think there's a liquidity preference there that sort of expires after five years. Can you remind us of the timing of that and perhaps what are your options or most likely scenarios for HBS to sort of monetize their investment here? Should we be thinking of you guys likely exploring some transaction around the time of that five-year expiry?
Don MacFayden: Hi, Graham, it's Don. That investment was a typical structured investment product that is typical for these kinds of transactions. So it has a five year timeframe, but nothing magical happens at the end of five years. It's just that the investors start to look for an exit event at that five year mark, which comes up in July of 2026.
Dan Daviau: Yes, and from an option perspective, Graham, July 2026 is a long way away, and there's a whole bunch of things. We have an ability to take them out. We'd have to come up with hundreds of millions of dollars to do that. So that's a very good option. We could IPO the company, we could sell the company, we could refinance them with something else. So it's premature to say what those options are. It really will be a function of what's happening with the broader business in a year from now, what's happening with the value of that business, because that value of that business keeps on going up. As you see, they put up record results again this year. So as the value of that business goes up, what's happening with our broader business and where the financing and M&A market is. So I don't mean to not give you a precise answer, but all of those alternatives are on the table and they're constantly being analyzed, bearing in mind that our really primary objective in that business right now is net new assets, grow the business, continue to improve the value of that business. It's a phenomenal asset. We disclosed this year for the first time in our MD&A that the EBITDA of that business this year is GBP75 million. You can put any multiple you -- any reasonable multiple you want off UK wealth businesses and you can quickly determine how valuable that business is.
Graham Ryding: Okay, understood. And I believe they have some rights after five years to initiate an equity event. How material is that? Can they…
Dan Daviau: Six years really. Six years before the rights kick in. Five years we got to start looking and then if we don't do something in six years they can start looking.
Don MacFayden: Yes, really we just have to be proactive at that point in time.
Dan Daviau: But listen, we're not waiting until July 2026. So, that's still two years away. And so, in a year from now -- ask me the question in a year from now. And I'll give you a better answer. How's that?
Graham Ryding: I will. I will. Sounds good. What about just my last question. Net flows for that UK wealth business or organic growth, is there some number you could give us for maybe what you're able to deliver on fiscal 2024?
Dan Daviau: Don and I started to talk about that the other day. I think we're going to improve our public disclosure, so I'm going to ask for a pause right now until next quarter, because I think we're going to start disclosing organic flows and outflows and inflows the way most wealth businesses would with a greater degree of precision. We have an organic growth plan in place. It's written and it's tangible and we know what the components of it are and we're spending a fair amount of money on marketing and client inflows and stemming outflows and everything you would expect in a well-run wealth business. So I think we'll start disclosing that either in our next quarter or the quarter after, and we'll give you very good precision. There will be organic growth in that business, absent anything that I don't know right now. We had organic growth, net new asset growth this last year. We had net new asset growth this last quarter. But before I start giving you projections, I would just like to spend a little bit more time before I'm out there with publicly stated targets. But a good business in the UK is growing organic -- you're looking at net new assets of 3% or 4%. That's -- I'm not telling you what our target is. I'm telling you that's what a lot of very good growing UK wealth businesses do.
Graham Ryding: Perfect. That's helpful. That's it for me. Thank you.
Operator: There are no further questions at this time. I will now turn the call over to Mr. Daviau for closing remarks.
Dan Daviau: Okay. Well, thank you, operator, and thanks, everyone, for joining today. I think as you're hearing the underlying message, we're very, very focused here on shareholder value going forward and we're going to continue to push through that and try and create value for all our shareholders. This really concludes our fourth quarter call and our fiscal 2024 conference call. As always, Don and I will be available to answer any further questions. So thank you very much.
Operator: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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