Updates on TSX Traded Debentures list

I have been keeping the TSX traded debentures list actively updated for my own investment purposes and hopefully you find it useful as well. A few mistakes here and there slip into the spreadsheet, and when doing a sweep, there were enough changes to note:

1. Premium Brands first two debentures issues were initially listed as non-convertible, but I noticed that PBH.DB.E was trading at a negative yield to maturity and I was wondering what was going on, and indeed their debentures are all convertible. What had happened was when reading the financial statements it is not entirely clear they were convertible, nor their annual information form, but I had to dredge up the press releases in the 2016 offerings to get the proper conversion prices. Fixed!

2. I completely missed Polaris Infrastructure’s debenture offering (TSX: PIF.DB), which was done in April of 2019 and up-sized in May 2019 to its present $25 million size.

Sweeping the list, many marijuana-related entities’ debt are trading at discounts, but I am not finding any compelling value with anything I see. Perhaps any of my readers see things differently?

Canadian election, impact for stocks

Right now, 338 Canada has the following:

LIB 136 ** rounded down from 136.6 to make the total 338 seats
CPC 123
Bloc 39
NDP 36
Green 2
PPC 1
IND 1 (Jody-Wilson)

If this is the outcome, it is quite probable the Liberals will get together with the NDP, either in a coalition (where NDP ministers get appointed) or unofficially (similar to in British Columbia where there is a supply agreement that gives the 3 Green Party MLAs more power far above what their electoral standing would otherwise give them).

The implications to this will be fairly clear:

1) TMX is dead
2) BC-LNG will probably face huge hurdles (the Coastal Gaslink natural gas pipeline is provincially regulated) which will probably face regulatory federal barriers… and this will be at odds with the provincial BC NDP government – it will be interesting to see what concessions will occur here.
3) Carbon taxes will be guaranteed to rise, and in general, costs will rise significantly
4) Erosion of the Canadian dollar
5) Probable increases in corporate tax and capital gains taxes

If your money is anywhere around oil and gas in Canada (or pretty much anything for that matter), things will probably get worse.

However, with the surge in the NDP in the polls, this actually bodes well for the Conservatives in certain areas (recall in 2011 that a majority government was obtained with the assistance of the NDP sucking up what would otherwise have been Liberal votes). Because of this and the “shy Tory” effect (where Conservative voters are less likely to report to polling agencies their support), there are alternate scenarios which may surprise people on election day, e.g.

CPC 140
LIB 119
Bloc 39
NDP 36
Green 2
PPC 1
IND 1

In this case you get a CPC-Quebec informal alliance. There is also the outside possibility of a LIB-Bloc-NDP coalition, which was attempted after the 2008 election, which I would not entirely rule out, especially if the CPC can’t get together with the Bloc in any material capacity. There’d be another election in a short time frame to hash things out.

So, various scenarios to look out for:
If LIB > 169, apparently being massively hypocritical and corrupt is rewarded with votes as long as food is on the table;
If LIB+NDP+Green > 169, then it’s a probable Liberal government again, sell everything;
If LIB+Bloc > 169, you’ll still get PM Trudeau, then get ready for Quebec subsidy mania! (pick some stocks on https://divestor.com/?p=8934 and might as well buy some call options on SNC while you’re at it)

The plurality of seats condition kicks in if LIB+NDP+Green or LIB+Bloc+Green < 170, which in that case the CPC would have more seats than the Liberals. Despite news headlines and Justin Trudeau himself (in 2015) saying that the party with the most seats should have the first chance to govern, it isn’t apparent to me that Trudeau will step down until he tries to negotiate some sort of anti-CPC coalition. Watch out for Liberal/NDP headlines saying “2/3rds of Canadians did not vote for a Conservative government” and stuff to that extent to try to make a moral argument why the Liberals should stay in. My guess is that if the Liberals fall 15 seats short of the CPC but still have a workable coalition, they’ll do it. Anything more than a 15 seat difference with the CPC and keeping government becomes more difficult.

The only defense the CPC has (other than an obvious out-right majority) is a CPC+Bloc arrangement (if their seat count is 170 or above). Despite seeming odd to partner with separatists, this was successfully done before: in 1984 and 1988, where the Progressive Conservatives (under Brian Mulroney) successfully formed an internal coalition with the Quebec separatists to win two majority governments. This fractured badly in the early 1990’s and the Bloc Quebecois were created as a result – in addition to destroying the Progressive Conservatives (leading to the uprise of the Reform Party).

A potential CPC+Bloc arrangement will likely involve trading some provincial concessions for energy-positive developments strictly on the west coast of Canada.  It would take shape in the form of provincial autonomy and decentralization of federal powers (closer to what the Canadian constitution was formed as), which was fairly standard Harper-style governance.  The next month will be interesting to say the least.

Quebec companies trading on the TSX

Following up on my previous post that I predict the Bloc Québécois will be the big winner in the 2019 election, it makes me wonder about Quebec-listed Canadian companies.

It is likely that in a Liberal minority government situation, they will require on the implicit support of the BQ in order to maintain power in government. Hence, there will be subsidies galore, in addition to Quebec-friendly policies.

Attached is a table of the 80 TSX-listed companies with Quebec headquarters. The list is a bit too much to go into any individual detail, but there are a few interesting ones here. For instance, who wants to speculate the SNC-Lavalin’s problems will magically disappear overnight? They solved most of their balance sheet problems with the partial sale of the 407 Freeway. How about Bombardier and their perpetual reliance on government subsidies to function? The list goes on and on! To make this even spicier, my largest undisclosed equity position is in the following list (completely unrelated to the thesis that the winds of the federal government are behind the backs of Québecers, although it’s certainly a bonus!).

Bonne Chance!

TSX Listed Companies from Quebec

August 31, 2019
RankNameTickerMktCap($M)Sector
1Canadian National Railway CompanyCNR88358Industrial Products & Services
2BCE Inc.BCE58993Comm & Media
3Alimentation Couche-Tard Inc.ATD47310Consumer Staples
4CGI Inc.GIB25113Technology
5National Bank of CanadaNA22994Financial Services
6Power Financial CorporationPWF21306Financial Services
7Dollarama Inc.DOL16038Consumer Discretionary
8Saputo Inc.SAP15648Consumer Staples
9Metro Inc.MRU14382Consumer Staples
10Power Corporation Of CanadaPOW12914Financial Services
11Air CanadaAC11908Consumer Discretionary
12Brookfield Renewable Partners L.P.BEP9964Utilities & Pipelines
13Gildan Activewear Inc.GIL9942Consumer Discretionary
14Bausch Health Companies Inc.BHC9923Life Sciences
15CAE Inc.CAE9278Technology
16Quebecor Inc.QBR7647Comm & Media
17WSP Global Inc.WSP7593Industrial Products & Services
18iA Financial CorporationIAG6292Financial Services
19Bombardier Inc.BBD4502Industrial Products & Services
20Cogeco Communications Inc.CCA3537Comm & Media
21TFI International Inc.TFII3221Industrial Products & Services
22Lightspeed POS Inc.LSPD2920Technology
23SNC-Lavalin Group Inc.SNC2881Industrial Products & Services
24Domtar CorporationUFS2848Forest Products & Paper
25Stella-Jones Inc.SJ2710Forest Products & Paper
26Innergex Renewable Energy Inc.INE2330Utilities & Pipelines
27Cominar Real Estate Investment TrustCUF2277Real Estate
28Laurentian Bank Of CanadaLB2047Financial Services
29Boralex Inc.BLX1999Utilities & Pipelines
30BRP Inc.DOO1873Consumer Discretionary
31MTY Food Group Inc.MTY1588Consumer Discretionary
32Richelieu Hardware Ltd.RCH1458Industrial Products & Services
33HEXO Corp.HEXO1375Cannabis
34Cogeco Inc.CGO1345Comm & Media
35Transcontinental Inc.TCL1250Comm & Media
36Valener Inc.VNR1117Utilities & Pipelines
37Intertape Polymer Group Inc.ITP1087Industrial Products & Services
38Cascades Inc.CAS1056Industrial Products & Services
39Knight Therapeutics Inc.GUD1043Life Sciences
40Fiera Capital CorporationFSZ997Financial Services
41Rogers Sugar Inc.RSI723Consumer Staples
42Heroux-Devtek Inc.HRX636Industrial Products & Services
43Aimia Inc.AIM576Consumer Discretionary
44Transat A.T. Inc.TRZ574Consumer Discretionary
45Lassonde Industries Inc.LAS559Consumer Staples
46Savaria CorporationSIS552Industrial Products & Services
47Resolute Forest Products Inc.RFP516Forest Products & Paper
48New Look Vision Group Inc.BCI504Consumer Discretionary
49Neptune Wellness Solutions Inc.NEPT497Cannabis
50Logistec CorporationLGT483Industrial Products & Services
51Uni-Select Inc.UNS457Consumer Discretionary
52Stingray Group Inc.RAY440Comm & Media
53Senvest Capital Inc.SEC436Financial Services
54Theratechnologies Inc.TH435Life Sciences
55BELLUS Health Inc.BLU413Life Sciences
56GDI Integrated Facility Services Inc.GDI372Industrial Products & Services
57BMTC Group Inc.GBT358Consumer Discretionary
58BTB Real Estate Investment TrustBTB342Real Estate
59Dorel Industries Inc.DII299Consumer Discretionary
60ProMetic Life Sciences Inc.PLI270Life Sciences
61PRO Real Estate Investment TrustPRV261Real Estate
62Yellow Pages LimitedY233Comm & Media
635N Plus Inc.VNP195Industrial Products & Services
64Alithya Group Inc.ALYA179IT Consulting & Services
65TECSYS Inc.TCS175Technology
66Goodfood Market Corp.FOOD156Consumer Staples
67Colabor Group Inc.GCL128Consumer Staples
68EXFO Inc.EXF115Communication Technology
69Yellow Pages Digital & Media Solutions LimitedYPG111Comm & Media
70Mediagrif Interactive Technologies Inc.MDF78Internet Software & Services
71Opsens Inc.OPS75Hardware & Equipment
72Supremex Inc.SXP74Forest Products & Paper
73TVA Group Inc.TVA73Comm & Media
74AEterna Zentaris Inc.AEZS50Life Sciences
75Velan Inc.VLN42Industrial Products & Services
76TSO3 Inc.TOS40Life Sciences
77Goodfellow Inc.GDL38Forest Products & Paper
78Orbit Garant Drilling Inc.OGD37Mining Services
79D-Box Technologies Inc.DBO24Hardware & Equipment
80ADF Group Inc.DRX21Industrial Products & Services

TSX Exchange-traded debt review

I have made some corrections to my initial TSX Exchange-traded debt spreadsheet. So far, this is turning out to be a great replacement for the old one that used to be at the old Financial Post website before it got taken down.

In terms of valuations, none of them appear to be errantly priced where I am tempted to dive in. The ones trading well under par are either visibly insolvent or marijuana companies. In either instance, purchasers of the debentures are likely to lose capital. The best of the worst of them appear to be DHX Media (TSX: DHX.DB) and Just Energy (TSX: JE.DB.C/D) but both of these businesses have issues which make the double-digit YTM warranted.

If your goal with these instruments is to make a relatively easy 5%, however, there are plenty of quality selections to be made, although I’d make the argument that for a non-tax sheltered account you would be much better off with preferred shares.

TSX 30: Momentum Index – Thoughts

The TSX created a new index, the TSX 30, which is formed under the basis of total return over the past three years for the top 30 companies in the TSX.

The first batch of index constituents are the following and this is an interesting list:

TSX 30: June 30, 2016 to 2019

Note the "3Yr" column is TOTAL return, dividend/distributions adjusted.
RankIssuer NameTicker3Yr
1Canopy Growth CorporationTSX:WEED1823%
2Shopify Inc.TSX:SHOP883%
3Village Farms International Inc.TSX:VFF868%
4Kirkland Lake Gold Ltd.TSX:KL605%
5Trilogy Metals Inc.TSX:TMQ503%
6Aphria Inc.TSX:APHA479%
7Air CanadaTSX:AC346%
8Neptune Wellness Solutions Inc.TSX:NEPT322%
9Ivanhoe Mines Ltd.TSX:IVN312%
10North American Construction Group Ltd.TSX:NOA304%
11Labrador Iron Ore Royalty CorporationTSX:LIF282%
12Ballard Power Systems Inc.TSX:BLDP232%
13Pollard Banknote LimitedTSX:PBL210%
14goeasy Ltd.TSX:GSY209%
15Anglo Pacific Group PLCTSX:APY185%
16North American Palladium Ltd.TSX:PDL183%
17Gran Colombia Gold Corp.TSX:GCM178%
18Resverlogix Corp.TSX:RVX174%
19Wesdome Gold Mines Ltd.TSX:WDO172%
20Cargojet Inc.TSX:CJT166%
21Theratechnologies Inc.TSX:TH161%
22Summit Industrial Income REITTSX:SMU160%
23Constellation Software Inc.TSX:CSU158%
24Tucows Inc.TSX:TC152%
25Great Canadian Gaming CorporationTSX:GC147%
26CAE Inc.TSX:CAE136%
27Park Lawn CorporationTSX:PLC131%
28TerraVest Industries Inc.TSX:TVK131%
29BRP Inc.TSX:DOO131%
30Boyd Group Income FundTSX:BYD126%

I have a few observations.

My initial gut reaction is that anybody investing in this index is nuts simply because it is a momentum index – people would be buying in and more or less facilitating the cash-out of the top players. Buying something solely on the basis of previous price appreciation is a questionable investing strategy.

Indeed, items 1, 3, 6, 7, and 8 on the table above were built on the basis of the cannabis industry (of which readers here should know I am highly skeptical of). I think most of these companies have had their hey-day and are now realizing that getting remotely close to justifying their valuation is not going to be an easy endeavour.

On second glance, the TSX 30 index is actually reasonably diversified among industries, except finance. Considering that the main TSX 60 index is dominated by finance (37% of the index at present), the lack of financials is not a terrible characteristic.

There are a few companies on this list that made me go “really?” and when looking at their stock charts they indeed were able to deliver said returns. Ivanhoe Mines? Seriously!!?? (answer: they got really lucky with the June 30, 2016 to June 30, 2019 date ranges – go take a look at their stock chart).

My other observation is: so few companies appreciated +125% in the past three years. There are a few staple companies where it is really worth buy-and-holding (Constellation Software comes to mind here, although future returns are very likely not to be nearly as good as previous ones), but is one really going to buy and hold any of the marijuana companies or Shopify from here on in? It goes as one more data point to show that being nimble in trading continues to be a key characteristic in being able to outperform – a passive investor does not see the converse index which is the “TSX negative 30”, which contains the list of non-bankrupt companies which have depreciated the most over the past three years – that in itself would be an interesting future exercise.