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.
Highlights
OLY is up 13% since our previous report in November 2023. OLY, through its wholly-owned subsidiary Olympia Trust Company, is Canada's premier trustee/custodian/administrator of self-directed registered investment accounts (such as RRSP/TFSA) for alternative assets.
In 2023, revenue was up 38% YoY amid higher interest rates, beating our estimate by 0.2%. EPS was up 69%, beating our estimate by 4.8%. Dividends increased 84% to $5.80/share, exactly in line with our estimate.
In 2023, 64% of revenue came from interest on unallocated client capital in cash accounts at major Canadian banks, up from 40% in 2022.
Despite the recent uptick in inflation, and downtick in unemployment, we anticipate the Bank of Canada will cut rates by June/July 2024, driven by rising financial instability, and mortgage costs. That said, we anticipate a slower decline in interest rates than previously anticipated, prompting us to increase our 2024 revenue and EPS estimates by 7% on average.
We believe 2024 revenue growth will be driven by a relatively high interest rate environment, and organic demand growth for alternative investments.
OLY’s EV/EBITDA is 7x vs the sector average of 12x, a 44% discount.
Primary Offerings
- Investment Account Services (IAS): OLY is a trustee/custodian/administrator of self-directed registered investment accounts for alternative investments
- Health Services Plans: Administers health spending accounts for small/mid- sized corporations
- Currency and Global Payments: Facilitates the buying and selling of currencies for corporations and individuals
- Corporate and Shareholder Services: Offers corporate trust, and transferagency services, such as maintenance of security holder registries, organizing annual meetings, and administering dividend reinvestments
- IT services: Provides IT services to exempt market dealers, issuers, and investment advisors
The leading Canadian custodian/ administrator of alternative investments OLY manages 133k accounts
OLY’s platform caters to a comprehensive range of investments not supported by banks, and other traditional trading/investment platforms
In 2023, 76% of revenue came from IAS, 10% from health service plans, and the remaining 14% from other services
Source: Company/FRC
In 2023, client assets held by OLY were up 7% YoY to $11.1B, beating our estimate by 0.2%
Financials (Year-End: Dec 31st)
In 2023, revenue was up 38% YoY amid higher interest rates, beating our estimate by 0.2%
Services revenue declined as the company lowered its annual administrative fee from $175 to $150 to enhance its value proposition for customers.
*Service revenue includes annual fees and transaction fees
*Trust, interest, and other' primarily includes interest revenue
Source: FRC/Company
In 2023, 76% of revenue came from IAS, up from 70% in 2022
IAS revenue was up 51% YoY amid higher interest rates
*Service revenue includes annual fees and transaction fees
In 2023, 10% of revenue came from Health Services Plans, down from 12% in 2022
Revenue from this division was up 13% YoY driven by an expanded client-base
Margins improved across the board due to higher revenue
EBITDA was up 60% YoY, beating our estimate by 1.6%
EPS was up 69%, beating our estimate by 4.8%
Dividends increased 84% to $5.80, exactly in line with our estimate
In 2023, the payout ratio was 58% vs the historic average of 70%
Source: Company/FRC
Healthy balance sheet
FRC Projections and Valuation
Source: FRC
Anticipating a slower decline in interest rates, we are raising our 2024 revenue and EPS forecasts by 7% on average
Source: FRC/S&P Capital IQ
As a result, our DCF valuation increased from $98 to $115/share, and our comparables valuation increased from $115 to $136/share
We are reiterating our BUY rating, and adjusting our fair value estimate from $106.48 to $125.67/share, implying a potential return of 30% (including dividends) in the next 12 months. We anticipate a robust performance in H1- 2024, driven by a relatively high interest rate environment.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- Operates in a regulated industry
- The company's target market is niche
- Although OLY dominates the alternative investment market, there is no guarantee that banks and large investment platforms will not enter this space in the future.
- Earnings are significantly affected by fluctuations in interest rates
- Transaction revenue depends on market sentiment for alternative investments
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