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

(Top Pick Oct 21/13, Up 4.15%) Mostly the distribution. It’s pretty stable and there are growth prospects in Western Canada. The expectation is 6% return.

Just purchased Safeway. Control close to 20% of grocery business in Canada as well as owning Crombie REIT (CRR.UN-T). They compounded share growth at 10% over the last 10 years.

The Sobey’s chain is excellent. There was worry that there was going to be a lot of new grocery chain retail space in Canada. Wal-Mart seems to be not growing as fast and Target is not doing well. Feels the NAV is $85-$90, so you are paying a discount for this company. Dividend yield of 1.44%.

Not a big fan of food retailers because there is just too much competition in food retailing. Wal-Mart is continuing to expand and then there is Target. L-T with the acquisition of Shoppers is the only one he would consider.

This is the controller of Sobey’s stores. It also has a controlling interest in Crombie REIT, an owner of shopping centers across Canada. Sobey’s has recently taken over Safeway in Western Canada. The grocery business is a low margin, nickel/dime business. Very competitive. If you look through this company and try to value the assets, you will find that the value of the assets is higher than the stock price, $80-$90 a share. He thinks they have some synergies coming out of the Safeway acquisition. They are closing quite a few stores because of too much capacity and duplication. They’ll no doubt save a lot of money on logistics and administration. He sees increasing margins.

Empire Company (EMP.A-T) or Metro (MRU-T)? He prefers this one, but feels the grocery business is going to be very challenged for the next 12-18 months. There has been some price competition. There certainly has been a lot of new supply get built. Growth exceeds consumption growth which puts pressure on pricing. This is trading at a discount to NAV of around $80-$85.

(A Top Pick Dec 20/12. Up 26.92%.) Still thinks the NAV of the various assets inside this company is probably close to $100 a share.

A good time to buy on the pullback. Massive amount of square footage in grocery. Smart acquisition of Safeway. Stock is too cheap. The square footage will get eaten up. He will sell out when Sobeys family sells out. They are the brains and have the insider ownership.

Acquiring Safeway was the right thing to do. If they didn’t do it, somebody else would end up with it. Once that is done, there is a tough job of integration. In the near-term environment, it is quite difficult. Thinks this will continue to be a challenge. If you own, you’ll have to be patient and keep your expectations reasonably modest but they should be fine for the long-term.

Technically, chart shows long term upward trend from mid-2012. There is a bit of profit-taking coming in, in the last little while, so it is no longer in an upward trend. Trading below its 20 day moving average and is underperforming the TSE Composite right now. Seasonally it has strength normally right around this time of year.

Has had a big run as they made an acquisition of Safeway. Expects they will have some odd quarters where they are trying to integrate. Might have to spend some capital on renovating some of the stores. Incredibly well managed company. Long-term, it is a great Buy. You might have a couple of weak quarters as they integrate.

Just announced 2^nd quarter earnings, where adjusted net earnings dropped quite a bit and the stock dropped. Looks like they threw everything in but the kitchen sink. Sometimes when companies do this, as much as it causes havoc the day it happens, it sets the stage going forward for a positive announcement. Technically, it gapped up to around $72 and it doesn’t break down below that, it is pretty good. $70-$72 is probably a pretty good range and at $70 he would be looking to add to his portfolio.

A lot of it is the acquisition of the Safeway operations. Thinks it is a great opportunity to pick up a great stock. Will watch the company execute and re-assess at $95-$100.

Fair value will be $90-$95 in 12 months. Going to be able to realize some pretty significant synergies on the back of their recent acquisition of Safeway stores. This acquisition gives them a beefed-up presence in Western Canada which, hopefully, will allow them to grab some market share. 1.27% yield.

(Market Call Minute.) They made a brilliant transaction in buying Safeway. Tremendously accretive to earnings.