November 15th Issue of The Market ObserverNovember 15, 2013
LIRA or LIF Holders
If you hold either a Locked-In Retirement Account (LIRA) or Life Income Fund (LIF) at NBF you may have recently received an updated locking-in agreement in the mail. It is not necessary for you to sign this document and return – it is simply for your records. Its purpose is to reflect the recent changes to the rules under which you can unlock these types of accounts. The seven qualifying conditions under which you could have unlocked your accounts have been condensed into four. Please contact any one of the admin team members if you have any additional questions.
JMRD All-Cap Growth Basket Update
This week’s introduction to the JMRD All-Cap Basket continues with Boyd Group Income Fund (BYD) and Carfinco Financial Group (CFN).
Boyd Group Income Fund operates as an unincorporated open-ended mutual fund trust. The company, through its operating company, The Boyd Group Inc., operates automotive collision repair service centers that serve insurance companies, individual vehicle owners, and fleet and lease customers. Its services include automotive collision and glass repairs; oldest vehicle glass repair and replacement; and auto collision and auto glass repair work. It operates 221 collision repair service centers. It operates locations in 5 Western Canadian provinces under the Boyd Autobody & Glass trade name, as well as in 15 U.S. states under Gerber Collision & Glass, The Recovery Room, and Autocrafters Collision trade names. The company also operates an auto glass repair and replacement network business under the Gerber National Glass Services name in the United States. Boyd Group Income Fund was founded in 1949 and is headquartered in Winnipeg, Canada.
Boyd reported its earnings this morning (Nov. 15th) and they exceeded expectations. The stock was up 7.8% to a new high of $29.27 at the time of writing. Unfortunately, we do not yet have an updated research report with today’s quarterly results, but the October 22nd report below will provide some good insight into the company.
Carfinco primarily purchases loans originated by independent and franchise vehicle dealers to consumers buying automobiles. CFN operates in all Canadian provinces with operations primarily in Alberta, BC, Ontario and the Maritimes. The company targets borrowers who are typically unable to obtain financing from traditional sources. This is commonly referred to as the “non-prime” lending market, whereas borrowers who are able to obtain financing from traditional leading sources are commonly referred to as the “prime” lending market. Carfinco earns interest and fee income on its finance receivables and pays interest expense on borrowing under the credit facility and on outstanding subordinated notes. Despite doubling the dividend since February 2011, the dividend payout ratio remains low at 48% and there is still room for further increases in the dividend. Currently, the dividend yield is 4.60%. Carfinco recently made its first foray into the U.S. market with the acquisition of Persian Acceptance Corp based in Massachusetts, a lender in the sub-prime retail automotive industry. Carfinco was founded in 1997 and is headquartered in Edmonton, Canada.
Markets’ Review – October 2013
Stocks and bonds rallied in October in continued reaction to the Federal Reserve surprise decision to hold off on tapering its asset purchases in September.
Markets also celebrated the end of the U.S. government shutdown, which created a lot of volatility early in the month and may have cost the U.S. economy close to 0.2% of GDP growth in the quarter.
After weeks of agreeing to disagree, U.S. politicians finally decided on a formula that reopened government and sent thousands of workers back to work. However, the deal, which was described by many as a “temporary fix” did little to assuage long-term concerns, given that it kept the door open to another round of debate in December. The bill, which was signed by President Obama on October 16th, provides funding for the government until January 15th and lifts the debt ceiling until February 7th of next year.
With the stock off 10% from its high and reflecting a great entry point, Whitecap is a strong buy (hold) in the DIG Basket. On account of top-decile sustainability, its financial strength, a deep drilling inventory and a consistent track record of under-promising and over-delivering the company will soon be rewarded with a multiple akin to the leading yield companies. NBF’s Energy analyst Matt Taylor has a $15.00 target price over the next year (30% upside)
Q3 results. Production of 21,448 boe/d (69% liquids) was in line with expectations as volumes were pre-released in an operations update in October. Cash flow of $83 mln ($0.51/sh) came in slightly ahead of our expectations of $80 mln ($0.48/sh) and consensus at $0.47/sh. Cash netbacks for the quarter were ~$41.75/boe. The company noted capital efficiencies ahead of expectations, a function of cost discipline and strong rates in the field (extended reach horizontals at Garrington and continued success in the Viking). The just closed $65 mln equity financing (5.4 mln share at $12/sh) provides added flexibility with run-rate D/CF of <1.5x.
Highlights of the 2014 budget. The $210 mln capital plan targets average production of >23,500 boe/d (20% growth, 5% PPSG). Key attributes of the program include: 1) Free cash flow in each core area, 2) Balanced program between each core area mitigating concentration risk, and 3) Total return target >10% through per share growth and dividends.
Acquisition summary. $90 mln of combined tuck-in transactions included Anderson’s Garrington/Ferrier Cardium assets and Spyglass’ interest in the Eagle Lake Viking unit. Combined production was ~1,020 boe/d, driving metrics of $88,000/boed, $12.75/boe 2P and ~5x P/CF. Notable highlights include a decline sub-20% and an inventory of 20+ extended reach Cardium horizontals.
Maintain Outperform rating and $15.00 target. A balanced model, execution at top-tier efficiencies and a track record for smart deals positions WCP as our favourite long-term yield pick.
Reads of the week
Monday November 18th – None
Tuesday November 19th – None
Wednesday November 20th – US CPI, US Retail Sales, US Existing Home Sales, FOMC Minutes Release
Thursday November 21st – Canada CPI; US Initial Jobless Claims, US Purchaser Price Index, US Philly Fed Business Outlook
Friday November 22nd – Canada Retail
Monday November 18th – None
Tuesday November 19th – George Weston, Home Depot, Best Buy, Campbell Soup
Wednesday November 20th – Deere, Lowes
Thursday November 21st – Target
Friday November 22nd – None
Categorised in: JMRD Updates