Empire Company (A) (EMP.A.TO)

This might be a buying opportunity. Sobey’s has done a very good job of running their business and Empire is the holding company. They did a big acquisition when they took over Safeway in Western Canada.

They are having trouble integrating Safeway. He would prefer L-T for the Shoppers exposure, but he does not own anything in grocery right now.

He thinks there is some value in this area. Maybe it could go a little bit lower, but there should be some support here. It probably looks interesting here, however when they are having challenges in execution, the market will keep it down. Above $23 it would say the market is building confidence in them.

(Market call minute.) He would prefer Loblaw’s (L-T).

They are having trouble with the Safeway merger and the markets out west. Model price is $25.26, a 25% upside as of the close yesterday. He thinks it will go down to $18.35, however. People who got caught will become sellers. They are going to a price war in Quebec. He might get some at $18.35 personally. It is cheap and it gets cheaper.

CEO had made it clear they were having issues with their integration with Safeway. They were bringing in the SAP system which is always very cumbersome for them. For the next few quarters after that, there have been some sizable misses. Also, this is more of a West Coast focused company. However, it is still a grocery with great real estate, great assets and the probability of making great synergies down the road. On the income side of your portfolio, this is a good time to tuck this away for the next few years, and you will probably do really well.

The retail grocery business in Canada had a very hard time because Wal-Mart (WMT-N) and other US chains really had expanded their grocery business. Last year, for the 1^st time, that expansion really slowed down, which was a positive for companies like this. However, the Sobeys/Safeway merger didn’t go smoothly. This may have taken the focus off the core Sobeys’ business, which had to drop their prices in Western Canada. That is going to put pressure on the whole retail grocery sector. The food business in general is a good business. Also, feels low energy prices are going to be a positive for them. Still trading at historically high levels and is somewhat overvalued.

He does not follow this as closely as other grocers. He rates Metro and then L-T above this one.

(Market Call Minute.) He is still on the sidelines. The last quarter showed they still have trouble with the acquisition they did on the Sobey’s side. He would rather own Metro or Loblaw’s.

They had trouble integrating Safeway. At the same time they got hit with a depression in Alberta where Safeway operates. He thinks they will get through it. They have great land holdings, good real estate. Their market share has slipped a little in Ontario, but they are strong out East. He owns Weston’s. But empire is looking a little more attractive. Wait for integration aspects to be put behind them.

As one of the 3 biggest supermarket chains in Canada, it is very unusual to be down 25% in the year. They mishandled the Safeway integration. Management should succeed in turning the operations around. Dividend yield of 1.73%.

This had a pretty big miss in its Sobey’s trying to integrate the Safeway acquisition. They are having a lot of trouble. Valuation looks extremely cheap, but he would wait for the 1^st quarter of a turnaround, which could take another 6 to 8 quarters.

They are taking a restructuring charge over Safeway. She has L-T. Safeway is Alberta centered. She likes the Shopper’s business of L-T. Sobeys is doing fine, but it is the Safeway integration.

These types of companies are saturated. What you will see from these companies is what they have done in the past, generating a significant amount of free cash flow, and using it to make further acquisitions. Grocery stores are the best performers in a lousy market. He sees more value creation over the long-term.

Has had a great run. Not cheap, because a lot of portfolio managers, because they couldn’t buy the commodity complex, moved and bought other sectors. In Canada there isn’t a lot of choice so this area was piled into. They are all expensive and there is no room for missing. The grocery sector generally doesn’t fail.