Intrinsic Value New Commerce Split Fund (YCM.TO)

• Previous Close: $8.70
• Intrinsic Value: n/a
• Upside potential: n/a%

Stock Valuation Context

Business Model And Market Position

New Commerce Split Fund, managed by Quadravest Capital Management Inc., is a specialized equity mutual fund focused on investing in the equity shares of Canadian Imperial Bank of Commerce (CIBC). The fund operates within the asset management industry, a subset of the broader financial services sector, and is structured to provide investors with leveraged exposure to CIBC’s performance. Unlike traditional mutual funds, this split fund employs a unique capital structure, offering distinct share classes that cater to different investor risk-return profiles. The fund’s market position is inherently tied to CIBC’s performance, making it a niche vehicle for investors seeking targeted exposure to one of Canada’s leading financial institutions. Its strategy is passive, relying on CIBC’s dividend income and capital appreciation rather than active stock selection or sector diversification. This narrow focus differentiates it from diversified asset managers but also exposes it to concentrated risks associated with CIBC’s operational and financial health.

Revenue Profitability And Efficiency

In FY 2023, the fund reported negative revenue of CAD 863,749 and a net loss of CAD 1,029,543, reflecting challenges in its investment strategy or underlying asset performance. The diluted EPS stood at -CAD 1.79, indicating significant pressure on per-share profitability. However, the fund generated positive operating cash flow of CAD 566,466, suggesting some liquidity resilience despite the overall negative income statement.

Earnings Power And Capital Efficiency

The fund’s earnings power appears constrained, as evidenced by its negative net income and EPS. Its capital efficiency is difficult to assess given the lack of traditional revenue streams, but the reliance on CIBC’s dividends and share performance underscores its leveraged and concentrated nature. The absence of capital expenditures aligns with its passive investment approach.

Balance Sheet And Financial Health

The fund’s balance sheet shows CAD 743,767 in cash and equivalents against total debt of CAD 8,965,320, indicating a leveraged position. This debt level, relative to its market cap of CAD 4,009,827, suggests high financial risk, though the fund’s structure may inherently accommodate such leverage. The lack of capital expenditures simplifies its asset structure.

Growth Trends And Dividend Policy

Growth trends are unclear due to the fund’s negative profitability, but its dividend payout of CAD 0.15 per share signals a commitment to returning capital to investors despite financial headwinds. The fund’s performance is closely tied to CIBC’s dividend stability and share price movements, making its growth prospects inherently volatile.

Valuation And Market Expectations

With a market cap of CAD 4.0 million and a beta of 2.19, the fund is highly sensitive to market movements, reflecting its leveraged exposure to CIBC. Investors likely price in elevated risk given its concentrated strategy and negative earnings, though its dividend yield may attract income-focused stakeholders.

Strategic Advantages And Outlook

The fund’s strategic advantage lies in its targeted exposure to CIBC, appealing to investors bullish on Canada’s banking sector. However, its outlook is heavily dependent on CIBC’s performance and broader economic conditions. The high beta and leveraged balance sheet amplify risks, requiring cautious investor consideration.

Sources

Company description, financial data from public filings, and market data from TSX.