Finance – Page 35

A comprehensive list of TSX Exchange Traded Debt

(Most recent post on this was September 4, 2020)

Over two years ago I lamented there was no good consolidated list of TSX-traded debentures available.

I’ll give Felix Choo some credit for resurrecting a digital version of this. In general, his lists are about half of the exchange traded debentures on the TSX.

After consolidating a bunch of information together and going through a hundred documents or so on SEDAR, I am finally in a position to publish an authoritative list of debentures (109) and notes (3) that are trading on the TSX.

I have not included TSX Venture, but in case if you were wondering what you were missing on the TSXV, only a handful – 22 tickers among 18 issuers. Maybe I’ll add them in the future.

The entire list (as of September 3, 2019) of TSX-listed debt instruments (convertible debentures, exchange-traded notes) can be accessed at the following shared Google Sheet linked here.

I’ll give the standard disclaimer: I have tried to make it very accurate, but things can slip through the cracks.

Other than trying to make this a “real-time” sheet (can anybody give me a good automated source of debenture quotations that doesn’t involve a $2,000/month Bloomberg Terminal?), comments to improve this would be appreciated.

Tax loss selling candidates, 2019

Below are 29 companies that are trading lower than 40% year to date on the TSX, that have a market cap of above $75 million. I’ve also restricted the share price to greater than 50 cents.

TSX tax loss candidates

August 30, 2019 closing prices
Last trade > $0.50
Market Cap > $75 million
YTD change -40% or worse

Item	Symbol	Name	Sector	Last	YTD %Chg	MktCap ($M)
1	TH-T	Theratechnologies	Bio	4.98	-40.14	394
2	AVCN-T	Avicanna Inc	Cannibis	3.66	-41.25	88
3	IDG-T	Indigo Books & Music Inc	Retail	6.6	-41.49	180
4	BIR-T	Birchcliff Energy Ltd	Energy	1.77	-41.78	503
5	SOY-T	Sunopta Inc	Food	3.07	-41.86	275
6	SOX-T	Stuart Olson Inc	Engineering	2.89	-41.97	82
7	ATH-T	Athabasca Oil Corp	Energy	0.57	-42.42	303
8	ADVZ-T	Advanz Pharma Corp	Bio	14.7	-42.93	673
9	CFX-T	Canfor Pulp Products Inc	Forestry	9.08	-43.99	574
10	UNS-T	Uni Select Inc	Auto	10.79	-44.41	456
11	MDF-T	Mediagrif Interac	IT	5.23	-45.29	81
12	MPVD-T	Mountain Province Diamonds	Diamonds	1.04	-46.67	223
13	HNL-T	Horizon North Logistics Inc	Energy Service	0.95	-47.22	155
14	IMV-T	Immunovaccine Inc	Bio	3.58	-47.89	186
15	DII-B-T	Dorel Industries Inc Cl.B Sv	Retail Wholesale	9.1	-48.41	292
16	LGO-T	Largo Resources Ltd	Metals	1.37	-51.59	728
17	PONY-T	Painted Pony Energy Ltd	Energy	0.68	-54.36	114
18	PEY-T	Peyto Exploration	Energy	3.2	-54.8	554
19	BNP-T	Bonavista Energy Corp	Energy	0.54	-55	149
20	DR-T	Medical Facilities Corp	Hospitals	6.74	-55.19	211
21	NVA-T	Nuvista Energy Ltd	Energy	1.61	-60.54	370
22	MAV-T	Mav Beauty Brands Inc	Beauty	4.11	-61.52	155
23	SNC-T	Snc-Lavalin Sv	Engineering	16.41	-64.26	2,858
24	OBE-T	Obsidian Energy Ltd	Energy	1.27	-64.43	97
25	TRST-T	Canntrust Holdings Inc	Cannibis	2.3	-64.99	335
26	JE-T	Just Energy Group Inc	Energy Retail	1.46	-67.63	227
27	TRQ-T	Turquoise Hill Resources Ltd	Metals	0.58	-74.22	1,187
28	ZENA-T	Zenabis Global Inc.	Cannibis	1.06	-82.33	214
29	PLI-T	Prometic Life Sciences Inc	Bio	11.6	-95.54	280

Comments:

1: A bio company with an FDA approved small scale HIV medication (used in cases where mainline HIV treatments do not work), and a new product that is used for something called hard belly – which is a symptom in some long-term HIV patients as a side effect of the anti-retroviral drugs that they take to keep viral loads down. Stock is down because sales aren’t exactly going anywhere and those sales and marketing expenses are indeed quite high. Market cap is trading as if the company will get sold off (drug companies don’t capitalize their R&D expenses it takes to get a drug to market, so there is a bunch of hidden balance sheet value in the drugs, despite the relatively little revenues they get from them).

2, 25, 28: Are Marijuana companies, and I have no interest in analyzing them.

3: Indigo is a typical retail story. Their stock chart in the past 18 months is a straight line down. Aside from their lease commitments, their balance sheet isn’t in terrible shape and management has some time to decide what to do, but they are bleeding money at a frightening pace.

4, 7, 13, 17, 18, 19, 21, 24: Canadian oil/gas extraction companies, so I do not need to write further why they are trading down. 13 is an energy service company. My big surprise here is why there aren’t more companies on the down 40% list (doing some quick investigation, it is because most of them already got hammered in 2018 so the losses in 2019 relatively speaking isn’t as big).

5: A low margin food producer with a ton of debt on the balance sheet and bleeding cash. Not looking pretty.

6: Engineering firm impacted somewhat by oil and gas-related spending. Income statement shows they are treading water. They were able to raise financing from Canso at 7% for unsecured debt (rolling over an existing debt issue) and the balance sheet is not in terrible shape. May be a good possibility for a turnaround – given its market cap of $80 million in relation to its overall size (revenues will be roughly a billion in 2019), something to watch. Has a similar feel to IBI Group.

8: The old Concordia Pharma. Classic case of what happens when you over-leverage cash flows too much. They make a ton of cash, but they have a ton of debt and a ton of interest expenses.

9: Lumber has been killed for various reasons. Despite being from British Columbia, I should know more about the industry. Just a year ago it was trading at $27 and today it is nearly $9. The stock graph looks like a normal distribution curve. Despite the fact that their cash flows has been decimated year-to-year, they don’t have any debt and look like they can survive the cycle. Jimmy Pattison trying to take over Canfor Corporation (not the pulp subsidiary) for $16/share seems to be a case of trying to take them on the lows. Canfor owns 55% of Canfor Pulp.

10: I know less about automobile companies than forestry products. Skimming the financial statements, they just appear to be losing profitability and racking up debt.

11: A small IT firm that is undergoing a strategic change and also still looking for a new CEO. Still profitable, and with a relatively blank canvas balance sheet.

12: Owners of a 49% interest in a diamond mine in the N.W.T., and barely making enough to pay off their bank lenders. Will pass.

14: Early clinical stage biotech working on some cancer therapies, P2 studies have samples of less than 20 patients, and skimming the science, looks questionable.

15: Legitimate larger company that has been in a slow straight-line descent for the past three years. Three major product lines (babies, sports and furniture) are sold to major retailers worldwide. Management (Schwartz – family-controlled dual-stock corporation) has been around for a very long time, albeit they seem to be highly overpaid. They resolved an upcoming debt maturity last June with a 7.5% unsecured debt note (not convertible) and this will buy them time to figure out how to improve margins. Cash flows from operations have been diminishing, and they already once cut their dividend, and it is due for another cut. However, given the ~$300 market cap and $2.5 billion in revenues, the potential for a turnaround here is reasonably good, except for this looming worldwide recession coming which would surely impact this company’s fortunes!

16: They mine a commodity I know nothing about (Vanadium), in a country I know very little about (Brazil).

20: This one is interesting. A company that owns majority or near-majority stakes in a few hospitals in the USA and distributes most of its free cash. The only problem being that in the past few quarters, they have really underperformed. If they can figure out what they did wrong and reverse it, then the stock is an easy double from their depressed price. It was bond-like until the bottom fell out of it in the May and August quarterly reports. If there was a candidate for year-end tax loss selling, this one would be it. Another interesting quirk is that their distribution rate on a historical basis is now at a 17% yield. This distribution was below their cash generation in prior years, but not from the first half of this year. It’s likely they’ll cut this dividend unless if they think the past couple quarters was temporary. Knowing about the US healthcare industry, especially in the states that DR operates in, coupled with competitive dynamics of healthcare and competitors will help.

22: Cosmetics company that went public in July 2018 for CAD$14/share (proceeds to pay down debt with IPO). Now it is trading at $4.11/share, which is a fairly good 70% negative return on investment. The company is now barely profitable, but still isn’t at the level which supports the debt on its balance sheet. Still, cosmetics is a pretty high leverage industry to be in if your revenues start to take traction – and their revenues are growing. Might be interesting, considering that beauty products sell in any economic climate! Unfortunately, you won’t see me wearing any…

23: SNC. Enough said. There’s tons of industry analysts out there looking at this one. Their partial sale of the 407 freeway around Toronto will buy them a lot of time to get their act together, but in the meantime, their operations are a total mess. There will probably be a time to buy this one but it will take awhile, and likely more corruption from the federal government is required for a positive outcome (i.e. if Trudeau gets re-elected, it would be a positive for SNC for sure).

26: Balance sheet is a train wreck, company is exploring a recapitalization, and the business model itself is highly broken. Good luck!

27: Another mining company working in a jurisdiction I know hardly anything about (Mongolia), let alone I can’t even pronounce the name of its main flagship mine. Don’t have any more insight than that, sadly.

28: The big loser in the TSX is due to a debt-to-equity recapitalization and a 1:1000 reverse stock split. After the recap they did get rid of a bunch of debt on the balance sheet and raised some cash, which they need in order to bide their time to get FDA approval for their lead product. They burnt about $50 million cash in the first half of the year and have about $80 million left on the balance sheet, so looks like they’ll have to raise more financing…

Drudge on the doom of the stock market

Most times I have no idea where things are going in the macro sense – speculating is entertainment but I don’t find I have superior insights on the matter. However, it is important to read the market psychology and when non-financial media start to comment on financial happenings, more often than not it is a contrarian indication:

I find this paranoia regarding Trump, China, recessions, etc., to be very alarmist. I’m pretty sure at this stage in the economic cycle that we are due for an economic purge sometime – there’s a lot of excess out there (does anybody seriously think Beyond Meat is worth a third of Tyson Foods?). Instead, we have a very low interest environment, with short term interest rates likely to head lower over the next year, and it all brings you to the fundamental question:

What else are you going to invest in?

Clearly as real rates go negative (let’s not get into the scenario where nominal rates go negative!), institutions have found safe passage in gold.

But, as Buffett says, there isn’t much economic value to storing a bunch of yellow metal in a fort somewhere. Where are you going to find a return?

You can put money in a BBB or A-rated bond and get your 340bps, but that isn’t going to be enough.

Real estate gives a yield (on rent) but even REITs have their yields compressed, and in Canada, you have commercial property cap rates that are getting ridiculously low (mid single digits). The favourite residential REIT of most retail (TSX: CAR.UN) gives out a whopping 270bps in distribution yield. Looks expensive (unless if real estate continues to rise).

What’s left if you actually want a return?

There’s only one game in town – equities.

There’s a lot of old-school value out there that’s really getting hammered in anticipation of this recession.

Book Review: The Outsiders – and outsized returns

The Outsiders: Eight unconventional CEOs and their radically rational blueprint for success – by William Thorndike.

I’ll recommend this book. Although it is becoming somewhat dated (copyright date was 2012), it gives the reader a 50,000 foot above the skies satellite view of some hand-picked CEOs that were able to strongly defeat the GE Jack Welch / S&P 500 record during multi-decade periods. They shared a single characteristic – they were able to allocate capital with discipline and ruthless efficiency. Operationally they were able to delegate to competent individuals and decentralization to the point of abdication was another theme.

If this book was written today and for Canadian CEOs, I would think Mark Leonard of Constellation Software (TSX: CSU) is an obvious candidate. He has delivered 42% compounded annual returns over the past decade, and 38% since going public in May of 2006 – notably still earning this return through the 2008-2009 economic crisis.

Reading (mostly written by) Mark Leonard’s Shareholder Q&A letters is fascinating insight on the company and how management thinks. It is indeed a shame that I never heard of this company until it was far, far too late. Sadly they are looking at future returns in the upper teens from their current size.

I have also taken great pleasure of reading Tyler’s compilation of quotations by TransForce’s (TSX: TFII) CEO Alain Bedard, which is a trucking and logistics company. TFII has performed at 22% compounded annually over the past decade, and about 13% since going public in October 2002 (in both cases dividend-adjusted). For a low margin business such as trucking, this is needless to say impressive.

There is a bit of retrospective bias in this book, however. Most individuals would probably regard Prem Watsa of Fairfax (TSX: FFH) as being a very good CEO, but his dividend-adjusted CAGR over the past decade has been 9%, and over the past 20 years has been 6%. Compare this with CEO Duncan Jackman of E-L Financial (TSX: ELF), which has been approx. 9% over both the past 10 and 20 year period. E-L Financial, in my opinion, is the least attention-seeking publicly traded corporation with a market cap of over a billion dollars.

For the sake of comparison, the TSX’s performance (dividends reinvested) over the past 10 years has been 6.6%. The main index (dividends not reinvested) over the past 17.7 years (which is how far the data goes back when they did a major change to the index) is 4.5% – adding in dividends would be another 3% or so. So a 9% CAGR performance is a slightly overperformance over the TSX, but posting returns into the teens and better is clear outperformance.

Ray Dalio / Paradigm Shifts / Gold

Ray Dalio doesn’t need much description, but his latest post (which can generally be summarized as: the party is changing tone, buy gold) gives one consideration.

Why just gold?

In theory, if dollar devaluation is the name of the game, then I would think that any natural resources that have future demand would be eligible for consideration – especially since most of these companies (thinking fossil fuels) have huge debt loads. The debt becomes cheaper due to the dilution of underlying currency, and the underlying commodity becomes more valuable in nominal terms.

The post would also suggest that the low rate environment will continue and asset prices will continue to be pushed higher (and yields lower) – hence, if cash is trash, leveraging via margin would be opportunistic (one could have made this argument right after the economic crisis as well).

I would also think firms with in-demand fixed infrastructure (e.g. wireless telecoms) will reasonably retain value in such an environment.