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CANADIAN ANALYST TEAM’S LIST AT RAYMOND JAMES OUTPERFORMED INDEX BY 14.3% SINCE DECEMBER
Everybody loves stock picks, particularly if they’re good ones. So when Raymond James’ Canadian analyst team pointed out that their 2017 Best Picks list outperformed the S& P/ TSX Small Cap Index by a wide margin (+ 14.3 per cent versus -4.8 per cent) between December 12, 2016 and July 14, 2017, our ears perked up.
Some of the most notable names — given their impressive performances — during that period were Storage Vault Canada Inc. ( up 98.5 per cent), FirstService Corp. (up 37.8 per cent), and ECN Capital Corp. (up 26.3 per cent).
It’s also worthwhile to note that the analysts (led by the firm’s head of research for Canada, Daryl Swetlishoff ), left their list of 14 top picks unchanged at the midyear update. That came despite losses for five of the 14 names on the list.
Delphi Energy Corp. declined 21.1 per cent, Superior Plus Corp. fell 9.9 per cent, Kelt Exploration Ltd. dipped 7.0 per cent, DIRTT Environmental Solutions Ltd. declined 5.5 per cent, and Gibson Energy Inc. fell 3.9 per cent.
These declines were more than offset by some other big gainers. Topping the remainder of the list were Interfor Corp. rising 25.5 per cent, Algonquin Power & Utilities Corp. climbing 22.5 per cent, and Tricon Capital Group Inc. gaining 17.9 per cent.
Meanwhile, Endeavour Mining Corp. climbed 9.4 per cent, Open Text Corp. rose 8.4 per cent, and Canadian Tire Corp. was up 1.6 per cent.
Analyst Johann Rodrigues outlined his rationale for StorageVault, telling clients that the Canadian self- storage game is still in the early innings.
“The Canadian self-storage industry is still at least a decade behind the U.S.,” he said, noting that storage REITs in the U. S. enjoyed a six- year run from 2011 to 2016 were same property net operating income growth was greater than eight per cent. Rodrigues added that this supported a decade of outperformance for the asset class.
The analyst also acknowledged that the best times for most REITs may have passed now that the Bank of Canada has hiked rates for the first time in seven years. How- ever, real estate companies can offset higher interest rates by increasing rents, and those that can do so the quickest, should outperform.
Rodrigues noted that StorageVault can mark- to- market rents every four weeks, which compares to the next best group ( multi- family), that can market- to- market every year.
Canadian Tire fell in the middle of the pack, eeking out only a small gain in the first half of 2017, but analyst Kenric Tyghe is sticking with his high conviction view on the stock. He highlighted the attractive valuation of the company’s retail business at 6.7x 2017 estimated EV/ EBITDA, and what he considers misplaced concerns about growth and risk at Canadian Tire Financial Services (CTFS).
"While we believe that much progress has been made on weatherproofing the business, it is not waterproof, which is essentially what was required to weather Q2 2017 (hard to sell patio sets and summer sporting gear in the pouring rain),” Tyghe said in a report.
"In addition, the headl ines on the state of the consumer have we believe unjustifiably stoked anxiety around the quality of the CTFS book (given the recent uptick in growth and how the book skews in terms of demographic),” he added.
The analyst believes these two headwinds create an attractive entry point in the stock, and thinks Canadian Tire is in a far better position to navigate the turbulence than investors are giving it credit for.
On the other end of the spectrum in terms of performance is Calgary- based oil and natural gas producer Delphi Energy, the worstperforming stock on Ray- mond James’ list.
Analyst Kurt Molnar noted that its share price has failed to catch up to what the company has achieved recently. A weak environment for energy prices, and the lack of disclosure of any new well results since Delphi’s recent financing, are likely the biggest culprits.
Those achievements include Delphi’s $ 65 million financing in June, the majority of which was placed with one new strategic investors.
Molnar pointed out that the resulting improvement in Delphi’s financial strength and capacity, allows it to project for as many as 25 new Bigstone Montney well operations by the end of the winter drilling season. The company had drilled and completed just 32 wells at the property in the previous four years.
"To be frank, the acceleration of the business plan only makes sense if the marginal economic returns merit the choice,” Molnar said in a research note.
He noted that Delphi’s 2017 hedge position for condensate and gas is one of the strongest around, and the company also has a very strong gas hedge book for 2018 and 2019.
"In short, operationally and financially, we believe Delphi continues to enjoy a position that is highly appealing versus most of their peers,” the analyst said.
As well results emerge, and as production achieves “intermediate producer” levels, Molnar believes the stock will outperform its peers.