Category: Weekly Commentary

27 Apr 2017

Issue 17 – Trading Subscription Receipts

The Canadian market has a few large pending deals that have been financed by subscription receipts. This type of financing structure ensures the acquirer that it will have the cash it needs to complete the acquisition; the common stock is however only issued when the acquisition formally closes. When the deal closes, the subscription receipt gets converted into common stock. On the other hand, if the deal does not close, the subscription receipts will mature and investors will get their money back. This type of financing structure is very attractive for investors because it allows them to invest in a post-acquisition entity while eliminating the risk that the acquisition will not be completed.

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20 Apr 2017

Issue 16 – # Equitable Bank

A chicken keeper out of the US has been tweeting false news about Equitable Group Inc. (TSX:EQB). The chicken keeper made allegations that EQB’s Guaranteed Investment Certificates (GICs) were removed from the BMO and Scotiabank investor platforms. We made a few calls on Bay Street and quickly concluded that the above statement was false. EQB’s GICs are still being offered at BMO and Scotiabank. Despite the allegations being false, the market was spooked and all mortgage lenders quickly traded down.

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13 Apr 2017

Issue 15 – Boy O’Boyd

Boyd Group Income Fund (TSX:BYD-U) is one of the leading and largest operators of collision repairs in North America. It is the only public company in the North American automotive collision repair industry. Its revenue is recession resilient as 90% comes from insurance companies. Car accidents happen regardless of the state of the economy and insurance companies must pay the bill. Therefore, even in a recession, revenues are guaranteed.

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06 Apr 2017

Issue 14 – The Raging River Seesaw

For the last 48 hours, Raging River Exploration Inc (TSX:RRX) experienced severe volatility in its stock price. This volatility was driven by unsubstantiated news reports on the company. On April 5, 2017, Scott Deveau, an editorialist for Bloomberg, reported that RRX hired GMP FirstEnergy to explore a potential sale of the company. When the news hit the wire, the stock jumped 9%. We acted quickly and sold our position as the news wire did not make much sense.

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30 Mar 2017

Issue 13 – CanWel Building Materials 2.0

We had the chance to meet with CanWel’s (TSX:CWX) management team and was pleasantly surprised by the company and its future opportunities. CWX distributes building materials and is a provider of logging and wood-treatment services via 10 facilities in Canada and the United States. CWX has four divisions: 1. Building Materials 2. Treating Division 3. California Cascade 4. Forestry Products

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23 Mar 2017

Issue 12 – Flooding the Canyon

On March 22, 2017 Canyon Services Group Inc. (TSX:FRC) announced that it was being acquired by Trican Well Service Ltd (TSX:TCW). The combined operations of FRC and TCW will make it the leader in pressure pumping in Canada. The combined entity will have over 675k of hydraulic horsepower (HHP) which is approximately 35% of the Canadian fracing capacity.

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16 Mar 2017

Issue 11 – Ignoring the Good

The Canadian Natural Gas industry is being side swept by short-term investors. Despite the industry receiving very good news over the past week, the market is being blinded by lower energy prices. The following are a few positives being ignored by the market:

• Alliance Pipeline announced a 0.5 billion cubic feet per day (bcf/d) expansion, which is a 30% boost to the pipeline’s capacity of 1.65 bcf/d to 2.15 bcf/d. The Alliance Pipeline transports natural gas to Illinois, in the heart of the US Midwest. The producers that ship via Alliance get a premium price for their gas. The increased capacity is a positive for the industry as a whole.

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09 Mar 2017

Issue 10 – Hardwoods Distribution

Hardwoods Distribution (TSX:HWD) is a leading distributor of high grade lumber products in North America. Its goal is to be the link between large suppliers and smaller industrial manufacturers (IM). Without hardwoods’ distribution network, the large suppliers would not be able to service the smaller IMs. Harwoods has created a hub and spoke network via its 60 facilities across North America.

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02 Mar 2017

Issue 9 – Secure Energy Makes a Roaring Comeback

On March 1, 2017, Secure Energy Services Inc (TSX:SES) announced its fourth quarter results. We were pleased with SES’ results. The company reported an EBITDA of $34 mil which was above the street’s estimates of $31.8 mil. The processing, recovery and disposal (PRD) segment of SES was the highlight as its revenue improved by 22% QoQ, with better margins.

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23 Feb 2017

Issue 8 – ECN is Building a War Chest

On February 21, 2017, ECN Capital (TSX: ECN) announced that it entered into an agreement to sell its US commercial and vendor finance business to PNC Financial Services Group for USD$1.253 billion (CAD $1.625 billion). The transaction was done at a very attractive multiple. The asset was sold at 1.5x price to book (P/B). The last similar transaction was done at 1.0X P/B which occurred in June 2016 when Laurentian Bank acquired CIT Canada.

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16 Feb 2017

Issue 7 – A New Best Friend

Pembina Pipeline Corporation (TSX:PPL) announced that it has entered into a 20-year infrastructure development and service agreement with Chevron (NYSE: CVX). The magnitude and the opportunity of this agreement is incredible for PPL. The agreement includes over 230,000 acres in the liquid-rich Kaybob region. The agreement allows CVX to call upon PPL to construct, own and operate gas gathering pipelines and processing facilities in the area. The infrastructure agreement could represent multibillion dollars of growth for PPL.

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02 Feb 2017

Issue 5 – Tweet = #Gold

We have never been a big gold bug. However, in the era of Trump tweets, some gold exposure seems strategic.  The Palos Income fund has increased its exposure to gold equity to 5.2% percent, which is a historic high. The challenge with most gold companies is that they don’t pay a dividend. It’s difficult for them to allocate a percentage of their cash flow to dividend. Most companies need to re-invest in their projects, seek new opportunities or acquire competitors. Therefore, we prefer to invest in gold-focused royalty and streaming companies like Franco-Nevada Corporation (TSX:FNV) and Osisko Gold Royalties Ltd (TSX:OR). This model allows for the diversification of mines and cash flow to be distributed to shareholders.  FNV is the leading gold royalty and streaming company with the largest and most diversified portfolio of cash-flow producing assets. Here is its revenue breakdown:

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26 Jan 2017

Issue 4 – AltaGas Swallows a Big Fish

AltaGas Ltd (ALA:TSX) is buying WGL Holdings Inc (WGL: NYSE) for $6 billion. This deal will allow ALA to expand its energy infrastructure portfolio in North America. This will give ALA a foothold in the Marcellus/ Utica basin. In addition, it will add to its clean power portfolio. Once combined, the company will be a leader in the North American energy market.

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19 Jan 2017

Issue 3 – Canadian Energy Services Pays Up

On August 1, 2016, Canadian Energy Services & Technology Corp (TSX:CEU) completed its acquisition of Catalyst Oilfield Services (COS). COS is a U.S.-based company that specializes in chemicals for the oil & gas industry. The company is focused in the West Texas area and the Permian Basin. At the time of the announcement, the acquisition seemed expensive. However, CEU is renowned for making expensive acquisitions worthwhile thanks to their vision, execution and integration. The COS acquisition will start to shine shortly. We believe CEU has slowly started its cross-selling strategy to existing COS customers.

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