GMP Capital Trust Inc (GMP.TO)

Prefers the preferred B shares. There is a nice upside if they were redeemed. It has been a laggard. They made a big acquisition in the energy space and so are more energy focused than peers. It may not be a bad time to pick up more shares of this one.

Preferred B. Recently reported and had a reasonable set of numbers. What caught the public’s attention was the pre-release that Canaccord (CF-T) put out last week, where they had such an exceptional Q1 that they pre-released their numbers and the share price responded accordingly. GMP’s quarter was an OK one, but certainly not like Canaccord’s. However, it shows the potential of both businesses. GMP has really positioned themselves to be a strong leveraged play on the oil/gas and mining sectors. They also have an attractive asset management business that got a lot of focus last summer and fall, with the Richardson operation. A very attractive takeover candidate. He would want to see more evidence of recovery in the mining and oil/gas sectors and to start to see some of their investments come to fruition.

He still likes this. Prefers the preferred B shares as opposed to the common, but likes them both. Given what has happened in the rebound in oil/gas, this is probably one of the most leveraged plays on the street having recently bought FirstEnergy. On top of that, the Wealth Management Group put themselves up for sale in the fall, but some of the costs they had when they took over the McQuarrie group are now coming off the books, so he thinks profitability of the Wealth Management Group is going to go up.

(Preferred Series B.) Toronto Dominion (TD-T) just rejected an offer to buy their retail division. You are getting paid a 6.5% yield, that resets into 7.5%. Still thinks there is upside.

(Preferred Series B.) This was his Top Pick in October as there was a catalyst in November, where any one of the 3 parties that owned the wealth management arm of GMP could put their stake up for sale without the approval of the others. The main bidder had been Toronto Dominion (TD-T), and he felt a lot of the IAs, which had veto power, had expressed their unhappiness. Still thinks this is on the table, but thinks management will want to get a few more good quarters under their belt. Still an interesting play.

Preferred Bs. There are rumours that their retail division GMP Richardson will get sold. There is some speculation that the preferreds will have a “change of control provision” and should be taken out at par. He doesn’t agree with that 100%, as the literature indicates it is not necessarily a change of control, but a liquidation scenario that could trigger $25. However, you could get a tender offer for it, but it won’t be $25. It may be $18-$20. He likes these GMP preferreds because you get paid healthy and get paid a dividend, and maybe someday they do get taken out.

The preferred shares trade very differently than the common. The common has been in a down trend and broke it earlier this year. It is slowly crawling out of its downtrend. Doesn’t look too bad.

Preferred Series B. He likes the preferreds, because there is a potential catalyst coming up where Richardson GMP is the wealth arm of it, and is owned by the Richardson family, GMP Capital and the investment advisors. There is an agreement amongst them where, after Nov 15/16, any one of the 3 parties can trigger a sale. From what he understands, all 3 parties want to sell the business. If there is a change in control, there are provisions within the Pref B shares that they get taken out at par value, which is $25. On top of that, you are getting paid 7% to wait.

Chart shows a long base from early 2012. There are only 2 ways to trade these things. Buy at the bottom of the trading range and Sell near the top. The other way is to wait for the trading range to be broken. If it breaks around $7.50 or so, it will probably be a fairly good story. In this case, he would wait and buy when it was well over $7.

Decent business. Pure play on capital markets. They are trying to right-size their operations and are doing a decent job.

His outlook on this is negative. We have just left a decade where the whole natural resource complex was being financed by Canadian broker-dealers and this area has gone quiet right now. Feels the next decade will be relatively quiet. If this is the case, this company will have to reposition themselves, which is going to be a tough go.

It had a lot of basing. He loves this pattern. Resistance around $8.50, then $10.

Chart shows almost a year of sideways movement of base building. You should not buy in the middle of that range. As a short-term trader, you buy at the bottom of the range and sell at the top. But as an investor, look for a breakout of about $6.30. If that happened, this would be pretty interesting and a pretty strong candidate.