• Client assets held by OLY were up 3% QoQ to $11.4B. We are raising our year-end estimate by 2% to $11.8B.
  • In Q1-2024, 53% of revenue came from interest on unallocated client capital in cash accounts at major Canadian banks, up from 50% in Q1-2023. As interest rates have peaked, we anticipate interest revenue will decline in H2-2024, with the trend continuing through 2025.
  • We believe services revenue will be driven by organic demand growth for alternative investments. OLY’s subsidiary, Olympia Trust Company, is currently licensed as a trust corporation in all Canadian provinces except Ontario (ON), hindering its ability to market services in ON. However, the company is in the process of registering as a federal trust corporation, which would allow it to actively market its services to potential customers in ON. We are raising our long-term revenue/EPS estimates to incorporate this upside potential. 
  • We believe the recent hike in Canadian capital gains taxes could boost interest in fixed-income products over stocks. OLY primarily caters to fixed-income investments, such as MICs, mortgages, and corporate debt securities.
  • OLY’s EV/EBITDA is 7x vs the sector average of 12x, a 44% discount. 
  •  

 

Price Performance (1-year)


  YTD 12M
OLY 13% 23%
TSX 6% 8%

*See important disclosures at the bottom of this report rating and risk definitions. All figures in US$ unless otherwise specified.

 

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 transfer agency 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 managed 132k accounts at the end of 2023; its platform caters to a comprehensive range of investments not supported by banks, and other traditional trading/investment platforms

Source: Company / FRC

In Q1-2024, 76% of revenue came from IAS, 10% from health service plans, and the remaining 14% from other services

Client assets held by OLY were up 3% QoQ to $11.4B. We are raising our 2024 year-end estimate by 2% to $11.8B 

 

Financials (Year-End: Dec 31st)

In Q1-2024, revenue was up 9% YoY amid higher interest rates, beating our estimate by 3% 

Source: FRC / Company

Services revenue was up 4% YoY, but 2% lower than our estimate. Interest revenue was up 15%, beating our estimate by 7%

Source: FRC / Company

*The primary source of revenue in the “Trust, Interest, & Other” category is the interest earned on placing undeployed client capital in cash accounts at major Canadian banks. 

Source: FRC / Company

*Service revenue includes annual fees and transaction fees

*Trust, interest, and other’ primarily includes interest revenue

Services revenue from IAS was up 4% YoY, driven by an expanded client-base

Source: FRC / Company

*Service revenue includes annual fees and transaction fees

 

Margins improved across the board due to higher revenue

Source: Company/FRC

Source: Company/FRC

G&A expenses were up 6% YoY, and 5% higher than our estimate. EPS was up 10% YoY, but missed our estimate by 3% due to elevated G&A expenses

Dividends remained flat QoQ, but increased 57% YoY to $1.80, aligning with our estimate. The payout ratio was 75% vs the historic average of 70%

Strong balance sheet

 

FRC Projections and Valuation 

As G&A expenses were higher than expected, we are lowering our 2024 EPS estimate by 3%, while maintaining dividends at $7.20/share

However, we are raising our long-term revenue/EPS estimates to account for potential expansion within ON. As a result, our DCF valuation increased from $115 to $135/share

Our comparables valuation declined slightly (from $136 to $134) due to lower 2024 EBITDA/EPS estimates

 

We are reiterating our BUY rating, and raising our fair value estimate from $125.67 to $134.83/share (the average of our DCF and comparables valuations), implying a potential return of 31% (including dividends) in the next 12 months. We anticipate robust performance in Q2-2024, given the relatively high interest rate environment. The next major catalyst for the stock will likely stem from OLY’s potential registration as a federal trust corporation.

 

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

Maintaining our risk rating of 3 (Average)

 

Appendix