JMRD Market Observer for June 9th, 2017 – JMRD Team AnnouncementJune 9, 2017
In This Week’s JMRD Market Observer
JMRD Team Announcement
Engineering Construction – Quebec Conference
Geopolitical Briefing – Trump’s below the radar war on regulations
JMRD Basket Corner
Reads of the Week
JMRD Team Announcement
We have some exciting news to share with everyone this week. We are happy to announce the appointment of our long-time partner, Jaden Ropp, as the new President of the JMRD Wealth Management team! As many of you know, for over 10 years Jaden has been our head trader and primary advisor for many clients and does an excellent job in these roles. He will continue in these roles while adding team management and operational duties as well.
Please join us in congratulating Jaden in his new role. We know he will do a great job!
Engineering & Construction (Thematic Research) – Quebec Conference – SNC and WSP
This week, National Bank Financial held their annual Quebec Conference, in Toronto. A number of Basket holdings including Dollarama, CGI Group, BCE, Innergex Renewable, Savaria, SNC Lavalin and WSP Global, were among the companies that presented to institutional investors and fund managers. Below is an update on SNC-Lavalin and WSP Global from the conference
SNC (Outperform; $70.00 Price Target) – while the presentation focused squarely on the company’s Mining division, the commentary regarding systems / operational excellence and bidding practices should be viewed in a company-wide (positive) prism. When combined with relatively imminent vote on WS Atkins transactions (June 26), we believe SNC is the most catalyst-driven name under our coverage as concerns around the acquisition have unduly compressed valuation. We believe that the Atkins deal will close on “as is” basis (the Atkins shares are now trading below SNC’s cash offer price); once over this hump, we expect the shares to get back to the pre-M&A discussion level of late Jan 2017 ($56.00- $57.00). Mining commentary also is more robust than we would have thought at this point of the recovery cycle, which provides further support to our investment thesis.
WSP (Outperform; $52.00 Price Target) – strong execution with macro (no commodity exposure) and positioning (Tier 1 presence in transit and buildings) tailwinds; M&A expectations are becoming more amply reflected in 14.5% ytd share price performance (vs. E&C peers at -8.0%) and 11.3x 2017E EV/EBITDA (8.8x 2018E EV/EBITDA assumes no equity issuance to get to 45,000 headcount level vs. current 36,000). Company’s presentation reinforces our view that this is a “safe” name to own in the Canadian industrial universe.
Trump’s below-the-radar war on regulations
While headlines focus on alleged collusion with Russia during the election campaign and difficulty getting major legislation passed, the Trump administration is making significant headway on the regulatory front. What makes regulatory reform a particularly juicy target is that changes can often be made without congressional approval.
To push his deregulation agenda forward, President Trump has in many cases nominated people from the private sector to lead the very regulatory agencies they spent years opposing. This is in line with what Trump strategist Steve Bannon has called the “deconstruction of the administrative state.”
This report analyzes the impact of Trump’s behind-the-scenes war on regulations, with a particular focus on the financial and energy sectors.
JMRD Basket Corner
Dollarama (DOL) – Q1/F18 EPS was $0.82 vs. cons. at $0.79 and NBF at $0.78; last year was $0.68 (1) Dollarama delivered a good quarter predicated on positive same store sales growth (sssg), gross margin expansion, SG&A leverage, and share repurchases. The EPS beat vs. NBF was largely due to the net impact of higher than expected gross profit (+$0.02 to EPS), lower than expected SG&A (+$0.02 to EPS), higher D&A (-$0.01 to EPS), and lower interest expense (+$0.01 to EPS). (2) Same store sales growth was 4.6% vs. NBF at 5.3%; last year was 6.6%. Basket growth was 6.1% vs. NBF at 6.8% and transaction growth was -1.4% vs. NBF at -1.5%. Transaction growth was impacted by difficult y/y comparisons (was 2.8% last year). Revenue was $705 mln vs. NBF at $713 mln; last year was $641 mln. (3) EBITDA was $156 mln vs. NBF at $149 mln; last year was $134 mln. (4) Net income was higher by 13.9% y/y while EPS was higher by 21.2% y/y. See the full article
All-Cap Growth Basket
CCL Industries (CCL.b) – CCL completed the previously announced 5-for-1 share split this week. The splited-adjusted shares will be reflected in client accounts next week
U.S. Growth Basket
Arista Networks (ANET) – Arista Wins Another Wipe-Out of Cisco Patent, Says Wells
XPO Logistics (XPO) – Deutsche Bank Sees 75% Upside Potential In XPO Logistics
Reads of the week
- Stefane Marion, chief economist and strategist at the National Bank of Canada, joins Business Day to discuss the risks outlined in the Bank of Canada’s latest financial stability review.
- Economic News – Canada: Employment surges in May. Not only is the headline number impressive, the details of the report are stunning. Private jobs recovered more than last month’s losses, registering its strongest gain in 2 years. Moreover, after declining in April, full-time jobs bounced back strongly. Over the last 7 months, 196K full-time jobs were added for prime-age workers, the largest increase in 20 years (middle chart). Such a gain for a group with high propensity to take credit is good news for consumption and the housing market going forward. We also note that employment gains are widespread across Canada with all provinces except Newfoundland & Labrador reporting higher headcounts in May. The hourly wage rate also bounced back from a multi-year low of 0.7% to 1.3% (y/y). The latter remains low on an historical basis but that could change fast as this indicator is highly volatile and sometime inconsistent with labor market slack indicators (bottom chart). While we expect a moderation in job creation over the next few months, the fact that small-business confidence is at a 31-month high still bodes well for the hiring cycle. In light of this morning’s report, the probability of a rate hike this year is increasing. See the full article
Monday June 12th – None
Tuesday June 13th – US PPI
Wednesday June 14th – Canada Teranet/National Bank Home Price Index; US Inflation, US Retail Sales
Thursday June 15th – Canada Manufacturing Sales; US Empire State Index, US Initial Jobless Claims, US Industrial Production
Friday June 16th – US Housing Starts, US Consumer Sentiment
Monday June 12th – None
Tuesday June 13th – Arizona Mining
Wednesday June 14th – None
Thursday June 15th – Kroger
Friday June 16th – None
Have a good weekend!
Categorised in: JMRD Updates