Disclosure: Olympia Financial Group Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
In Q3-2024, client assets were up 1.6% QoQ to $11.7B. However, revenue was down 1% YoY, falling 2% short of our estimate, primarily due to lower trading volumes in the FOREX division, a historically volatile, non-core segment, contributing 5-10% of total revenue.
On a positive note, total services revenue from core divisions (Investment Account Services and Health Service Plans) was up 1% YoY, driven by higher transaction volumes.
EPS was up 1% YoY, in line with our estimate, driven by higher margins, partially offset by the impact of lower revenue. Dividends remained flat QoQ, but increased 20% YoY to $1.80, also aligning with our estimate
In Q3-2024, 54% of revenue came from interest on unallocated client capital in cash accounts at major Canadian banks. We expect further rate cuts by the Bank of Canada, driven by slower GDP growth, high unemployment, and cooling inflation. Consequently, we expect interest revenue declining in the coming quarters.
Services revenue will likely continue benefiting from organic demand growth for alternative investments. OLY’s subsidiary, Olympia Trust Company, is currently in the process of registering as a federal trust corporation, which will allow it to actively market its services to potential customers in ON.
OLY’s EV/EBITDA is 7.7x vs the sector average of 12.5x, a 39% discount.
Price Performance (1-year)
The leading Canadian custodian/ administrator of alternative investments. OLY manages 130k+ accounts; its platform caters to a comprehensive range of investments not supported by banks, and other traditional trading/investment platforms
In Q3-2024, 79% of revenue came from IAS (Q2: 77%), 10% from health service plans (unchanged), and the remaining 11% from other services (Q2: 14%). Client assets were up 1.6% QoQ to $11.7B
We are raising our 2024 year-end estimate from $11.83B to $11.89B
In Q3-2024, revenue was down 1% YoY (H1-2024: up 7% YoY) amid lower trading volumes in the FOREX division, missing our estimate by 2%
On a positive note, total services revenue from the company’s core divisions (IAS and Health Service Plans) was up 1% YoY, driven by higher transaction volumes. Gross and net margins improved slightly. G&A expenses were up 2% YoY, in line with our estimate
Q3 EPS was up 1% YoY, aligning with our estimate, driven by higher margins, partially offset by lower revenue. Dividends remained flat QoQ, but increased 20% YoY to $1.80, aligning with our estimate. The payout ratio was 69% vs the historic average of 70%. Strong balance sheet
Although Q3 was largely in line with our expectations, we are raising our EPS estimates slightly on higher-than-expected client assets under administration.
As a result, our DCF valuation increased from $132 to $133/share. Our comparables valuation increased from $136 to $137
We are reiterating our BUY rating, and adjusting our fair value estimate from $133.70 to $135.19/share (the average of our DCF and comparables valuations), implying a potential return of 34% (including dividends) in the next 12 months. The next major catalyst for the stock will likely stem from potential registration as a federal trust corporation. We believe the growth in core services revenue and stable margins highlight resilience amid a challenging environment.
We believe the company is exposed to the following key risks (not exhaustive):
Maintaining our risk rating of 3 (Average)
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