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This is a stock he has stayed away from. Prior to 2007, when they owned GE Capital, everybody paid a higher multiple for it because of the earnings and the high return on equity, but a lot of that came from GE Capital. Now they’ve gotten rid of GE Capital, so why would you pay a much higher multiple for a company that has a lot more cyclicality than people think. It is fairly valued at these levels, so it is not going to go up dramatically.
Sell and use proceeds to buy Manulife (MFC-T)? He wouldn’t make that trade. You have to own US financials, and this is one of them. Earnings growth is happening well above the S&P number. Earnings revisions are happening in the banking sector. On a valuation basis, they have been re-rated, but there is lots more room to be re-rated as it is trading below BV. It could certainly trade at 1.5X Book, and he could see the dividend going up. They are accumulating capital at an unprecedented rate, which is really important, because they can buy back more of their shares.
He doesn’t like this. It is a lot more about Quebec, and from a corporate governance point of view, he doesn’t like the company. Outside of that, they really missed the boat on the jet side. They’ve had competitors come in and eaten their lunch. They have to make their C series successful, but he hasn’t seen the numbers that would make it successful. There are much better companies that you can buy at good valuations.
About 40% of the company is owned by the Quandt family, so you have a very stable shareholder. Also, the company has been very good at introducing people to products, like their cars, which is very good from a marketing perspective. The company will give up margin in the short term for longer-term gains. They will spend more on R&D and more on CapX. Car sales in Europe have not been strong compared to Canada and the US, and he sees that as an opportunity. Dividend yield of 3.71%. (Analysts’ price target is euro 88.)
This has not run up a lot, like other financials. A private equity company, but they have a hedge fund business. Has a great dividend yield of 5.17%. They’re very good at harvesting their assets. They’ve been able to use the debt market when they buy things, to lever them up. Have brought in over $100 billion, that they can actually deploy if something happens. (Analysts’ price target is $35.50.)
He really likes the story. They were buying up auto dealerships, but management made many promises which they didn’t do. New management came in and cut the dividend quite substantially. They are slowly going to buy 2 or 3 dealerships. Integrated their back-office which helps them. They are going to throw off about $50 million in cash, which allows them to buy more assets and more franchises. He expects they will be diversifying out of the Alberta area in the next little while. Dividend yield of 1.67%. (Analysts’ price target is $27.)
