National Bank Financial Research: CIX Income Trust yield matrix

June 22, 2006

John Aiken, john.aiken@nbfinancial.com
Associate: Philip Hardie, philip.hardie@nbfinancial.com

CI Announces Shareholder Approval to an Income Trust
At a special meeting today, shareholders approved CI Financial's plan to convert to an income trust. The conversion is anticipated to be completed by June 30, with the first monthly distribution (estimated to be $0.1675 per share, or $2.01 annualized) most likely to be paid out on July 14. Further, it is anticipated that CI will change its year end from its current May to December.
Our Opinion
As discussed in previous research, we view the conversion favourably and believe that CI will ultimately be viewed as one of the premier income trusts. That said, CI's share price has declined over recent weeks, down almost 14% from its high.

As of yesterday's close, CI's pro forma yield was approximately 7%, well above the yield of some of the high quality, recurring revenue trusts of just over 6.5%. Using similar valuations, CI's valuation as a trust would be fairly valued at over $30, providing strong upside not even accounting for its higher yield.

In the chart below, we provide a valuation sensitivity on our forecast for fiscal 2007 distributions of $2.25, which represent growth of only 12% from CI's announced run-rate. While CI's valuation is currently being impacted by negative sentiment garnered by the weakness in the equity markets, we note that, even assuming fairly punitive markets for 2007, our cash distribution forecasts only decline to roughly $2.09, reflecting a $30 valuation on current implied yield and $32 based on premium trust valuations.


We note that each 1% decline in annualized investment returns only decreases forecast cash distributions by $0.01 per share (or $0.15 on its valuation). Further, assuming flat net sales for the year does not have a detrimental impact on near term cash distribution levels, as the declining revenue is offset by the lack of cash outflows required to fund deferred sales charges.

We believe that CI's current valuation represents an overly conservative view on its future prospects and believe that, with no serious impediments remaining to CI's conversion, its valuation will once again align with those of the premier income trusts. Consequently, we believe that this is an excellent opportunity to begin to accumulate the stock for investors wishing to hold it as a trust.