19 Sep 2019

Issue 38 – Northland Power Trading Opportunity

On September 9th, 2019, Northland Power Inc (TSX: NPI) announced that they are buying a Colombian power facility for $1.1 billion. NPI is funding the acquisition with equity and debt. The $315 million of equity was raised by a public offering of subscription receipts. This means that the subscription receipts will trade as receipts until the closing of the deal. This is done to protect the buyer, the seller and the existing shareholders if the deal does not go through. However, in my 20 years of experience, I have never seen a subscription receipt deal not go through. Generally, most of the due diligence is completed and what holds up the deal is delays with regulatory approvals.

Disclaimer: Palos Funds are shareholders of NPI.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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12 Sep 2019

Issue 37 – Boardwalk is back on The Monopoly Board

Boardwalk Real Estate Investment Trust (TSX: BEI-U) is a real estate company. The company acquires and manages multi-family residential projects throughout Canada. Multi-family residential REITS have been one of the best performing asset classes on the TSX this year. The two main reasons for this outperformance are low interest rates and population growth via record immigration. With strong population growth, demand has been outpacing supply, especially in Vancouver, Ottawa, Toronto, and Montreal. This demand has driven high single digit net operating income. This trend has gotten investors very excited and has driven stock prices to new highs. For example, InterRent REIT (TSX: IIP-U), Canadian Apartment Properties REIT (TSX: CAR-U), and Minto Apartment REIT (TSX:MI-U), all reached new highs in the past few days. With such excitement, I believe some of them got ahead of themselves especially on Price to Net Asset Value (P/NAV). BEI-U is the only one to trade at a discount to NAV. There are many reasons why BEI-U is trading at a discount and has relatively underperformed its peers in the past few years. The main reason is that BEI-U has more exposure to Western Canada than its peers. As you may recall, Alberta and Saskatchewan have not experienced the same economic expansion as other larger provinces; this is due to the energy market slowdown that started in 2015.

Disclaimer: Palos Funds are shareholders of BEI-U.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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05 Sep 2019

Issue 36- Travel Message

Charles and Joany were unable to write their commentary this week as Charles has been in meetings in Toronto while Joany was attending a conference. Their column will resume next week.

 

Charles et Joany ne rédigerons pas de commentaires cette semaine puisque Charles est en déplacement à Toronto et Joany en conférence. Vous pourrez les lire à leur retour la semaine prochaine.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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29 Aug 2019

Issue 35- Whitecap’s Dividend Just Got Stronger

Investors have been ignoring energy stocks for the past few years. This has created one of biggest buyer strikes in history. Energy stock prices have fallen to the point where companies are not able to access capital markets to fund their growth. This means that energy companies need to adapt to a new reality. Unfortunately, many companies are not able to adapt, as they struggle to keep their production flat, let alone growing it within their cashflow (CF).

 

Disclaimer: Palos Funds are shareholders of WCP.

By Charles Marleau, CIM & Joany Pagé, CFA

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22 Aug 2019

Issue 34- Pembina Makes the First Move

Canadian energy is ready for consolidation, as the first transaction was announced on August 21st,2019. Palos is expecting many more consolidations in the coming months, as evaluations have hit all time lows. I’m of the opinion that the stronger energy companies, pension plans, activists, and private equities are all looking at this space.

 

Disclaimer: Palos Funds are shareholders of PPL.

By Charles Marleau, CIM & Joany Pagé, CFA

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15 Aug 2019

Issue 33- Savaria Is Recovering from The Garaventa Indigestion

It has been almost 1 year since Savaria’s (TSX:SIS) acquisition Garaventa Lift took place. The business was acquired based on an annual $8.3 million EBITDA. In the first six months following the acquisition, Garaventa delivered $5.3 million EBITDA, also including a seasonally weak Q1. Their EBITDA margin also improved from 7.5% in 1Q19 to 9.5% in 2Q19. That being said, it is clear that management synergies and efficiency plans are working.

 

Disclaimer: Palos Funds are shareholders of SIS.

By Charles Marleau, CIM & Joany Pagé, CFA

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08 Aug 2019

Issue 32- Badger Slips on Wet Weather

Badger Daylighting Ltd. (TSX: BAD) reported a disappointing Q2. However, the miss can be blamed almost entirely on bad weather. The Great Lake, Midwest and Ohio Valley regions experienced higher than average precipitation levels. Unfortunately, it led to revenue and operating inefficiencies and scheduling issues. The good news is that this seems to be an issue isolated to Q2 as the company kept their full year EBITDA guidance intact between $170-$190M.

 

Disclaimer: Palos Funds are shareholders of BAD.

By Charles Marleau, CIM & Joany Pagé, CFA

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01 Aug 2019

Issue 31- Nutrien More Resilient

If you recall, spring weather in North America was awful. It felt like summer would never arrive. The cold wet weather led to the worst US planting season in history. Nitrogen and Potash ended up doing much better than the street anticipated. However, retail and phosphate lagged because of the delayed planting season.

 

Disclaimer: Palos Funds are shareholders of NTR.

By Charles Marleau, CIM & Joany Pagé, CFA

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25 Jul 2019

Issue 30- Magna Is Going Electric

On July 24, 2019, Magna International Inc (TSX: MG) announced the signing of its first complete vehicle manufacturing joint venture in China. The JV is significant as it has the capacity to assemble 180,000 vehicles per year. The initial production of electric vehicles is expected to start in late 2020. The JV is between MG and Beijing Automotive Industry Holding Co Ltd (BAIC) and is a significant milestone for both companies. The JV will have the capability to offer EV Manufacturing contracts to many different customers. I’m of the opinion that this is only the start of many more JV facilities in China.

 

Disclaimer: Palos Funds are shareholders of MG.

By Charles Marleau, CIM & Joany Pagé, CFA

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18 Jul 2019

Issue 29- Investing in Population Trends

The growth rate of the world population is accelerating at an incredible speed. It took thousands of years for the global population to hit 5 billion; this happened in 1987. However, it only took 32 years to reach close to 8 billion people. Another noteworthy stat is that globally, people over 65 years of age now outnumber children under 5. People are living longer, but they are having less children.

 

Disclaimer: Palos Funds are shareholders of IIP-U, MI-U, TCN, SVI, MFC, SIA, and PLC.

By Charles Marleau, CIM & Joany Pagé, CFA

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11 Jul 2019

Issue 28- Alimentation Couche-Tard’s All Star Year

Alimentation Couche-Tard’s (TSX: ATD.B) year-end was on April 28th, 2019. On July 9th, they released their full year and Q4 results. ATD.B had a strong year with adjusted EBITDA growth of over 18%, and EPS growth of 27%. However, Q4 was a bit more difficult as the company’s EBITDA and EPS contracted, when compared year over year (yoy).

 

Disclaimer: Palos Funds are shareholders of ATD.B.

By Charles Marleau, CIM & Joany Pagé, CFA

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04 Jul 2019

Issue 27- Dollarama Goes to Latin America

On July 2nd, 2019, Dollarama (TSX: DOL) announced that they exercised their option to acquire 50.1% of Dollarcity. This acquisition will establish the next growth era for DOL. The purchase price is approximately US$90M and is expected to close in August 2019. The transaction is immediately accretive to EPS. Dollarcity has lower margins, however I see this as an opportunity for DOL.

 

Disclaimer: Palos Funds are shareholders of DOL.

By Charles Marleau, CIM & Joany Pagé, CFA

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27 Jun 2019

Issue 26- Tidewater is Moving Forward

On June 21, 2019, Tidewater Midstream and Infrastructure Ltd (TSX: TWM) announced that it had completed the Pioneer Pipeline; a 50/50 joint venture with Transalta Corp (TSX: TA). The Pioneer project is significant for both companies, as it will transport natural gas from the TWM Brazeau River gas plant to TA’s electric generating units at Keephills and Sundance.

Disclaimer: Palos Funds are shareholders of TWM & TA.

By Charles Marleau, CIM & Joany Pagé, CFA

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20 Jun 2019

Issue 25- Capital Power Keeping It Clean

Capital Power Corp (TSX: CPX) is a North American power producer that owns 6,300 megawatts (MW) of capacity, including announced acquisitions and projects under construction. They develop, own, and operate power generation facilities using many energy sources such as gas, coal, solar, and wind. They also own a highly contracted portfolio of assets with an average age of 15 years with only 3% expected to retire in the next decade.

Disclaimer: Palos Funds are shareholders of CPX.

By Charles Marleau, CIM & Joany Pagé, CFA

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13 Jun 2019

Issue 24- Superior Plus Shifting Its Focus

On June 6th 2019, Superior Plus Corp (TSX:SPB) announced that they are looking to sell their specialty chemicals division. The chemical division manufactures sodium chlorate, caustic soda, and a few other
chemicals. If the transaction gets completed, it would have a significant positive impact on SPB’s balance sheet.

Disclaimer: Palos Funds are shareholders of SPB.

By Charles Marleau, CIM & Joany Pagé, CFA

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By Charles Marleau, CIM & Joany Pagé, CFA

 

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