In This Week’s JMRD Market Observer Market
Bank CEO Lunch Discussion
NBFM Monthly Economic Monitor
JMRD Basket Corner
Reads of the Week
Bank CEO Lunch Discussion
JMRD Team members, Paul and Steve, attended a lunch discussion this week with the CEOs of Royal Bank, Bank of Montreal and Bank of Nova Scotia. The chat was focused on international expansion and it was an interesting discussion done in a format that was quite relaxed. We have shared some of their comments below:
- Brian Porter, the CEO of Bank of Nova Scotia, highlighted overall risks in their business coming from global geo-political risks, relatively high priced assets and low economic growth rates in the world.
- Bill Downe, the CEO of Bank of Montreal, highlighted the historically high prices of bonds and low interest rates as a particular risk they were focusing on.
- Dave McKay, the CEO of Royal Bank, continued that theme and highlighted other assets like dividend paying stocks and other income paying investments that are highly priced and pose some risks for their operation as well.
Each of them detailed their plans for growth outside of Canada and Bank of Nova Scotia is focused on their “Pacific Alliance” which includes Mexico, Peru, Chile and Colombia for growth as well as their Caribbean operations, among others. BMO and Royal Bank are more focused on select US opportunities that they have recently acquired.
The final question was “Where do you see your bank in 10 years?” All of them laid out a detailed, meaningful growth number in terms of asset size and earnings with a general strategy for how they would get there.
Our general summary from the lunch was that they all were short-term cautious, but optimistic for the longer term. A final note of interest was that all three got along quite well and were complimentary of each other – very Canadian, but interesting considering that they compete daily for business across Canada and elsewhere.
NBFM Monthly Economic Monitor – November 2016
- The global economy seems to be stabilizing after a difficult first half of 2016. The advanced world is getting a boost from the U.S. rebound, while emerging markets are welcoming China’s fiscal stimulus which is already starting to have a positive impact on growth. But major uncertainties threaten to weigh on an already soft world economy. The rise of trade protectionism is concerning and elevated debt levels mean the threat of another financial crisis should not be underestimated. The IMF’s projections for tighter fiscal policy next year are also not reassuring. So, after a dismal 2016, we do not expect a significant improvement for global growth next year. In that context, and considering inflation will remain below target in most economies, major central banks have little choice other than keep monetary policy highly stimulative.
- After a difficult first half of 2016, the U.S. economy is bouncing back nicely. The improving global economy in the third quarter helped boost trade, while consumption spending, the driving force of the domestic economy, remains well supported by a healthy labour market and cheap credit. However, investment spending continues to disappoint, perhaps reflecting uncertainties about the economic and political outlook. American voters now have a chance to remove at least some of those uncertainties and end six years of Congressional gridlock by handing majorities to one of the two major parties at November’s elections.
- Despite the recent uptick in economic activity, Canada’s real GDP growth should be no better than 1.2% this year courtesy of a disastrous second quarter. We expect growth to pick up to roughly 1.8% in 2017 thanks in part to the federal fiscal stimulus. However, tighter standards for mortgage origination will take steam out of the housing market, particularly in Vancouver and Toronto where we’re expecting home prices to fall next year. Those macro prudential measures also mean the Bank of Canada is now less constrained if it wants to loosen monetary policy. (Full report attached)
JMRD Basket Corner
Brookfield Asset Management (BAM.a) – Brookfield Agrees to Buy 70% Stake in Odebrecht for $768 Million
All-Cap Growth Basket
Savaria (SIS) – Expecting solid Q3 results on Nov. 2 after the close: Savaria will release Q3/16 results on Nov. 2 after market close. Continuing on a track record of solid organic growth, and aided by recent M&A, we forecast a 31.3% y/y revenue increase to $31.5 million. We expect EBITDA of $5.1 million (Street: $5.1 mln) with margin expanding to 16.3% from 16.0% due to operating leverage and cost control. We forecast EPS of $0.09 vs. last year’s $0.07 (Street: $0.09). (Full report attached) Savaria
Uni-Select (UNS) – Sales increased 15.3% y/y to $318.5 million as a $49 million contribution from M&A (in line) more than offset a 1.3% organic decline due to softness in Canada. Despite underwhelming revenue, EBITDA margin rose to a very solid 9.7% (incl. 13.2% at FinishMaster) which exceeded our 9.6% forecast and 9.3% consensus. Note that 2016 EBITDA margin guidance was increased by 25 bps to 8.50-9.25%. Q3 EPS of $0.41 beat consensus of $0.39 and was in line with NBF. (Full report attached) Uni-Select-Inc
U.S. Growth Basket
Boston Scientific (BSX) – Boston Scientific raise full-year outlook
Lockheed Martin (LMT) – Lockheed Martin revenue soars, and it boosts guidance – Lockheed moved higher by 7% on the week following Q3 results
Nasdaq (NDAQ) – Transatlantic exchange operator Nasdaq Inc said on Wednesday its quarterly profit fell on acquisition costs following a string of deals, but the results still topped expectations, helped by higher data and technology revenues. Nasdaq net income in the third quarter dropped 5.1 percent to $131 million, or 77 cents per diluted share, compared to $138 million, or 80 cents per diluted share, a year earlier, it said.
Pinnacle Foods (PF) – Pinnacle Foods Q3 Earnings Beat; Shares Up on View
Vantiv (VNTV) – Vantiv Stock Climbs on Q3 Results, Guidance
Visa (V) – Visa earnings for the fiscal fourth quarter rose 28%, driven by growth in payments volume and processed transactions and its recent acquisition of sister company Visa Europe. The results come about a week after Chief Executive Charles Scharf said he would step down in December because he can no longer spend enough time in San Francisco “to do the job effectively.” He will be succeeded by Alfred Kelly, a member of Visa’s board and a former president at American Express Co. Like rival MasterCard Inc., Visa is a payment network that processes credit-card and debit-card transactions, earning a slice from each. The company purchased its sister company in Europe in June, a deal initially valued at up to 21.2 billion euros ($23.4 billion) that is designed to bring its global operations under one roof. Visa’s earnings for the quarter ended Sept. 30 climbed to $1.93 billion, or 79 cents a Class A share, up from $1.51 billion, or 62 cents Class A share, a year earlier. Earnings excluding items were 78 cents a share.
- The biggest money mistakes we make—decade by decade (The Wall Street Journal)
Reads of the Week
- Merger Deals Set Monthly Record, Even as Election Looms (The Wall Street Journal)
- A case study in investing objectivity (Bloomberg)
- Please, Give Me a Break (The Irrelevant Investor)
- Does Your Company Give You Stock? Great. Sell It. (Barron’s Next)
Monday October 31st – Canada Industrial Production; US Chicago ISM Index
Tuesday November 1st – Canada GDP, Canada Manufacturing; US ISM Manufacturing PMI/ISM Readings
Wednesday November 2nd – US FOMC Interest Rate Decision
Thursday November 3rd – US Initial Jobless Claims, US Factory Orders
Friday November 4th – Canada Change in Employment and Unemployment Rate; US Non-Farm Payrolls and Unemployment Rate
Monday October 31st – Vermillion Energy
Tuesday November 1st – Aecon, Canaccord, Gibson Energy, Kellogg, Pfizer, Thomson Reuters
Wednesday November 2nd – Airboss of America, AIG, Facebook, GMP Capital, Hudbay Minerals, Intact Financial, Linamar, Shopify, Tourmaline Oil, Whitecap Resources
Thursday November 3rd – Advantage Oil and Gas, Agrium, Bellatrix Exploration, Canadian Natural Resources, Canyon Services, Denison Mines, Enbridge, Enbridge Income Fund, Fairfax Financial, Great-West Lifeco, Magna Int’l, Parkland Fuel, Pembina Pipeline, Premium Brands, SNC Lavalin, Starbucks,
Friday November 4th – Open Text Corp
Have a good weekend.