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(A Top Pick Feb 8/16. Down 27.56%.) Short. This is a good company. There aren’t too many companies that can say they are world beaters in what they do. This tends to be a late cyclical play on the oil/gas sector. When that sector starts to rise, this company is going to react 4-6 quarters later. He sold his holdings for the time being.
Has held this in the past, but it is going to take a bit of time for them to start to see the benefits of their bank license, which they just recently got. In the meantime, they built up a lot of costs and have been sitting on those costs without any revenues to offset them. The ramp-up will take at least 6 months, if not longer. You are going to have to be patient.
A crowded name on the Short side, but he has been Short on this. It was about a year ago when management announced a clever substantial issuer bid. They didn’t say at what price, but waited for the share price to appreciate, and did it at about $36.70. He questioned if that was efficient use of shareholders’ money. It squeezed a lot of the Shorts, including himself. People need to be cautious about this.
He likes this company. There is a real scarcity of consumer stocks in Canada, and this one fits that bill. He was cautious on the IPO, because it was a private equity one, and he is always leery about private equity. Last year they did 11% same-store sales, and this year they are on track to do about 9.5%. Even if they can do 5% same-store sales, that is very impressive. A good name, and not particularly expensive.
A name he wishes he had never come across. Made a lot of money with one of their rivals, Mosaid. You never know what percentage of lawsuits they are going to win. He had put money into this, but it turned out to be an absolute disaster. There is not the transparency and have not delivered in the courtrooms.
Unfortunately, this had a bad quarter. They had the same problem this time last year, and the share price did rebound nicely. There is a scarcity value of consumer stocks, and should be a name that is of interest to people for the long-term. It holds a lot of quotas, and have a monopoly for certain type of shellfish in Canada. People are getting more and more conscious about the benefits of seafood and shellfish.
This had really sold off in 2008, and he bought some early 2009, and rode it for a number of years, however it has too many styles of verticals, i.e. too many businesses, and there is really only one guy at the centre, the CEO. He is very talented, but he does too much within the business. Key Man risk is huge for this company. They can never fire out of more than 3 out of 6 cylinders. There seem to be a myriad of excuses of why they have never delivered. He will probably remain on the sidelines with this.
Now that they have their bank license, it is really going to help in terms of marketing. One of their biggest clients was TD Bank (TD-T). TD said they will deal bank to bank as a lot of the banks want to do, partly from compliance purposes, but the other from capital provisioning. In the next 6 months, he expects they are going to land a lot of the Canadian banks. On top of that, they landed one of the top 3 US banks last summer, and that will start trickling into their earnings which are coming early January. Using the existing customer base, he calculates they are going to be growing revenue at 22% next year, and earnings are going to be up 44%. If you compare that to any of the 8 Canadian listed banks, he would rather have this one. (Analysts’ price target is $38.50.)
(A Top Pick Feb 8/16. Down 25.9%.) Long. (A Pairs trade with Valeant Pharmaceuticals (VRX-T).)