Equity over fixed income recommendation remains in place

Here's what we're thinking

July 18, 2017

We leave our overweight in equities and underweight in fixed income recommendation in place. We continue to believe that assets and sectors sensitive to the economic cycle should outperform in this late stage of the cycle. Seasonal headwinds during Q3 could offer attractive entry points for new money.

A gradual rise in global bond yields (on low but positive inflation) creates an ideal backdrop for the continuation of the global equity bull market that started in 2009. We continue to hold our overweight view and would look for pullbacks/elevated volatility to deploy new money. We were rightfully bullish on the Q1 earnings season and believe earnings momentum tailwinds will persist in the upcoming Q2 season, helped by still favourable YOY comparisons.

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Another nice deal! Bonus: commissary & car wash

Canadian and U.S. morning comments

July 11, 2017

ATD.B signed an agreement to purchase privately owned Holiday Station stores with 522 stores in the Midwest U.S. This an interesting acquisition providing ATD.B with significant synergies that go well beyond incremental cash flow related to acquired EBITDA of $180M-$190M. Holiday operates a food commissary that produces fresh and frozen food for the entire network, and operates 221 car washes. Holiday extends ATD.B presence in 10 states and sees a move to 6 new markets. Store base is highly productive with enviable locations, difficult to replicate. Car washes and food commissary provide strategic advantage. Thus we see as a solid strategic move for ATD.B. Beyond the usual targeted synergies of purchasing and admin, we see long-term (L/T) significant revenue synergies as ATD.B exploits the commissary / food service and car wash expertise. Striking this deal hot on the heels of the CST closing speaks to the beauty of the decentralized model which will permit integration by different teams. Balance sheet (B/S) discipline will come to play as this deal closes in Q4/F18 when ATD.b will be well on the path of deleveraging from CST deal, making timing key.

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Crunching the numbers

Canadian and U.S. morning comments

July 6, 2017

EIF shares have been under pressure as of late on speculation of a potential short report. Today, a report was published. While the report raises a number of issues around certain business relationships, as well as potential concerns around the age of certain parts of its fleet (and required investment), safety record, general operations, etc., the purpose of this note is to address the company’s sources and uses of capital (since its IPO), and its ability to pay its dividend – which, in our opinion, is the main premise of the negative report. In summary, we estimate the company has generated sufficient OCF (and then some) to fund its dividend and sustain the business (i.e., fund maintenance capex), while using external sources of capital (i.e., and a portion of its OCF) to fund growth. Currently, the company has approximately $300 million of available capital, leaving it well capitalized to fund potential investments in growth, as well as upcoming maturities.

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Summer volatility upon us; healthy sector rotation sets in

Here's what we're thinking

June 29, 2017

Global markets have generally moved sideways in wide ranges over the past couple of weeks with equity and bond markets largely flat while commodities have slid further as currencies gained in relation to the U.S. dollar. Global economic data trends have remained mostly consistent with forecasts for stronger growth this year, underpinning improved corporate revenue and earnings outlooks. However, a notable exception has been the data flow in the U.S. where recent modest disappointments have led to some marking down 2017 GDP forecasts (including the IMF), resulting in the consensus gravitating to our own house view (2.2%). Central bank policy has also taken centre stage with policymakers in the U.S., Canada, the U.K. and Europe expressing increasingly hawkish biases for the future direction of policy.

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