**June 10th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer Market
- Three unstable countries that could impact oil prices
- JMRD Basket Corner
- Week at a Glance
- Reads of the Week
- Economic Calendar
- Earnings Reports
Three Unstable Countries That Could Impact Oil Prices
The inability of OPEC and Russia to agree on oil production cuts has long exerted significant downward pressure on oil prices. However, this has started to be at least partially offset by the growing risk to oil production in three increasingly unstable countries: Venezuela, Nigeria and Iraq, which together produce well over eight million barrels of oil per day. All three suffer from extreme levels of economic mismanagement, political dysfunction and violence.
In addition to surveying the price of oil, investors should be on the lookout for the following warning signs that indicate political instability in these countries will worsen.
- A continual significant decline in their foreign exchange reserves
- Wide scale protests involving tens of thousands of people
- Oil workers, soldiers and key government workers not getting paid on time
Each of these factors not only has the potential to tip these countries into even greater chaos, but also to knock significant quantities of oil production offline.
JMRD Basket Corner
Dollarama (DOL) – Dollarama delivered another solid quarter. Results were ahead of NBF expectation across most key line items. The EPS beat vs. NBF was largely predicated on higher than expected same store sales growth (sssg), a higher gross margin rate and a lower SG&A rate. Higher than expected EBITDA benefitted EPS by $0.08 vs. NBF; other items were largely in line with expectation. (2) Same store sales growth was 6.6% vs. NBF at 5.5%; last year was 6.9%. Basket growth was 3.7% vs. NBF at 3.5% and transaction growth was 2.8% vs. NBF at 2.0%. Revenue was $641 mln vs. NBF at $629 mln; last year was $566 mln. (3) EBITDA was $134 mln vs. NBF at $120 mln; last year was $106 mln. (4) Net income was higher by 28% y/y while EPS was higher by 36% y/y (benefitted from LTM share repurchases).
All-Cap Growth Basket
Enercare (ECI) – Investor day highlights growth opportunities: ECI hosted an investor day yesterday with presentations from all of its key managers. NBF’s analyst Trevor Johnson noted the company presented a better understanding of the corporate strategy and direction, particularly with respect to the recently closed Service Experts (SE) acquisition. Management introduced a $0.05-$0.08/share synergy target by the end of 2017 from SE, this ~$5-$9 mln annual amount in line with our expectations. We believe there may be upside to this range for a variety of reasons: 1) it includes basic cost savings such as redundant corporate expenses, shared IT and some procurement benefits, which we expect will improve over time; 2) it does not take into account meaningful revenue synergies, particularly the significant upside we expect from ECI’s legacy rental model eventually being rolled into the United States; and 3) ECI’s acquisition of Direct Energy’s home services business was originally targeting +25% accretion to DCPS, whereas the actual benefit was +31%
(Full note attached)
U.S. Growth Basket
Boston Scientific (BSX) – Medical device company Boston Scientific announced plans to restructure operations, targeting more than $100 million in cost cuts by 2020. The Marlborough, Mass.-based company, which has been trying to turn around operations since its 2006 acquisition of heart-device maker Guidant for about $27 billion, on Wednesday didn’t specify how many workers would be laid off or what other actions it would take beyond saying that some changes were taking place immediately and the rest would be done by the end of 2018. The company estimates it will record $175 million to $225 million in charges.
Steel Dynamics (STLD) – Steel prices have rebounded sharply the past few months, and Credit Suisse doesn’t see a reversal coming. So as it sharply boosts 2016 price forecasts for a number of products and sees them holding steady at those higher levels through 2018, it goes from underperform on AK Steel (AKS) to outperform–where the bank already had US Steel (X) and Steel Dynamics (STLD). “The equity market does not appreciate the amount of structural reduction in US supply” the past 18 months for flat-rolled steel, says Credit Suisse. Its new modeling for that market has demand for US valued-added sheets outpacing supply starting 2 months ago, and the bank expects that to persist through 3Q. AKS jumps 12% while X gains 10% and STLD rises 5%, all adding to already-robust 2016 bounces
Vail Resorts (MTN) – Vail Resorts posted record season-pass spring sales for the coming season as revenue and profit increased in its third quarter. The ski-resort operator said the number of season passes it sold through May for the coming U.S. ski season increased about 29%, while season-pass revenue rose about 34% compared with the prior year period. The company said it had strong results from Northern California due to good weather conditions in the past season. It also said Chicago-area sales were strong due to slated improvements to the newly purchased Wilmot Mountain and related sales to its Western properties. Vail has a strategy of purchasing and improving ski areas near urban centers as way of increasing visitors to its main locations. The stock traded higher by 5% over 2 days following the results to a new high of $142.40.
1) “Why being a grandparent is more complicated than ever” (Maclean’s)
2) “Chartwell Retirement Residences: Catering retirement housing for an aging demographic” Brent Binions, President and CEO of Chartwell Retirement Residences says that seniors today are wealthier than ever before, and as baby boomers enter their retirement years, demand for seniors’ housing will continue to grow. (BNN)
3) “How to keep personal biases from torpedoing your retirement plan” (Globe and Mail)
Week at a Glance
Full report attached.
Reads of the Week
- “Playing the Piper” (Financial Post) In an exclusive interview, Arthur Irving, the spotlight-shy head of Irving Oil, makes the case for Energy East — a project he believes isn’t just good for his company, but is important for all of Canada
- “Boomers don’t sit around on your plans to downsize your home” (Globe and Mail)
Monday June 13th – None
Tuesday June 14th – US Retail Sales,
Wednesday June 15th – Canadian Manufacturing Sales; FED Interest Rate Decision, US Industrial Output,
Thursday June 16th – US Inflation
Friday June 17th – Canada Inflation; US Housing Starts and Building Permits
Monday June 13th – None
Tuesday June 14th – None
Wednesday June 15th – None
Thursday June 16th – Oracle
Friday June 17th – None
Have a good weekend!