JMRD Market Observer for July 31st, 2015 – New addition to JMRD!!

July 31, 2015

**July 31st Issue of The JMRD Market Observer**

 

In This Week’s JMRD Market Observer

 

  • New addition to The JMRD Team – Morris Berghaus
  • S Watch – NBF Hot Charts
  • Fed Policy Monitor – “Solid jobs gains” get Fed closer to first rate hike
  • JMRD Basket Corner
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

 

 

New addition to The JMRD Team

 

It is with great pleasure that JMRD announces the addition of a new team member in the Toronto office, Morris Berghaus! Morris is a long-time National Bank Financial employee and will be working with Zach to assist the Team in Toronto. Below is Morris’ bio.

He can be reached at (416) 869-8655 or morris.berghaus@nbc.ca

 

Morris is an Investment Associate with over 20 years industry experience. While completing 3 years at the University of Western Ontario, Morris was simultaneously starting his career at CIBC Wood Gundy, where he worked with two Investment Advisor teams that specialized in sophisticated client service solutions for high net worth clients. Morris rolled that experience as an Investment Advisor for a short time, before joining National Bank Financial in 2006. At NBF, Morris was the Branch Administrator of the One Toronto branch for three years, before moving back to working with clients as an Investment Associate role and becoming a member of the JMRD Wealth Team in 2015.

 

Morris grew up in Toronto, where he moved to from South Africa when he was five years old. Morris is married with two daughters and is active in the community where he has been a Top Pledge Earner for the Crohn’s & Colitis Foundation since 2011. In his leisure time, Morris still plays recreational league softball, as well as being an attentive fan of both baseball and football and is an avid enthusiast of the arts, especially live music.

 

Please join us in welcoming Morris to The JMRD Wealth Management Team!

 

U.S. Watch – NBF Hot Charts

 

The 2015 US outlook has brightened a bit. True, newly revised data from the Bureau of Economic Analysis show a lower overall profile for real GDP due to sharp downward revisions to the second half of 2012 and first half of 2013 (largely attributed to consumption), but that’s old news now. The Fed will be interested in the 2015 outlook which is looking much better than first thought thanks to upward revisions to the first quarter (partly due to improvements to the BEA’s seasonal-adjustment methods) and a decent performance in the second quarter. Indeed Q2’s near-consensus +2.3% growth print was made possible by a stabilization of trade but more importantly by a healthy contribution from domestic demand thanks largely to consumers. If, as we expect, second half growth averages 3% ― not a stretch by any means considering sound fundamentals for consumption in particular ― the US economy should grow 2.5% this year (both in annual terms and Q4/Q4), half a percentage point above the upper range of the Fed’s central tendency forecasts for 2015. All told, the GDP report just got us a bit closer to a first Fed rate hike in nine years.

(See attachment for further details.)

NBF Hot Charts

 

Fed Policy Monitor – “Solid job gains” get Fed ever closer to a hike

 

As expected, the Fed left monetary policy unchanged at its July meeting. Although the statement was little changed, the Fed recognised that the underutilization of labour resources continues to diminish thanks to “solid job gains” and declining unemployment. The Fed also acknowledged “additional improvement” in the housing market and “moderate” growth in household spending, although business investment and exports remained soft. Risks to the outlook remained “nearly balanced”. The Fed anticipates annual inflation rate will remain low over the near term but it still expects it to rise gradually towards 2% over the medium term. For the fifth straight meeting, the decision to hold rates steady was unanimous. Bottom line: The FOMC again said it anticipates raising the fed funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term. By highlighting the continued improvement in the labour market, i.e. the “solid” job gains, and also shrugging off the further slump in energy prices in recent weeks ¯ it still anticipates inflation will rise gradually towards it 2% target over the medium term ¯ the Fed arguably opened the door a bit wider for a rate hike this year. While soft wages, low inflation and downside risks to the global economy all call for more patience on rates, strong employment creation and financial stability concerns argue for the Fed to start its tightening cycle sooner rather than later. Markets are currently pricing in a very small probability of a September hike, although that would rise if there are upside surprises on upcoming GDP data (Q2 and historic revisions) and employment reports for July and August.

(Full report attached)

Fed Policy Monitor 

 

JMRD Basket Corner

 

Diversified Income & Growth Basket

 

DH Corp (DH) – DH reported second quarter results that were highlighted by the transformational US$1.25B acquisition of Fundtech, which is in its early stage of integration and being reported as the newly formed Global Transaction Banking Solutions segment (GTBS). Top line from GTBS was as expected for its initial two months of contribution, and while profitability was below forecast (20% EBITDA margins vs. 26% est.) this business is expected to track towards ~30% as integration is completed and full quarters are reported. Q2 also represented another positive quarter of operations from DH’s legacy businesses, driven by: 1) outperformance from all of its Canadian verticals, in particular due to increased student debt and mortgage origination volumes and growth in payment solutions revenue; and 2) solid results from its U.S. portfolio, attributable to increased SaaS-based subscription and transaction volumes, successful cross-selling efforts and favourable FX tailwinds. (Full report attached)  DH Corporation

 

All Cap Basket

 

CCL Industries (CCL.b) – CCL reported adjusted EPS $2.12 and sales of $721M that were $10 million higher than expected. Currency accounted for 3.5% of the 37.4% gain in operating income, and the company indicated the strong U.S. dollar will provide a nice tailwind for the balance of the year. The shares responded on Friday, moving higher by 7% to a new year-high

Restaurant Brands (QSR)Restaurant Brands, parent of Burger King and Tim Hortons, posted a stronger-than-expected second-quarter profit on Monday as both chains recorded same-store sales growth driven partly by new product launches. Restaurant Brands said Tim Hortons same-store sales were up 5.5%, while Burger King same-store sales rose 6.7%. Systemwide sales were up 8.4% and 11.6%, respectively, at the burger and coffee chains. Burger King’s sales growth is particularly notable at a time when its biggest rival, McDonald’s Corp., is struggling with declining sales and some franchisees that are weighed down by debt. In the quarter ended in June, McDonald’s global same-store sales dropped 0.7%. McDonald’s attributed the 2% decline in its important home market to new products that didn’t sell well, such as a new sirloin burger. Burger King said its growth in the quarter was largely driven by new product launches including an A.1. bacon cheeseburger and the return of chicken fries. QSR traded higher by 8.7% this week

 

U.S. Growth Basket

 

Global Payments (GPN) – Global Payments reported revenues grew 9% to $2.78 billion, compared to $2.55 billion in fiscal 2014. In addition, cash diluted earnings per share grew 18% to $4.85, compared to $4.12 in the prior fiscal year and GAAP diluted earnings per share were $4.12, compared to $3.37 in the prior fiscal year. GPN traded higher by 7.5% this week to a new year-high.

Sealed Air (SEE) – Sealed Air raised its guidance on Thursday, as cost-cutting efforts helped stem the negative effect of currency headwinds on revenue. For the year, the company now expects per-share earnings of $2.24 to $2.28, up from its previous range of $2.11 to $2.18 a share. It sees adjusted earnings before interest, taxes, depreciation and amortization between $1.16 billion and $1.17 billion, up from $1.14 billion to $1.16 billion. Overall, the company posted a profit of $28.1 million, or 13 cents a share, down from a profit of $60.1 million, or 28 cents a share, a year earlier. Excluding one-time items, earnings were 60 cents a share.

Tableau Software (DATA) – Tableau reported $149.9 million in revenue (65.3% year-over-year growth) and EPS of $0.07 versus consensus of $141.0 million and $0.04, respectively. License revenue of $96.7 million (60.3% year-over-year growth) exceeded consensus of $91.7 million (51.8% year-over-year growth), and deferred revenue of $150.8 million exceeded consensus of $143.9 million. Despite adding over 3,000 new customers (versus 2,200 in Q2 2014) during the quarter, year-over-year license revenue growth decelerated compared to 60% in Q2 from 73% in Q1 and 83% in 2014, and the 233 deals greater than $100,000 signed this quarter grew by 48% year over year compared with 108% in Q1 and 71% in 2014. Although the market has clearly reacted negatively to the slowdown in these two metrics during Q2, Credit Suisse noted they remain confident in the company’s ability to sustain robust revenue growth and profitability and we continue to believe upside exists to guidance and consensus estimates driven by the release of Tableau 9.0 in April, which we view as a game-changer in the BI market. At this time, we continue to hold DATA in the U.S. Basket

 

Retirement Corner

 

1)     “Tax-free savings accounts have key estate-planning role” (Globe and Mail)

 

Week at a Glance

 

(See attached Week at a Glance report)

Week at a Glance

 

Reads of the Week

 

 

 

 

 

 

Economic Reports

 

Monday Aug 3rd – US Personal Spending, US ISM Manufacturing

Tuesday Aug 4th – Canadian Manufacturing Index; US Factory Orders

Wednesday Aug 5th – US ADP Employment Change, US ISM Service Index

Thursday Aug 6th – US Initial Jobless Claims

Friday Aug 7th – Canadian Unemployment Rate; US Change in Non-farm Payrolls, US Unemployment Rate

 

Earnings Reports

 

Monday Aug 3rd – None

Tuesday Aug 4th – Allied Property REIT, CVS Health Corp, Disney,

Wednesday Aug 5th – Agrium, Barrick, Bellatrix, Innergex Renewable, Keyera Corp, Linamar Corp, Sunlife Financial, WSP Global

Thursday Aug 6th – BCE Inc., CI Financial, Firstservice Corp, Gibson Energy, Inter Pipeline Ltd, Manulife Financial, Newalta, Parkland Fuel, Pembina

Friday Aug 7th – Brookfield Asset Management, Magna International, Power Corp, Telus

 

 

Have a good long weekend!

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