Category: Weekly Commentary

21 Sep 2018

Issue 38 – FID on LNG

No concrete decisions have been made on LNG to date. However, there is some positive indication that LNG Canada is getting closer to reality. This $40-billion Shell LNG terminal is crucial for Canada as it could create a pathway to Asia for Canadian gas. Here is what we are hearing, some of it may however be noise and should be taken with a grain of salt.

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31 Aug 2018

Issue 35 – NAFTA Uncertainty

The Canadian market has been suffering from NAFTA uncertainty for the past twelve months.  One industry has been affected more than others and it’s the auto parts industry.  However, there has been significant news on NAFTA this week. It all started on Monday with the US and Mexico bilateral agreement. This announcement gave significant optimism that a joint agreement with Canada is to follow. Since Monday, all three leaders have spoken with a positive tone that an agreement could be completed by the end of the week. Canada and the US are both demonstrating the willingness to negotiate and make concessions

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24 Aug 2018

Issue 34 – Loblaws

Loblaw Companies Limited (TSX: L) is a leading Canadian retail and wholesale food distributor. The company trades at an attractive valuation of 6.5X EV/EBITDA. There are a few catalysts that I think make L more attractive than other Canadian grocers.

Read on for Robert Mendel’s Option Corner and Hubert Marleau’s Macro View!

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17 Aug 2018

Issue 33 – Getting Income in the Marijuana Space

The marijuana business is still in its infancy, and many Canadian companies are ramping up production and innovating new products for the medical and recreational markets. According to CIBC, the Canadian market opportunity could be as big as $6.5 billion by 2020. The legalization of recreational marijuana usage will occur on October 17, 2018.

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10 Aug 2018

Issue 32 – Iso-Octane Drives Keyera’s Big Earning’s Win

On August 08, 2019, Keyera Inc (TSX:KEY) announced their second quarter earnings and they were impressive. KEY posted an adjusted EBITDA of $210 million versus the street consensus of $170 million. The beat came from the marketing business, as they experienced record iso-octane margins. With these stellar results the company increased its dividend by 7% to $1.80 per share.

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03 Aug 2018

Issue 31 – A Stellar Quarter For Stelco

On August 1, 2018 Stelco Inc (TSX:STLC) announced a very strong second quarter. Revenue came in at $711 million versus the street estimates at $586.5 million. Even thought the company incurred $11 million of cost from the Trump tariffs, the company’s EBITDA came in at $175 million beating consensus at $141.6 million. In addition, margins continued to expand as management focusses on efficiency. For example, STLC has added distribution capacity through additional rail cars and has also implemented inventory management tools to alleviate inventory build.

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27 Jul 2018

Issue 30 – Agnico Eagle: Down But Not Out

On Wednesday night Agnico Eagle Mines Limited (TSX:AEM) release their second quarter results. At the same time, two other majors and one junior producer also released their financials. At first glance, Palos’ interpretation of AEM’s quarterly financials was good. Operating results were better, free cash flow was in line and guidance was upbeat. However, the market was not in a good mood especially given that the two other majors, Barrick Gold Corp (TSX:ABX) and Goldcorp Inc (TSX:G), announced weak quarters.

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20 Jul 2018

Issue 29: Copper is Down: Why This Could be Positive for Lundin

Lundin Mining Corp (TSX:LUN) is a diversified base metals mining company producing copper, zinc, nickel and gold. Approximately 59% of its revenue comes from copper. LUN is in a much different scenario than most copper companies though as it has over US$1.5 billion dollars of cash and equivalents on its balance sheet. LUN is extremely well positioned in this copper price environment. The commodity is down 16% from its high.

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13 Jul 2018

Issue 28 – Morneau Shepell Acquires Lifeworks

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.

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06 Jul 2018

Issue 27 – Knock on Wood

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.

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29 Jun 2018

Issue 26 – Water & Tariffs Bring Opportunities to Nutrien

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).

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21 Jun 2018

Issue 25 – No Love for Bank of Nova Scotia

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

15 Jun 2018

Issue 24 – The Puzzling Canadian Oil and Gas Market

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).

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