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CIBC analyst slaps 'sell' on CI Financial

CIBC World Markets analyst Paul Holden has downgraded CI Financial Corp. to "sector underperformer" (sell) and reduced his one-year target to $21.25 a share from $20 now that partner Sun Life Financial Inc. plans to launch a mutual fund company this fall.

"We believe that the reduction in gross sales related to Sun Life will be significant over time, potentially resulting in substantially lower total net sales for CI several years from now," Mr. Holden wrote in a report.

Sun Life said last week that its fund lineup would be largely managed by its Boston-based subsidiary MFS Investment Management.

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The insurer has been selling mutual and segregated funds managed by CI Financial since 2002, after Sun Life became the fund company's largest single shareholder. Sun Life sold its 37-per-cent stake in CI to Bank of Nova Scotia in 2008.

"We estimate that sales of Sun Life-related funds account for 38 per cent of CI's total net sales year to date in 2010 compared to 57 per cent in 2009 and 88 per cent in 2008," Mr. Holden wrote.

"We believe that CI's Fund sales through Sun Life are at risk over time, as Sun Life should be financially motivated to promote its internally manufactured product over CI manufactured product. However, we do expect the deterioration in sales to take place over several years. Approximately, 18 per cent of CI's current assets under management is related to Sun Life product."

The analyst said he believes that Scotiabank will remain a passive shareholder in CI Financial in the near term, and that removes a "potential upside catalyst" from a takeover.

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