Market Movers: November 2022

Chris White Nov 15, 2022
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The TSX index grew over 5% in October following a decline in September but was still down some 8% YTD. The S&P 500 index grew nearly 9% in the month but was off over 18% YTD.

Central banks continued their assault on inflation, but the 0.50% rate hike (versus 0.75% expected) by the BOC on October 26th was seen by some as a possible sign of easing. 3rd Quarter GDP in the US was up 2.6% on an annual basis suppressing the losses in the 2 previous quarters. At month end,  Canadian GNP grew by 4% (YOY), but inflation inched higher with headline CPI hitting 6.9%. Energy and Consumer Discretionary sectors have underpinned the TSX as consumers continue to spend and draw down their savings. The situation in China is not improving as the Covid lockdown policy continues and the Chinese economy slows. This has knock-on effects both for supply chains and for Canada’s export trade. As well, the war in Ukraine staggers on. Finally, the value of the Canadian dollar (in US dollar terms) was down some 2.5%. With this background, the top and bottom performers for the month ended November 7th are listed in the Table below. 


Summit Industrial REIT 

The number one performer was Summit Industrial Reit  (SMU) whose stock was up 32.48% for the month of October and down some 4% YTD. The stock dropped erratically some 27.4% from $23.5 at December 31st  to the beginning of October reflecting the decline in e-commerce experienced by the likes of Amazon and Shoppers.  SMU then bounced more than 25%  on November 5th following the announcement of a takeover offer of $23.50 per share in cash. The offer came from a combination of GIC (Singapore’s Sovereign Wealth Fund) for 90% and Dream Industrial Reit for 10%.

SMU owns, manages, and develops light industrial properties located in key major urban markets throughout Canada. Its portfolio encompasses distribution facilities, warehouses, cold storage, and light manufacturing, with a focus on larger, well-located, single-tenant properties with a focus on and around Toronto and Montreal. Its operating results for the quarter ended June 30, 2022, were excellent with rental income up 13.8% and FFO at $36.4 million up 39.4% over the comparable prior period. With 99.1% occupancy and over 2 million square feet under development, this is a solid performer in an attractive space. There is a meeting scheduled to approve the deal on December 16th.


Trisura Group 

The second-best performer was Trisura Group (TSU) which is a leading specialty insurance provider operating in the Surety, Risk Solutions, Corporate Insurance, and Fronting segments of the market. Its stock was up 31.16% on the month and down 5.28% YTD. It reached a high early in February and proceeded choppily to late September from which it climbed precipitously to close at $45.17. About half the increase occurred after the announcement of the results for the 3rd quarter ended September 30, 2022: Gross written premiums at $644.8 million were up 59.9% over the corresponding prior period led by an increase of 78.7% in the US; net income at $23.7 million was up 47.9% and book value per share at $11.47 was up 35.1%. During the period, TSU acquired Sovereign Insurance surety book which contributed $16 million in annual premiums. This insurance business is volatile and selling at 3.9 times book value seems high. However, management is optimistic and has shown itself to be competent.


Pason Systems Inc.

The third best  performer was Pason Systems Inc (PSI)  which is a leading global provider of specialized data management systems for oil and gas drilling around the world. It also provides products and services for the solar power and energy storage industry. Its stock was up 17.31% on the month and 36.83% YTD. The stock moves in tune with the oil and gas industry and was lifted some 7% with the announcement of the exceptional results for the 3rd quarter on November 2nd: revenues at $92.5 million were up 60% over the corresponding prior year, partly as revenue per industry day amounted to $871, up 14%.; Adjusted EBITDA at $46.2 million was up 107%; funds from operations at $36 million were up 80% and net income at $33.7 million was up 164%. The $0.08 dividend was up 60% and and was increased to $0.12 per share for December. Improving industry conditions, a stronger US dollar and operating leverage contributed to these results. This is a superb company in a market which is hard to predict.


Spin Master Corp

The third worst performer was Spin Master Corp (TOY). It is a global children’s entertainment company which creates, designs, manufactures, licenses and markets a diversified portfolio of toys, games and products, including digital games and apps. Its shares declined 22.85% in the month and 30.5% YTD.

The stock price jumped during the month in a modest range about the early $40’s, but dropped precipitously on Nov 2nd with the publication of the results for the 3rd Quarter ended September 30th: Revenue at $624 million was off 12.7% compared to the comparable prior year period; adjusted net income at $114.4 million was down 13.7%; adjusted EBITDA at $167. 6 million was off 22.9%. These results were due to lower gross income and high admin and selling expenses, despite a foreign exchange gain of $43.5 million. The balance sheet is strong with $675 million cash on hand and management believes that  Gross Product Sales for the full year 2022, in constant currency, will increase by low single digits.


Enthusiastic Gaming Holdings Inc. 

The second worst performer was Enthusiastic Gaming Holdings Inc (EGLX) whose stock was down 26.17% on the month and 78.76% YTD. This stock has had a wild ride this year: it was the best performer in May, the worst in August and 2nd worst in September. The stock price has declined throughout the year with a high in early February of $4.67 and a current low of $0.80. On November 4th EGLX received notice from Nasdaq that it was not in compliance with the 1$ minimum requirement for continued listing and has 180 days (to May 2, 2023) to get back in compliance.

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.. Central to its ability to create valuable advertising space (referred to as “Inventory”) is the ability to both develop content-rich digital media and foster the interaction and contributions of its users to its digital media properties. To this end, it maintains a network of full and part-time content developers.

The most recent results for the quarter ended June 30, 2022 were announced on August 15, 2022 and were not well received. While revenue was up 37.7%, the net loss was $16.9 million (32% worse than the comparable period in the prior year). It used $7.7 million in cash leaving $14.9 million on hand. EGLX bolstered its balance sheet at the end of September by selling $6.8 million of legacy assets and expanding its credit facility by $10 million to $20 million. Clearly, this is a company in a difficult spot. 


NFI Group Inc. 

The absolute worst performer was NFI Group Inc (NFI) whose stock was down 31.75% on the month and 56.71% YTD. This stock has bounced around from 3rd worst in April and best in June. NFI is primarily a bus manufacturer with an offering that includes zero-emission vehicles (ZMB), charging infrastructure installations, telematics, and full parts and service aftermarket support.

2nd Quarter results for the period ended June 30. 2022 were reported on August 3rd and they were terrible. Revenue at $398 million was down 31.7 % from the comparable year ago period; adjusted EBITDA was a loss of $21.3 million; net loss was $56.7 million, a deterioration of more than $59 million. These results were echoed on October 24th when preliminary results for the 3rd quarter were announced which projected an adjusted EBITDA loss of $15 to $18 million for the quarter and $40 to $60 million for the full year. These results were said to be impacted by unreliable suppliers for certain critical parts and components and heightened inflation. To mitigate further deterioration, NFI will be temporarily halting select new vehicle production lines for 2 weeks to focus on completion of vehicles in the process. It will also focus on previously announced successful cost reduction initiatives and will be discussing additional financing solutions with banking and government entities.

NFI has a strong position in the bus market particularly in zero emission vehicles. There is a backlog of 4,150 units and strong bidding activity and there was some $50 million of cash on hand at June 30, 2022. Management expects an improvement in 2023 and has reaffirmed its target to achieve $400 to $450 million of adjusted EBITDA in 2025. This outlook depends on its production strength and continued efficiency improvements, supply chain improvement, growing order book, and unprecedented government funding. 


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Take Care,

5i Research Team Signature

Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.



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