A quick scan of the TSX winners and losers of 2021, 2 months in

Just doing a brief equity scan of the winners and losers of 2021 to give me an idea where the trends are going.

Losers

The TSX is littered with the carnage of gold mining companies. They’ve performed well for the year, but in the past two months, they are all trading down. Notables include Gran Colombia (TSX: GCM) and New Gold (TSX: NGD), both down roughly 30% for the year. New Gold is still well up (about 80%) year-to-date, while Gran Colombia is roughly flat.

The first non-gold corporation of any significance that hits the scanners is Docebo (TSX: DCBO), down about 28% for the year. They went public in the summer of 2019 at CAD$16/share, so they’re still massively up from their IPO. Their primary business is educational software, which needless to say, was a very timely sector to be in during COVID-19. With a market cap of nearly $2 billion and “annual recurring revenues of $73 to $74 million”, it trades like a typical SaaS COVID company. Their stock performance is likely a reversion to the mean scenario.

Next down the non-gold list is Ritchie Brothers (TSX: RBA), down 22%. They’ve done reasonably well post-Covid, but had a mild miss on year-end earnings. While the company itself is solid, they are still at valuations that I’m not tremendously interested in the stock.

Moving further down the list, we have Trillium Therapeutics (TSX: TRIL), down 21%. I don’t see any obvious reason why they are trending down.

Then in the 20% or greater category, we have BBTV holdings (TSX: BBTV) which is down 21% for the year as well. They went public last autumn for CAD$16/share and let’s just say they’re an interesting company.

Winners

There are many, many more winners on the TSX scan than losers. There’s about 80 companies that are up more than 50% year to date. I won’t talk up my own book, but I’ve generally been surprised to see some names that I own in this list!

The highest performers have been, interestingly enough, in marijuana. Aphria (TSX: APH), Canopy Rivers (TSX: RIV), Supreme Cannabis (TSX: FIRE) and Village Farms (TSX: VFF). Another tier has been what I consider to be ‘marginal’ mineral miners. I won’t name them. There are also a lot of other marginal companies as well on the list (associated with crypto, but also oil and gas). The next tier down is a mix, but mostly non-gold commodity companies. Notables include: CRH Medical (TSX: CRH) which got bought out by Well Health (TSX: WELL), Denison Mines (TSX: DML). Other standouts include Canada Goose (TSX: GOOS) and Cineplex (TSX: CGX).

Interesting times. Will gold continue to show weakness? Will there be a huge mean reversion with the rest of the market?

Late Night Finance with Sacha – Episode 11

Date: Wednesday March 3, 2021
Time: 7:30pm, Pacific Time
Duration: Projected 60 minutes.
Where: Zoom (Registration)

Frequently Asked Questions:

Q: What are you doing?
A: I’ll give some general market commentary, answer questions, and then spend the remaining time looking at various Canadian publicly traded renewable energy companies. The level of analysis won’t be that deep, but it will be a ‘stream of consciousness’ while I go over various financials.

Q: How do I register?
A: Zoom link is here. I’ll need your city/province or state and country, and if you have any questions in advance just add it to the “Questions and Comments” part of the form. You’ll instantly receive the login to the Zoom channel.

Q: Are you trying to spam me, try to sell me garbage, etc. if I register?
A: If you register for this, I will not harvest your email or send you any solicitations. Also I am not using this to pump and dump any securities to you, although I will certainly offer opinions on what I see.

Q: Why do I have to register? I just want to be anonymous.
A: I’m curious who you are as well.

Q: If I register and don’t show up, will you be mad at me?
A: No.

Q: Will you (Sacha) be on video (i.e. this isn’t just an audio-only stream)?
A: Yes. You’ll get to see me, but the majority will be on “screen share” mode with my web browser and PDFs from SEDAR as I explain what’s going on in my mind as I present.

Q: Will I need to be on video?
A: I’d prefer it, and you are more than welcome to be in your pajamas. No judgements!

Q: Can I be a silent participant?
A: Yes. I might pick on some of you though. Bonus points if you can get your cat on camera.

Q: Is there an archive of the video I can watch later if I can’t make it?
A: No.

Q: Will there be a summary of the video?
A: A short summary will get added to the comments of this posting after the video.

Q: Will there be some other video presentation in the future?
A: Most likely, yes.

Strike while the iron is hot – Shopify

The inflated equity and debt markets are triggering companies to raise money like crazy.

Shopify priced their offering at US$1,315 (about CAD$1,650/share), and total amount raised is about CAD$1.95 billion before fees.

While my capital wouldn’t go towards Shopify, I have to commend them for taking advantage of the situation – they are diluting their shares by about 1%, and in exchange they buffer their balance sheet.

In December 2019, they held $2.5 billion in cash and equivalents. In December 2020, they held $6.4 billion. After this offering, their cash balance will go higher.

Shopify is already in positive operating income territory, but the competition is red-hot so they will need to continue to build up a war chest which will give them further stability. I wouldn’t be shocked if they continued to raise financing – they should.

There are other corporations out there, less credible, which are also raising equity and debt capital. Good on them for striking while the iron is hot.

BWX Technologies – year-end

BWX Technologies (NYSE: BWXT) has a huge competitive advantage – their primary business is the engineering and production of nuclear reactors for US Navy vessels (including aircraft carriers and submarines). Here’s the amusing movie clip that comes to mind:

The company is undergoing a significant capital expenditure which will end in 2022 that will facilitate future projects. The nuclear vessel business is stable, but the ability for the company to branch off in other industries (nuclear medicine, power generation and nuclear space technologies) make them appear to be a fairly cheap entry for a very limited number of investments in this domain (most of which are very diluted with other businesses, such as GE).

I’ll skip the financial analysis. I’ve performed it, but do not wish to write about it.

I do not know why they sold off this morning (they released earnings and Form 10-K yesterday evening), but those nimble got a mild discount. I originally took a position in them during the Covid crisis and still am holding onto it. Percentage-wise, it has not performed nearly as well as the rest of the portfolio, but the risk-reward ratio is very acceptable. They also raised their quarterly dividend from $0.19/share to $0.21/share, but this is not relevant in the investment decision.

GFL Environmental year-end

No positions after the Spruce Point debacle, but reviewing the year-end GFL Environmental (TSX: GFL) statements, they are still a huge train wreck.

Income statement, with some colour commentary:

The gross margins are exceedingly thin (and indeed in the last quarter, negative). We can’t make money per unit of revenue, so we’ll make it up on volume!

The balance sheet tells more of a story:

From the end of 2019 to 2020, the company:

Raised $4.1 billion in equity financing (and another slab of money in “Tangible Equity Units” which trade as GFLU; these will be converted to equity).
They also were able to pay down a net of $1.46 billion in debt with the above line.

However, on the outflows we have the following:

Cash: negative $550 million
PP&E, intangibles, goodwill: $3.8 billion net

So about $4.3-$4.4 billion out the windows in a year. These were to complete the WMI acquisitions. This is a lot of money out the door. I’m also ignoring the $1 billion or so in the increase of the deficit, which I’ll very generously dismiss and chalk up to one-time contract adjustments, foreign currency translation, and operational issues. Presumably the prior expenditures went for the purpose of building a return on equity it would be a good expenditure of capital.

Management claims guidance for an “Adjusted Free Cash Flow $465 million to $495 million” for 2021 and an “Adjusted EBITDA $1,340 million to $1,380 million”.

The question for an investor is whether they can produce an un-adjusted free cash flow, full stop. The historical financial statements are at complete odds with what management is saying. It doesn’t mean they won’t be able to produce positive financial results in 2021 and beyond.

I truly don’t know.

They still appear to have a very good ability to raise capital. On December 2020, they closed another US$750 million financing of senior secured notes at a 3.5% coupon, good until 2028, and also sliced another 50bps off their $1.3 billion credit facility. Their common stock is also near their all-time highs, about CAD$38/share.

Again, I’ll just leave this one up to smarter people than myself to evaluate, but this is one fascinating case study.