– Home Capital Group (HCG) – Market Trend. We reduced our number of positions in the Finance sector from 8 to 6. Despite a high SPscore due to a considerable discount relative to its intrinsic value, HCG’s stock lost its attractiveness with the marked and steady decline in Economic performance of the company. The return on capital had declined sharply over the past two years, as had net profit after tax (NOPAT). The EVA has suffered the consequences, also declining since December 2014. HCG’s stock is still under pressure from the “scandal” of summer 2015, and the CEO got fired last week.
– National Bank of Canada (NA) – Market Trend. We reduced our number of positions in the Finance sector from 8 to 6. From an EVA point of view, National Bank was undoubtedly the “least interesting” bank among those we hold in the portfolio. Its return on capital has been declining for the past 5 years. The effect on intrinsic value was greater in 2016, and it is now below the stock price for the first time in five years.
– CGI Group (GIB.A) – Market Trend. We reduced our number of positions in the Technology sector from 2 to 1. On several aspects, Open Text (OTEX) had better attributes than CGI. Here is a summary table of the elements analyzed :
– Imperial Oil Limited (IMO) – Market Trend. We increased our number of positions in the Energy sector from 0 to 1. Imperial Oil is ranked #1 by SPscore filtering : Canadian Equities, Large Cap, Energy. No company could meet all our standard buy criteria, however IMO came the closest.
– New Flyer Industries (NFI) – Market Trend. We increased our number of positions in the Industrial sector from 2 to 4. New Flyer Industries, a manufacturer of transit buses and passenger buses, is also ranked #1 in its sector with an SPscore of 67%. The company is growing quickly with revenues more than tripling over the last 4 years. Both the EVA and intrinsic value have been steadily increasing over the past 5 years with growth accelerating since the beginning of 2015. The company generates good free cash flows, which enables it to fuel part of its growth plans.
– WSP Global (WSP) – Market Trend. We increased our number of positions in the Industrial sector from 2 to 4. WSP Global adds to our portfolio some exposure to global infrastructure and engineering investments. The company’s revenues are segmented as such; 37% from Europe, Middle East, India & Africa, 30% from the United States and South America, 19% from Canada, and 14% from Asia-Pacific. The EVA generated by WSP is increasing and has been positive for the last 3 quarters. The EVA is sometimes unstable, as is the return on capital, in particular because of the very frequent acquisitions. In 2016 only, WSP made 8 acquisitions, which quickly increased the invested capital without the NOPAT benefiting instantly. The NOPAT should catch up in the coming quarters.
The three companies added to our portfolio entered with a 2.7% weight.