Monthly Archives

April 2020

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Number Cruncher Extra: Viemed Healthcare, Information Services Corporation, Tecsys and More

Today, we will discuss about Canadian small caps that have low debt. This week we had a lot to say about the companies we found in our screener.  Viemed Healthcare (VMD), Information Services Corporation (ISV), Senvest Capital (SEC), Magellan Aerospace (MAL), Tecsys (TCS) and Absolute Software Inc. (ABT) was in our list.

Let’s see the different outlooks from our software:

We added a specific graph or table for each company. We will discuss them below:

Viemed Healthcare

Information Services Corporation

Senvest Capital

Tecsys

Mallegan Aerospace

Absolute Software Corporation

Viemed Healthcare has a strong outlook with a SP score over 60. Recently the score decreased, but by personal experience it is hard for a company to stay above 65 because it is a really strong score. We have growth in sales and earnings per share (EPS) over the long term. The performance spread, the difference between the return on capital and the cost of capital, is positive. It means the company creates value for the shareholders in the long term. The net income is negative on a 1-year basis, but the operating cashflow before considering the change in working capital is higher than last year. we don’t think we should bother with a decrease in last year EPS at this point. The company is also well positioned compared to the other companies of its industry based on the factors comparison table.

Information Services Corporation is at a very high score at 65. The score increased by 2 at it last review which is great specially at this score level. Once again for this company, sales and EPS saw growth. The performance spread score is above 0. The company pays a dividend and the current level is equal to one see in 2015 and 2018 which is not a bad or good sign. The company spends $14M on the dividend each year, but the company free-cash-flow has been 1.5x to 2x this amount in the last 5-year. It seems it can support its dividend easily.

Senvest Capital has the lowest SP score of our group at 53. By looking at the second picture, we can see the NOPAT is volatile. The company reports all their investment results in the income statement and the operating cashflow because of the business definition. This leads to weird accounting in some cases that are not economically meaningful. We suggest the investor to have good knowledge of accounting rules concerning the classification of cashflows and revenue recognition to fully understand the situation of the company. The company is often affected by their investments in the market. However, the company shows good results overall despite the volatility and the uncommon accounting.

Tecsys has a low SP score compared to the others, but there is interesting information about this company. Sales and EPS increased a lot in the last year and the last 5-year. The performance spread is also above 0. The company had great momentum until 2019. The results were a bit disappointing in 2019. The company shows higher volatility in its 5-year result than the others. The company still display characteristics linked to a good company. It has a great return on capital and doesn’t need debt to grow. Its exposition to hospital could lead to higher revenue and profit in the next quarters.

Mallegan Aerospace had a strong decline recently because of the recent turmoil. The company also shows slowing operating profit and the current environment will not help. The industry has a lot of difficulty and it is hard to find good points in the short-term for this company. However, the stock has a moderatly good historic and balance sheet. The lower valuation could be an attractive entry point for the long term investor. There is certainly “blood in the street” as Warren Buffet famously says.

Absolute Software Corporation has a decent score of 58. The company is identified as bad growth by our software. Surely, the operating profit didn’t grow in the last 5 years as seen in the related graph, but the company has some momentum in the last 2 years. It is  possible the company will have good results because of the current environment. Companies had to figure how to work remotely and cyber security is an important part of it.

You can subscribe the Inovestor for Advisors platform for free here

If you have any questions about the article, feel free to contact Anthony :
Amenard@Inovestor.com

If you would like to sign up for a free trial and learn how Inovestor can benefit you, contact Olivier:
Olamothe@Inovestor.com

Canadian small caps in good shape to get through the crisis

What are we looking for?

Small cap stocks have generally been hit harder than large caps in the current market turmoil. The S&P/TSX SmallCap Index is down 30.6 per cent year-to-date, while the S&P/TSX Composite has lost 15.8 per cent over the same period.

Companies with lower capitalizations are more likely than the large caps to have liquidity issues in dealing with the COVID-19 fallout. However, it is incorrect to conclude every small cap is in danger. Today, we look for Canadian small caps with a focus on companies that have a strong balance sheet, a healthy return on capital and an attractive track record. Please note all financial ratios are reported at the end of the previous quarter and do not reflect the impact of COVID-19.

The screen

We screened Canadian companies focusing on the following criteria:

  • Market capitalization between $250-million and $500-million;
  • Economic performance index (EPI) higher than one – the EPI is the return on capital divided by the cost of capital. The return on capital is a measure of profitability and the cost of capital a measure of risk. We want a company that generates a decent amount of money while we take into account operational risk;
  • Positive sales growth over 24 months – a great company should have been able to increase its revenue in the past two years;
  • Long-term debt lower than $100-million – we want a company with a low level of debt;
  • A StockPointer (SP) score higher than 50 – the SP score is a complex composite that focus on quality and value. This is our track record criterion. The score varies between zero and 100; a score above 50 is considered good;
  • Positive free-cash-flow-to-capital – we want a company that generates enough liquidity to make it through the crisis.

For informational purposes, we have also included recent stock price, dividend yield and one-year price return.

More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).

TICKER NAME PRICE ($) MKT CAP ($MIL.) ECON PERF INDEX Long-term debt ($MIL.) SALES CH. 24M (%) FCF / CAPITAL (%) SP SCORE DIV. YIELD (%) 1Y PRICE RTN. (%)
VMD-T Viemed Healthcare Inc 9.32 359 3.4 13.8 74.8 12.3 62 0.0 25.4
SEC-T Senvest Capital Inc. 110.99 292 1.8 4.7 136.0 6.6 53 0.0 -40.7
ISV-T Information Services Corp. 14.58 255 1.6 25.0 42.1 10.9 65 5.5 -13.7
TCS-T Tecsys Inc. 19.98 261 1.2 18.5 43.2 3.7 54 1.2 41.2
MAL-T Magellan Aerospace Corporation 6.41 373 1.1 70.8 4.9 5.9 57 6.6 -65.1
ABT-T Absolute Software Corporation 10.05 426 1.1 9.6 12.3 0.4 58 3.2 12.3

What we found

Home medical equipment supplier Viemed Healthcare Inc. has good overall scores and systematically generated return on capital above its cost of capital. The company, which provides post-acute respiratory care services, said recently it is working with health agencies in helping to transition patients with chronic respiratory failure out of hospital quicker in order to free up beds for COVID-19 patients.

Senvest Capital Inc. has interest in investment management and direct investing in public securities and private investments. Revenue is directly affected by the change in market value of its investments. Senvest has generally good scores but in the short term  it will take heavy losses we expect it to take heavy losses because of the market downturn. The SP score considers the company of moderate quality because of the volatility of the business model.

Information Services Corp., which provides registry and information management services for public data and records, has a decent EPI and is an alternative for investors looking for higher yielding stocks. In the past five years the company has produced a great free-cash-flow-to-capital, allowing for a dividend yield of 5.5 per cent.

Tecsys Inc. provides supply chain services for warehouse, distribution and transportation management. Its large exposure to the hospital sector could provide it with strong tail winds.

Components and systems manufacturer Magellan Aerospace Corp. has a strong track record, but its exposure to the aerospace industry leads us to temper our view on its outlook because of COVID-19.

Finally, data risk manager Absolute Software Inc. is well positioned to grow its sales in the next quarter as more employees work remotely.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these small caps, please subscribe the Inovestor for Advisors platform for free: inovestor.com/en-CA/store.

For readers with an Inovestor for Advisors account, Here is the screener we used

 

StockPointer® Canada Portfolio Transactions – April 2020

We have rebalanced the Nasdaq Inovestor Canadian Index based on our Canadian Model Portfolio, which will be effective on April 17th after market close. Here are the details :

Ins

  1. First National Financial Corp. (FN)– Market Trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. Winpak Ltd. (WPK)– Market Trend. Increase in the Material sector.
  3. Sun Life Financial Inc. (SLF)– Intra-sectoral transaction. In the top of its sector.
  4. Fortis (FTS) – Intra-sectoral transaction. In the top of its sector.


Outs

  1. MTY Group (MTY)– Market Trend. Decrease in the consumer discretionary sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Parex Resources Inc. (PXT)– Market Trend. Decrease in the Energy sector.
  3. Brookfield Asset Management Inc. (BAM.A)– Intra-sectoral transaction. No longer in the top of its sector.
  4. Brookfield Infrastructure Partners L.P. (BIP.UN) – Intra-sectoral transaction. No longer in the top of its sector.
  5. Brookfield Infrastructure Corporation (BIPC) – Intra-sectoral transaction. No longer in the top of its sector. This company was in our portfolio following a unit split equivalence from Brookfield Infrastructure Partners L.P (BIP.UN).

Portfolio Manager’s April Comment For Q1 2020

The performance of Global equities has been severely impacted by the COVID-19. The S&P/TSX Composite Total Return Index declined by 20.9% in Q1 more than offsetting last years’ gains for an annualized negative total return of -14.2%. For Q1, the S&P500 total return was -19.6% also erasing last returns for an annualized total return of -7% while the MSCI ACWI ex US posted a -23.3% return leading to a negative -15.1% annualized total return.

The obvious of this year’s first quarter is the COVID-19 and its impacts on the economic activity. In this period of turbulence, the COVID-19 often decides who is the winner or the loser.

NQICA in Q1 returned -24.9% leading to a 1-year return of -16.3% versus the S&P/TSX composite which returned -20.9% in Q1 and -14.2% on a 1-year basis.

In Canada, the best Q1 sectors were Info-Tech down 3.8%, Utilities down 6.2% and Telecommunication Services down 9.2%. The worst sectors were Energy down 38.2%, Healthcare down 37.3%, and Consumer Discretionary down 33.3%.

The worst performers in the NQICA in Q1 were MTY with a return of -61.2%, as a majority of its franchises needed to close because of the COVID-19, Gildan with a return of -53.3% given its discretionary profile and closing some of its manufacturing facilities and Parkland Fuel Corp. with a return of -50.7% given the lower traffic at its gaz station. On the other hand, Metro delivered a 6.6% return, as its groceries and drug stores benefits from increased volume, Constellation Software realized a 1.5% return as it was not directly impacted from the COVID-19 while Canadian National was down only 5.8% despite the hostage of its network by pressure groups earlier this year and the upcoming economic slowdown.

7 Consumer Discretionary Companies that Might not Survive the COVID-19 Bear Market

WHAT ARE WE LOOKING FOR?

The S&P500 is down 22.97%, the S&P/TSX is down 24.18% year to date. The COVID19 pandemic is destroying the economy, the Canadian GDP and US GDP are expected to drop significantly. Many businesses are shutting down and laying off employees. Although both the US and Canadian governments are putting in place subsidy programs to support businesses, some of them might not survive this crisis.

Today we will be looking at unprofitable companies with substantial debt on their balance sheet that might not survive the crisis:

 

THE SCREEN

We are looking at North American companies with the following criteria:

  • Long term debt to equity of at least 2. This indicate that the company is highly leveraged and might have a hard time paying back their debt during the crisis
  • Decreasing sales growth over the last 24 months. This indicate that the company was already having trouble before the crisis
  • We are looking for companies with decreasing NOPAT over the last 2 years. This indicate that the company is decreasing the shareholders net pay.
  • A negative EPI: The economic performance index (EPI) is the main indicator to identify how much wealth is redistributed to the shareholders. The higher the better, and a negative EPI means that the company is not covering its costs of capital.
  • Sector: Consumer Discretionary. This sector might be the most impact as consumers will reduce their spending, especially for non-essential products

 

For informational purposes, we have also included recent stock price, dividend and one-year return. Please note that some ratios may be reported at the end of the previous quarter.

 

MORE ABOUT INOVESTOR

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts).

TICKER COMAPNY RECENT PRICE ($) MKT CAP ($MIL.) LT DEBT SALES CHG. 24M (%) NOPAT CHG. 24M (%) EPI NOPAT LT DEBT / EQUITY DIV. YIELD (%) 1YR PRICE RTN.(%) SECTOR
ASNA-Q Ascena Retail Group, Inc. 0.91 9.08 1924.20 -19.87 -8.45 -1.00 -211.16 211.92 0.00 -93.56 Consumer Discretionary – Retailing
PRTY-N Party City Holdco, Inc. 0.31 28.95 2224.72 -0.96 -16.15 -0.23 -40.55 76.85 0.00 -94.23 Consumer Discretionary – Consumer Durables And Apparel
JCP-N J. C. Penney Company, Inc. 0.27 87.29 4682.00 -10.71 -6.05 -0.03 -12.52 53.64 0.00 -75.84 Consumer Discretionary – Retailing
BBBY-Q Bed Bath & Beyond Inc. 3.94 485.01 3341.41 -6.64 -16.56 -0.19 -75.29 6.89 4.60 -75.22 Consumer Discretionary – Consumer Durables And Apparel
ADNT-N Adient Plc 7.35 688.70 4004.00 -0.66 -11.49 -0.03 -22.13 5.81 0.00 -30.02 Consumer Discretionary – Automobiles and Components
GME-N Gamestop Corp. Class A 2.80 183.40 949.10 -29.90 -35.78 -0.63 -132.84 5.18 0.00 -65.55 Consumer Discretionary – Consumer Durables And Apparel
HMHC-Q Houghton Mifflin Harcourt Co 1.52 189.00 773.18 -1.20 -9.28 -0.51 -89.98 4.09 0.00 -74.14 Consumer Discretionary – Hotels and Leisure

WHAT WE FOUND

Bed Bath & Beyond Inc’s stock is down 90.8% since January 2017 and 68.35% since the start of the pandemic bear market (21 February 2020). With a Long-term debt to equity ratio of 6.25, a decrease in net income in the last 5 years from $957M in 2015 to -137M in 2019, there is a lot of question marks regarding the future performance of the companyWith a long-term debt to equity ratio of 40, J.C. Penney has temporarily furloughed most of their 85,000 employees, including store hourly workers and many corporate staff members. 57% of their revenue depend on their apparels and accessories sales, this will directly affect their earning next quarter, as apparels and accessories are considered non-essential products. The company wasn’t performing well even before COVID19 as the stock is down 96% since 2017.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more information about these stocks, readers can subscribe to the Investor for Advisor platform for free: https://www.inovestor.com/en-CA/store/
The screener is available here for investors with an Inovestor for Advisor account. The debt-to-equity ratio has been calculated manually.

 

If you have any questions about the article, feel free to contact Fares :
falkassmy@inovestor.com

If you would like to sign up for a free trial and learn how Inovestor can benefit you, contact Olivier:
Olamothe@Inovestor.com

 

 

 

StockPointer® US and ADR Model Portfolio Transactions – April 2020

We have rebalanced the Stockpointer® US and ADR model portfolios which are effective now. Here are the details for the US portfolio :

Ins:

  1. American Express (AXP)– Market Trend. Increase in the Financial sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. LyondellBasell (LYB)– Market Trend. Increase in the Material sector
  3. Starbucks (SBUX)– Intra-sectoral transaction. In the top of its sector.
  4. Home Depot (HD) – Intra-sectoral transaction. In the top of its sector.
  5. Cabot Oil & Gas (COG) – Intra-sectoral transaction. In the top of its sector.
    6. Centerstate Bank Corp (CSFL) – Intra-sectoral transaction. In the top of its sector.
    7. TransDigm Group (TDG) – Intra-sectoral transaction. In the top of its sector.
    8. Newmont Mining (NEM) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Bristol-Myers Squibb Co. (BMY)– Market Trend. Decrease in the Healthcare sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. DTE Energy (DTE)– Market Trend. Decrease in the Utilities sector
  3. Six Flags (SIX)– Intra-sectoral transaction. The company was in potential financial distress.
  4. H&R Block (HRB) – Intra-sectoral transaction. No longer in the top of its sector.
  5. GeoPark Ltd. (GPRK) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Medical Properties Trust Inc. (MPW) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Alaska Air Group Inc. (ALK) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Westlake Chemical Corporation (WLK) – Intra-sectoral transaction. No longer in the top of its sector.

 

Here are the details for the ADR portfolio :

 

Ins:

  1. Anhui Conch Cement(AHCHF)– Market Trend. Increase in the Materials sector as seen in the Top 100 index, therefore, increasing our position in the portfolio.
  2. DBS Group Holdings (DBSDF)– Market Trend. Increase in the Financial sector
  3. Telenet Group Holding (TLGHY)– Intra-sectoral transaction. In the top of its sector.
  4. Husqvarna AB (HUSQF) – Intra-sectoral transaction. In the top of its sector.
  5. Neste OYJ (NTOIF) – Intra-sectoral transaction. In the top of its sector.
  6. Ping An Insurance (Group) Co. Of China (PIAIF) – Intra-sectoral transaction. In the top of its sector.
  7. Ashtead Group (ASHTF) – Intra-sectoral transaction. In the top of its sector.
  8. Shionogi & Co (SGIOF) – Intra-sectoral transaction. In the top of its sector.
  9. Nexon (NEXOF) – Intra-sectoral transaction. In the top of its sector.


Outs:

  1. Brookfield Infrastructure Partners L.P. (BIP)– Market Trend. Decrease in the Utilities sector as seen in the Top 100 index, therefore, decreasing our position in the portfolio.
  2. Brookfield Infrastructure Corporation (BIPC)– Market Trend. Decrease in the Utilities sector. This company was in our portfolio following a unit split equivalence from Brookfield Infrastructure Partners L.P (BIP).
  3. Enersis (Enel Américas) (ENIA)– Market Trend. Decrease in the Utilities sector
  4. Arcos Dorados Holdings (ARCO) – Intra-sectoral transaction. No longer in the top of its sector.
  5. Michael Kors (Capri Holdings) (CPRI) – Intra-sectoral transaction. No longer in the top of its sector.
  6. Transportadora (TGS) – Intra-sectoral transaction. No longer in the top of its sector.
  7. Bank of N.T Butterfield & Son Limited (NTB) – Intra-sectoral transaction. No longer in the top of its sector.
  8. Banco Santander Brasil (BSBR) – Intra-sectoral transaction. No longer in the top of its sector.
  9. Taro Pharmaceuticals (TARO) – Intra-sectoral transaction. No longer in the top of its sector.
  10. NXPI Semicondutors N.V (NXPI) – Intra-sectoral transaction. No longer in the top of its sector.