Category: Weekly Commentary

17 Oct 2019

Issue 42 – CCL Industries: A Value Stock?

CCL Industries Inc (TSX: CCL.B) supplies manufacturing services and specialty packaging products like labels, tubes for pharmaceutical and cosmetic products, and containers. The company has a very impressive history of making accretive acquisitions. Since its last acquisition, CCL.B has brought down its net debt to $1,755, bringing its net debt/EBITDA multiple down to 1.6x. With a balance sheet under 2x, it is probably fair to say that CCL.B is on the hunt for its next acquisition. It’s important to note that the company never issues stock from treasury; acquisitions are usually financed by its balance sheet. This means that the deals CCL does are often accretive for shareholders from day one.

Disclaimer: Palos Funds are shareholders of CCL.B.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By William Mitchell

10 Oct 2019

Issue 41- Maple Leaf: A Plant-Based Protein Company?

If you never heard of Beyond Meat or Impossible Foods, you’ve probably been living under a rock. Plant -Based Protein (PBP) has been making a lot of noise in the food industry and its popularity is growing rapidly. The fast food and grocer industries are all entering the market. There are many indications that meat alternatives will be a game-changer for the food industry. According to numerous reports, spending on meat alternatives is set to rise more than tenfold in the next decade.

Disclaimer: Palos Funds are shareholders of MFI.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

03 Oct 2019

Issue 40- Tricon Bites the Bullet

On June 11, 2019, Tricon Capital Group (TSX: TCN) closed on their US$1.4 billion acquisition of 23 U.S. Sunbelt buildings, containing 7,300 units from the Starlight U.S. Multi-Family Core Fund. For this transaction, the company issued Starlight 50.78 million shares and assumed US$916 million in debt to complete the purchase. A portion of the shares issued were subject to a lock-up. On October 2, 2019, TCN decided to remove the lock-up on 38.6 million common shares, which were issued to non-insiders in connection to the deal. This equates to 20% of its market cap.

Disclaimer: Palos Funds are shareholders of TCN.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By William Mitchell

26 Sep 2019

Issue 39 – Is Stelco a steel?

Stelco Holdings Inc (TSX: STLC) produces flat-rolled steel products for the construction, automotive, and energy industries. The company has fallen out favor and the stock is now trading at new lows, far from its IPO price of $17. There are many political and economic reasons why the stock is trading at these levels. The market seems to be pricing in a recession, there is a fear that the USMCA may be delayed because of an impeachment, and, of course, trade wars. Furthermore, the price of the underlying commodity is transacting below its long-term average of $630/nt.

Disclaimer: Palos Funds are shareholders of STLC.

 

By Charles Marleau, CIM & Joany Pagé, CFA

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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell

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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By Charles Marleau, CIM & Joany Pagé, CFA

 

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By Hubert Marleau

 

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By Robert Mendel

 

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By William Mitchell