The TSX Composite Index was down more than 1% on the month ended April 6th, 2023, and more than 7% for the past year. The demise of Silicon Valley Bank in California on March 8th created a stir in the market. The Fed and others moved quickly to contain the spread and the crisis seems to have passed. US banks were off some 13% while Canadian banks were down less than half that. Bank lending will likely be constrained somewhat which will help central banks fight inflation and the BOC passed at its last meeting while the FED only raised by 25 basis points. Employment numbers in Canada particularly remained strong (although slowing); consumer spending likewise and inflation slowed to 5.2% in February. Overall, a surprisingly strong (but waning) economy in the first quarter. International news continues to be disquieting, particularly in Ukraine and China. Against this backdrop, the following table presents the best and worst Canadian stock performers in the month ending April 6th, 2023.
Enghouse Systems
The best performer was Enghouse Systems Ltd (ENGH) whose stock price was up 19.29% in the monthly period and 1.46% over one year. The stock has bounced around from a low in June 2022 of $32.77, when it was the third worst performer, to a high of $43.40 on February 27, 2023, followed by a steep drop on March 10, 2023, to $32.77 from whence it rose to close at $39.09. ENGH is a leading global telecommunications technology and IPTV SaaS platform solutions provider. It provides vertical enterprise software solutions focused on contact centers, video communications, healthcare, telecommunications networks, public safety, and the transit market.
Results for the first quarter ended January 31st, 2023, were announced on March 9th and appear to be the proximate cause of the sharp stock price decline the next day. Revenue at $106.4 million was down 4.2%; Net income at $17 million ($0.31 per share) was down 21.2% and Adjusted EBITDA at $32.3 million was down 16.3%. The decrease in net income is primarily a result of a reduction in software licenses (due in part to reduced covid induced demand) alongside lower gross margins from professional services relating to its large public transportation projects. Cash on hand was $250.7 million up 9.9% from the beginning of the period and there is no external debt. Quarterly dividends were increased by 18.9% to $0.22 per quarter, the 15th year in which they were increased by more than 10%. On February 9th ENGH announced the completion of the acquisition of QUMU in Minneapolis USA, with an equity value of some US$18 million, and of Navita in Sao Paulo Brazil with revenue of $7.5 million annually. Management remains focused on its long-term growth strategy, investing in products while ensuring profitability and maximizing operating cashflows.
Andlauer Healthcare Group
The second-best performer was Andlauer Healthcare Group Inc (AND) whose stock was up 13.27% for the period and 5.73% for the past year. The stock has moved jaggedly over the past year between a low of $40 and a high of $55; it reached a monthly period low of $45.32 on March 13, 2023 followed by a high of $52 at the period end.
AND is Canada’s only national third-party service provider focused exclusively on delivering customized, end-to-end logistics and specialized transportation solutions to healthcare manufacturers, wholesalers, distributors, and 3PL providers. It is a growing supply chain management company with a platform of customized third-party logistics (“3PL”) and specialized transportation solutions for the healthcare sector. It expanded into the US in fiscal 2021 and currently employs 2230 individuals. It is majority owned by Management, including founder Michael Andlauer, through multiple voting shares.
Full-year 2022 results were announced on March 3, 2023: Revenues at $648.4 million were up 47.3% over the comparable prior year period; net income at $76.3 million was up 46.7% (ignoring one-time gain on step acquisition in 2021) and EBITDA at $174.5 was up similarly. For the quarter that ended December 31, 2022, Revenues were up 24.6%; net income was up 30.3%; EBITDA at $44.7 million was up 24.9%. Cash on hand was $65.9 million and other than leases, no long-term debt. This is a company performing quite satisfactorily having expended more than $150 million in acquisitions (about 65% financed by share issuance) in 2021 and a further 26.7 million for LSU in 2022. Management is experienced and optimistic.
Constellation Software Inc
The third best performer was Constellation Software Inc, (CSU) whose stock price was up 12.86% on the monthly period and 5.7% for the past year. This is a company with a spectacular track record having grown more than 1600% over the last ten years. CSU acquires, manages, and builds vertical market software businesses to provide mission-critical software solutions that address the specific needs of customers in particular markets worldwide.
The full year and final quarter 2022 results reported in late March 2023 were strong and supportive of the stock price rise in the monthly period: Revenues were up 30% and 34% respectively; net income per share was up 65% and 23% respectively. Capital deployment in Q4 was solid at $277 million, bringing total capital deployed in 2022 to ~$1.9 billion. Cash on hand was $811 million and net debt to EBITDA was 0.7 times. Capital deployment is expected to continue accompanied by modest organic growth leading to further good performance.
Enthusiast Gaming Holdings
The third worst performer was Enthusiast Gaming Holdings Inc (EGLX) whose stock price was down 12.2% for the monthly period and down 76.55% over the past year. This performance is in line with its ups and downs over the past months: it ranked last in February 2023, December, and March 2022 while first in January 2023, and May and November 2022. Results for the year 2022 and the last quarter thereof did little to help bolster the stock. Revenues for the year at $202.8 million were up 21.1%, but for the last quarter were down 5.2%; the net loss for the year was $68.7 million 33% worse than the prior year; net loss for the quarter was $12.5 million, virtually the same as the prior year. At year-end 2022 cash amounted to $7.4 million and long-term debt of $17.4 million was shown as a current liability. There appear to be some covenants that are being met to keep the debt current.
EGLX is building the largest media platform for video game and esports fans to connect and engage with its approximately 300 million gaming enthusiasts worldwide. Its share price peaked on February 15, 2022, at $4.67, and has fallen gradually to $0.72 recently. At this price, It is in danger of losing its listing on the NASDAQ exchange. The new CEO, who joined on March 1, 2023, has his hands full.
Dye and Durham
The second worst performer was Dye and Durham Limited (DND) whose stock price was down 13.07% for the monthly period and 23.47% for the past year. The stock price has jumped about: it was a poor performer in July and August 2022, a top performer in September and December 2022, and has declined from a high of $22.51 on February 9th, 2023, to its current $16.43. DND is a leading provider of cloud-based legal software and payments technology solutions designed to improve efficiency and increase productivity for legal and business professionals.
Results for the 2nd quarter ended December 31, 2022, were not very encouraging: Revenues at $106.7 million were down 3% compared to o the prior year period and net loss grew over $30 million to ($34.8). million. Increased finance costs, amortization of intangibles, and acquisition, and restructuring costs contributed to this result. During that quarter DND purchased for cancellation 13.1 million shares at a total cost of $196.2 million, drawing down its substantial cash hoard to close at $34.8 million. A significant portion of its business is related to the real estate market which has suffered in recent times and DND is proud to note it has not suffered proportionately. Additionally, management reports it is on track to reducing its costs. Regulators in the UK have mandated that DND must divest TM Group (which it acquired on July 8th, 2021 for $155.4 million). This process is proceeding slowly. Clearly, there remains much work to be done to get this company on track.
Goeasy Ltd
The worst performer was Goeasy Ltd (GSY) whose stock was down 17.75% for the monthly period and 23.68% for the past year. The stock has bounced around over the past year attaining a high in August 2022 of $143.70 and it's current low of $93.58. GSY provides non-prime leasing and lending services through its easyhome, easyfinancial, and LendCare brands. With some 2,300 employees, GSY offers a wide variety of financial products and services to off-prime customers who can transact seamlessly through an omnichannel model at over 400 locations and point-of-sale financing offered in various verticals, through more than 6,500 merchants across Canada.
On February 15th, 2023, GSY posted record results for the 4th quarter and the full year 2022: Quarterly loan growth of $206 million up 54% over the prior comparative period; Loan portfolio of $2.79 billion, up 38%; Adjusted Quarterly Diluted eps of $3.05, up 11%; Annual dividend per share increased 5.5% to $3.84. A good quarter with stable credit and payment performance to close a good year. Management provided updated guidance predicting continuing growth with the potential to have a $5 billion Loan portfolio in 2025. In its budget on March 28th, the Canadian Government proposed to reduce the maximum permitted interest rate to 35%. If enacted, this would impact 36% of GSY’s loan portfolio and the weighted average interest rate on the total portfolio would reduce by approximately 270 basis points.
These are just some of the more than 60 Canadian companies we cover at 5i Research. To view their recent reports you can search for their tickers in the Reports section. If you are not a member and would like to gain access to these reports as well as the Q&A service where you can ask and search questions on these companies, you can fill in your information below to sign up for a free trial.
Take Care,
Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.
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