Top Weekly TSX Gainers (Week of September 15, 2017)
Empire Company Ltd (TSX:EMPa, Chg:24.3%)
Industry: Consumer & Retail
EMP.A has consistently underperformed the Canadian grocer comp since the messy $5.8bn takeover of Safeway Canada. Sobey’s SAP software led to technical integration hurdles and frustrated employees. Logistic problems led to many out-of-stock products and frustrated customers. EMPa took billions of writedown related to the value of Safeway. EMPa finally decided to replace its CEO and asked the former CEO of Canadian Tire, Michael Medline, to lead the turnaround effort (EMPa was up 7.0% on this news alone).
EMPa reported 1Q2018 results on Thursday, September 14, 2017, showing early sign of the turnaround effort might be working. While the financial results were above expectation (both EPS and EBITDA), earnings surprises are common in the early stage of a turnaround as the timing of the cost cutting is hard to nail down. What’s impressive are the Empire’s basket inflation gap (vs. Retail Food CPI) and tonnage trends (basket inflation and tonnage are basically the price and volume metrics for grocers, together drive the top line). Through a more disciplined promotional strategy, EMPa delivered positive basket inflation gap once again since the management change, coming in at 110 bps ahead of the Retail Food CPI. More importantly, the tonnage trend is finally showing some stability, came in at 0.0% and 0.3% in the previous two quarters. To put things into perspective, EMPa’s tonnage declined for 16 consecutive quarters until 4Q2017.
Tahoe Resources Inc (TSX:TH, Chg:17.8%)
Industry: Metals & Mining
This is another episode of “analyzing mining stocks is difficult” (this time on the short side). As previously discussed in this weekly blog, the Supreme Court of Guatemala suspended THO’s Escobal mining license on July 5, 2017 and the Guatemalan Constitutional Court upheld the lower court’s decision on August 24, 2017. THO lost half of its market cap since the news came out.
Last Friday post-market, Guatemala’s judicial authority announced that it had granted THO right to operate the mines via its Twitter feed (yes, you are reading this correctly):
The twitter feeds translate to “during this period Minera San Rafael will continue operations” but THO will have to “carry out consultation” about the mining projects with the indigenous population (who filed the lawsuit against THO in the first place).
Yellow Pages Ltd (TSX:Y, Chg:16.2%)
2017 hasn’t been kind to shareholders of Y as the share price halved following the disappointing 4Q2016 results. The underlying problem is the top line growth – Y’s print media revenue is rapidly declining and its digital media revenue is not growing at all to make up for the difference. As a result, its profitability metric is deteriorating fast as EBITDA margin shrank by 5.3% YoY in 2Q2017 to 22.7%.
On September 15, 2017, the board appointed David A. Eckert as President and CEO of Y and the stock reacted favorably. Mr. Eckert has directly applicable experience as he previously oversaw the operational restructuring of Hibu (another struggling directories and internet service company in UK) and has been a member of Y’s board since May 2017.
Stars Group Inc (TSX:TSGI, Chg:15.7%)
Industry: Consumer & Retail/Real Estate – Gaming & Lodging/Technology
TSGI (formerly Amaya Inc) is primarily the owner of PokerStars. TSGI raised its guidance on September 15, 2017: midpoints of both revenue and EBITDA guidance were increased by +5.0% and EPS midpoint guidance was increased by 7.7%. This implies FY2017 revenue growth between 11-14% YoY, EBITDA growth between 12-16%, and EPS growth between 15-23%. In addition, TSGI intends to repay additional $75mm on its second lien term loan next week.
Stocks Affected By Hurricane Irma – Part 2
As previously discussed in this weekly blog, the residential insurance stocks that have heavy ties to Florida suffered as Hurricane Irma approached (and made landfall over the weekend). On the bright side, Hurricane Irma was downgraded from Category 4 hurricane (Category 5 being the most severe) to a tropical storm (one level below Category 1 hurricane), which means the likely damage it caused is not as expensive as originally feared. The Florida-focused residential insurance stocks surged in relief.
Movie Theater Stocks
As previously discussed in this weekly blog, all of the North American theatrical exhibition stocks suffered ytd due to weak box office and shrinking release window.
As much as we want the corporate managers to focus on the long-term shareholder value creation, they are often under pressure to do something right now to boost the stock price if the performance has been weak for some time. AMC came out with a $400mm asset monetization plan (i.e. selling non-core assets) and has just concluded a $130mm transaction under which it sold seven theater properties to a third-party buyer and then immediately leased back the theaters (i.e. sale leaseback transaction). AMC intends to use the cash proceeds to pay down debt, buy back shares, and make strategic investments to bolster its growth – all of which are positive for the stock price.
Top Weekly TSX Losers (Week of September 15, 2017)
Car Rental Companies
Hurricane Harvey and Irma boosted the car rental industry’s pricing power in the short-term but investors might have overreacted given the impressive run in the two car rental stocks since June 2017 (+135% for and +65% for CAR). Morgan Stanley Analyst downgraded HTZ on long-term structural headwinds such as low used car prices and competitions from ride-sharing services like Uber, and the elevated valuation.
A Sigh of Relief
There aren’t too many interesting individual top losers to analyze in the past week. Investors were breathing a collective sigh of relief as Hurricane Irma didn’t do as much damage as feared going into last weekend. The VIX dropped by 16.1% is a telling sign. Also, investors sold out of gold, the safe-haven assets during any turmoil. The junior gold miners that have significant leverage to the gold price traded down as well.