In This Week’s JMRD Market Observer
CLIENT UPDATE SURVEY
FINANCE CANADA: TAX PLANNING USING PRIVATE CORPORATIONS
MAC PRIVATE POOL MONTHLY REPORT
JMRD BASKET CORNER
CRYPTO CURRENCIES AND BLOCK CHAIN TECHNOLOGY
READS OF THE WEEK
Client Update Survey
As you know, we try our best to collect and update your information on a regular basis. However, despite our best efforts, information will sometimes slip through the cracks. We have attached a simple Form (see: JMRD Form Client Update) for you to review and send back to us. Please feel free to use this document as a way to update us on ANYTHING you feel would be important for us to know about.
We thank you in advance.
Your JMRD Wealth management Team
Finance Canada: Tax Planning using Private Corporations
In the 2017 Budget, the Minister of Finance, Bill Morneau, announced a consultation period over the coming months with respect to changes they are considering for taxation of private corporations. We believe this will have some wide ranging implications and wanted to make sure our clients were aware of the potential changes. We have attached a detailed explanation here and recommend anyone with private corporations or professional corporations take a look at the information and touch base with your tax professional or JMRD to discuss. Many groups are recommending that tax payers be proactive and contact their federal member of parliament to communicate their concerns. We will continue to include information on these potential changes over the coming weeks in our weekly email to keep you informed.
Multiple Asset Class Private Pool (MAC Basket)
Attached is a monthly update on the MAC Basket including the current portfolio strategy and how they have positioned the portfolio.
JMRD Basket Corner
WSP Global (WSP) – WSP filed a notice of intention this week to acquire UEM Edgenta Berhad’s (EDGENTA: KLSE) 61.2% stake in Opus International Consultants Limited (OIC:NZSE), a public 3,000+ engineer infrastructure (transportation and water), buildings and asset management consulting company, headquartered in New Zealand. The offer represents a total consideration of $280.5 mln (inclusive of net debt and the OIC board’s dividend payment of NZ$0.07/share) and a 86.9% premium to OIC’s closing share price of NZ$0.99, while representing an 8.9x multiple on 2017E EBITDA of $31.4 mln. OIC’s core operations are in transportation (53% of revenue), buildings (29%), water (12%) and oil & gas (6%). The majority of geographic exposure is concentrated in New Zealand (60% of revenue generated in the region), while still having significant presence in North America / UK / Australia (17% / 13% / 10%, respectively). 61% of operations are levered to public expenditure. Please refer to incremental overview of OIC’s operations in the recent investor presentation here. The transaction increases WSP’s exposure in APAC to 20% from 14% of total net revenues while also strengthening its already well-performing transportation business in the geography, specifically. We expect the deal to close sometime in Q4/17E; as a result, we are not adjusting our 2017E numbers as incremental contribution from the deal this year will be quite small. Pre M&A, WSP’s headcount stood at 37,050 at the end of Q2/17; with POCH, a Chilean acquisition that was announced post the Q and now Opus, WSP pro-forma figure stands at 40,780. Recall that POCH’s revenue contribution on per employee basis is lower vs. the developed market (estimated at roughly half); this is typical for Latin America and other developing nations.
All Cap Basket
Boyd Group (BYD.UN) – Despite some short-term noise in outlook (glass headwinds, CAD), we argue that Boyd remains well-positioned to generate mid-single digit organic revenue growth, persistently elevated profitability, healthy free cash flows and compelling M&A accretion upside. After updating for Q2 results and takeaways our forecasts are essentially unchanged. We maintain a $110 target price (implies ~12.5x 2018e EV/EBITDA), and with an over 15% implied total return, one of the best balance sheets in our universe to finance growth and one of the more compelling takeout opportunities (LBO suggests $125+ valuation & PE aggressive in the space) reiterate an Outperform rating
Enercare (ECI) – ECI announced the acquisition of Texas based Aramendia Plumbing, Heating and Air Ltd., an HVAC and plumbing services company with locations in San Antonio and McKinney (part of Dallas-Fort Worth). The business was formed in 1989 and brings >90 employees and >50 service vehicles. Management suggested multiples for Service Experts tuck-ins are in the ~5-6x range, so the US$24 mln purchase price for Aramendia should add approximately ~1.5% to our 2018e EBITDA forecast for ECI. See the full article
Premium Brands (PBH) – Q2 2017 results highlights: Revenues increased to $577.4 million (NBF: $569 mln) due to better-than-expected organic growth and M&A. Total organic growth was 8.2% (NBF: 5.8%). EBITDA came in at $55 million (NBF: $57 mln; Street: $53 mln) as PBH continues to benefit from margin expansion. EPS was $0.94 (NBF: $0.96). Premium Brands traded higher by 10% on the week including a new all-time for the shares. See the full article
New Flyer CEO’s NAFTA wish list includes ease in protectionism Paul Soubry, chief executive officer of New Flyer Industries, joins BNN for a look at what’s on his NAFTA wish list and how he’s shifting his strategy in the midst of a “protectionist” environment.
U.S. Growth Basket
Applied Materials (AMAT) – Reporting results after the close August 17 – include an update Lockheed Martin (LMT) – On Monday, Lockheed Martin was awarded special operations forces global logistics support services program with a 10-year indefinite delivery/indefinite quantity contract with an $8 billion ceiling Pinnacle Foods (PF) – Pinnacle Foods announced an increase its quarterly dividend by 14 percent from $0.285 per share to $0.325 per share
Crypto Currencies and Block Chain Technology
With the sudden rise in value of Crypto Currencies in 2017, we have begun to familiarise ourselves with the intricacies of Block Chain Technology. Our summer students took on the difficult task of researching this topic and presenting their findings to the team. We hoped to share this presentation with you, but it is a bit too large for our newsletter format. That being said, even though Bitcoin has become a hot topic, it is still very early days in the creation of digital currency and it is something that we will closely watch from the sidelines. In the meantime, have a look at the link below to read and watch what Goldman has to say on the topic:
Reads of the Week
Monday August 21st – Chicago fed national activity index (USA)
Tuesday August 22nd – FHFA home price index (USA), Retail Sales (CA)
Wednesday August 23rd – MBA mortgage applications (USA), New home sales (USA)
Thursday August 24th – Initial jobless claims (USA), Corporate profits (CA)
Friday August 25th – None
Monday August 21st – None
Tuesday August 22nd – None
Wednesday August 23rd – Royal Bank of Canada, Lowe’s Companies Inc.
Thursday August 24th – Canadian Imperial Bank Of Commerce, Pure Storage Inc. Class A, Dollar Tree Inc.,
Friday August 25th – None
Enjoy the weekend!