The Brick Ltd (BRK.TO) Buy, Sell or Hold

The Brick Ltd (BRK.TO)

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DON'T BUY

Not particularily favourable on the retail space. Very hard to obtain a competitive advantage. Can be quite cyclical as consumer preferences can change quickly. Felt this company was too aggressive on their IPO forcasts. Had a very soft 1st quarter this year. Same store growth was down about 5%. Higher fixed costs also.

WAIT

Has about 70% market share in Canada. In a highly fragemented, very competitive furniture industry. Poor results last quarter because of margins being squeezed. Launching a mattress brand and the market is concerned on how they'll do relative to Sleep Country (Z.UN-T). Wait for the 2nd quarter results.

WAIT

Tends not to play in the retail space, so didn't participate in the IPO. This space is quite cyclical. Very difficult to maintain their competitive advantage longer term. At the time of the IPO, they had just taken over United Wharehouse and expanded into Quebec. Had concerns on their forcasts which included some pretty strong numbers regarding those operations. Same store sales down 5%.

BUY

Have come off significantly after they released their last quarterly results. Just a hiccup. Same store sales growth was a little soft and they did have some one time charges. Trading at about 1.5 X foreward EBITDA. Distribution is not at risk here. Fairly conservative balance sheet. Expects an increase in margins.

HOLD

A fine furniture retailer, but not as good as Leon's Furniture (LNF-T). Part of the problem with this trust is that they've had some top management changes and investors are worried about it. Getting into the mattress specialty business where there is a lot of competition.

DON'T BUY

Came out with relatively disappointing numbers in the 1st quarter. On trusts, would like to see execution over an extended period of time which requires financial results. Prefers North West Company (NWF.UN-T) as a retailer which has characteristics that he keeps pushing for.

TRADE

Performance has been quite strong since the IPO. Recently announced launch of a national bedding chain which is an attractive business, but will put pricing pressure on them and competition. Her firm tends not to own retail.

BUY

Dependent upon, household formation, consumer spending and people moving also on lower middle class.

TOP PICK

Expect them to grow quite significantly, probably 10 stores in the next couple of years. Not cheap right now, but on a longer term basis, they have a target price of $16.

DON'T BUY

Tends to stay away from the more retail oriented part of income trusts. Has had a great run, but this sector is cyclical and competitive. A lot of pro forma numbers that they want to get their head around. Prefers other sectors.

TRADE

Retail is an area that she is cautious on. Paid out a special distribution in December, but was tax driven as opposed to excess cash. The one quarter they had was quite strong with a conservative payout ratio of 73%. A seasonal business and stronger results are usually in the 2nd half of the year.

HOLD

Retail is a very competitive business, so tends to stay away fro this sector. Makes a lot of its money from its financing arm and this can be quite volatile in negative economic times. Right now is pretty good. so they should be OK for the next year or so.

DON'T BUY

Intensely competitive business. Very little wiggle room if things go wrong. 100% payout ratio.

BUY

Likes this income fund. It is a sustainable business. A solid company with solid cash flows.

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The Brick Ltd (BRK.TO)