Morneau Shepell Inc (TSX:MSI) entered into a definitive agreement to acquire LifeWorks (Life), for a purchase price of $426 million. Life is a leading global Employee Assistance Program (“EAP”) and wellness provider, and has offices in the U.S., the U.K., Australia and Canada, with more than 500 employees worldwide and 4,200 existing customers across 57 industries. MSI is financing the $426 million by raising $210 million in equity and upsizing its bank facility.
Hardwoods Distribution (TSX:HDI) is the largest distributor of architectural building products in North America with 63 locations and over 1100 employees. HDI has become a vital link between large suppliers of lumber products and smaller industrial manufacturers. Currently, the three main revenue sources for the company are residential (50%), commercial (30%), and diversified (20%). Despite the competitive market position of HDI, it still only represents 10% market share in North America. The company has lots of room to grow both organically and through accretive acquisitions like the recent purchase of Atlanta Hardwood Corporation in June.
In mid June, China decided to fight back after the U.S. slapped tariffs on $50 billion in Chinese imports. China retaliated by raising import duties on tens of billions of dollars of US goods, including soybeans. This is extremely significant as the US is the world’s top soybean producer ($23 billion). On the other hand, the largest consumer of soybeans is China ($34 billion).
Since the beginning of spring, the Bank of Nova Scotia (TSX:BNS) has been significantly underperforming the other Canadian Banks. BNS has lagged its peers by over 10% for two main reasons. The first is the acquisition of MD Financial (MD). The MD transaction is a great deal for BNS and very strategic as it brings a pipeline of high net worth clients to the bank. However, BNS had to significantly pay up for the asset. They paid $2.6 billion, or 7% of AUM, which is the highest multiple we have seen in the industry. The market may be shocked by the price paid and may be focusing on the acquisition being dilutive to EPS for the next two years. In our view, the dilution is very mild for such an asset and BNS has a reputation for efficiently integrating acquisitions. Furthermore, the market seems to be ignoring the upsell opportunities of this new client list. Continue Reading in PDF
It seems like all the money is pilling into one name and ignoring the rest of the market. Suncor Energy Inc (TSX: SU) appears to be the flavour of the quarter. this attraction to SU, however, has pushed its valuation well above that of its peers. Palos believes there are good reasons why SU is attracting investors money. It is fully integrated, well positioned to get best price for its commodity, and has exposure to the refinery business. However, SU’s multiple in comparison to the larger cap producers is getting rich, especially when you compare it to its smaller brother Canadian Natural Resources (TSX: CNQ).
The recent strength in oil prices and weakness in the Canadian dollar has solidified Palos’ thesis that many of the Canadian energy names remain undervalued. The one that stands out is Whitecap Resources (TSX: WCP). This company has a robust balance sheet, profitable growth, strong management team, and has increase its dividend to 32 cents per year equating to a 3.48% yield. WCP also has one of the lowest decline rates in the sector at approximately 20%.
A few weeks ago, Superior Plus Corp (TSX: SPB) announced a very strong Q1, which came in well above consensus. In addition to the strong quarter, on May 30, 2018 SPB announced that they had entered into an agreement to acquire NGL Propane, LLC (NGL) for a total cash consideration of US$900 million. NGL sells propane and distillates to over 316,000 residential, commercial, and industrial customers in the Northeast US. Following the transaction, Superior Plus will be the 2nd largest retail propane distributor in North America. According to management, the merger will bring US$20-25 million dollars of synergies. Palos believes that management is being very conservative. With the acquisition, SPB will reach critical mass where they will become a price giver instead of price takers which should translate to lower costs of goods sold and higher margins.
On May 22, 2018 Cobalt 27 Capital Corp. (TSX: KBLT) announced a transformational streaming deal. Prior to this deal, KBLT was strictly a hoarder of physical cobalt. The company always had the ambition to invest in cobalt streams. However, cobalt is a rare commodity and most of its production, approximately 65%, comes from the Democratic Republic Congo (DRC). This is not a great jurisdiction for miners. With the Electric Vehicle (EV) revolution, demand for cobalt has risen to the point where there is a cobalt shortage. The majority (99%) of cobalt is mined as a by-product. This makes it difficult for capital to be allocated purely into cobalt. Hence why KBLT is so interesting as a long-term investment.
On April 16, 2018 Vermilion Energy Inc. (TSX:VET) announced that they were buying Spartan Energy Corp (TSX:SPE) for C$1.40 billion. The deal was done at very attractive metrics. This will add 23,000 bbl/d of production, 480,000 net acres of land, 113.5 mmboe of 2P reserves and over 1000 locations. VET paid 4.9x P/CF which is very reasonable for light oil, and high netback assets.
Northland Power Inc (TSX:NPI) reported a strong first quarter that beat consensus estimates. NPI reported an Adjusted EBITDA of C$290M and consensus was at C$257M. The beat came from better results from the offshore assets and lower expense. Furthermore, the company is also off to a great start in 2018. NPI won the contract for an offshore wind project in Taiwan (300MW), and the construction of the Deutsche Bucht offshore wind project continues to be on schedule and under budget.
Earnings season can be quite a hectic time for many companies. Speculation, headlines and surprising results can drastically move stock prices. This earnings season, we were particularly interested in Manulife’s (TSX: MFC) results as there has been a lot of talk lately regarding their long-term care (LTC) business and the new life insurance capital adequacy test or LICAT. Furthermore, Manulife’s stock price has been under pressure since January when GE reported losses of US$6.2 billion on its LTC business.
In the past, Transcontinental Inc. (TSX: TCL/A) was known as Canada’s largest printing company. For many years, the company faced falling demand for printed products. We all know that the physical newspaper business is declining and will probably disappear in the coming years. TCL/A has navigated this decline as efficiently as possible. For example, printing revenue has been falling for the last decade, but the company was able to keep its margins stable, and its EBITDA has also declined less than its revenue on a percentage basis. This was achieved by having a disciplined management team, that acted by closing inefficient printing presses, and selling non-core media assets. Its discipline allowed the company to shore up its balance sheet and make a few small acquisitions in packaging. However, none of them where large enough to transform the company until they announced the US$1.32 billion Coveris Americas acquisition on April 02, 2017.
We have recently taken a liking to Stelco holdings (TSX: STLC), a producer of value-added steel products with headquarters in Hamilton, Ontario. Stelco is an impressive turnaround story that has successfully emerged from bankruptcy. The company now has a strong capital structure with no long-term debt and over $250 million of cash on hand as at December 31, 2017. STLC also has no pension liabilities, low input costs and has a dividend yield of about 1.70%. Stelco produces steel products using new metals whereas many in the industry use scrap metals. With the increasing prices of scrap metal and synthetic graphite rods, Stelco is well-positioned to compete on price.
Jamieson Wellness Inc (JWEL) has been one of the most successful Initial public offering’s of 2017. JWEL did its IPO on July 5, 2017 at $15.75 and closed 2017 up 41%. The iconic mineral and supplement company is the #1 consumer health brand in Canada with a 25% market share in food and drug stores. The company’s 2017 highlights include revenue growth up 21% to $301 million and EBITDA up 31% to $61 million. Strong performance highlighted by significant free cash flow generation have opened several growth opportunities for Jamieson.
On April 3, 2018, Superior Plus Corp (TSX:SPB) announced $72 million in non-core dispositions. The sales included their U.S. wholesale refined fuels business and some fuel terminal assets. The dispersal of the lower margin wholesale businesses will allow the company to focus on its significantly higher retail business. Superior also sold some US retail distillate assets. The sale proceeds add to SPB’s war chest. The cash generated will be used to acquire more strategic assets for their core businesses: energy services, specialty chemicals, and construction products distribution.