Lester Asset Management - 2nd quarter Letter of 2026 - July 27, 2026

Lester Asset Management - 2nd quarter Letter of 2026 - July 27, 2026

MACROECONOMIC OUTLOOK 

Despite all the noise, the overall macro environment remains relatively benign and supportive of financial markets. In the U.S., some economic slowdown is likely from the recent hot pace, reducing the risk of over heating and more rate hikes. “Pipeline inflation” from the Iran war-related rise in energy prices will abate when the war finally ends, although the timing in uncertain. General inflation will likely soften and Fed policy should shift to a more accommodative stance. Longer term, pre-COVID deflationary pressures will resume as unit labour cost increases are running close to zero, which will take headline inflation numbers down significantly. 

The U.S. equity market has started going through a rotational correction, partially removing some of the extreme overvaluation in the hottest sectors. The powerful productivity enhancing impact of AI should continue to support strong profit growth and lower inflation. Canada will see a continued modest economic pick-up from the “near recession” of late 2025/early 2026. Inflation should ease as energy cost increases pass through the system. Housing prices in the most expensive areas around Toronto and Vancouver have weakened significantly and may spread to other areas. Therefore, general inflation should soften enough to allow the Bank of Canada (BoC) to shift towards an easier policy helping interest rates to remain stable or go down, barring a sustained spike in energy prices due to an extended closure of the Straight of Hormuz. 

Midway through 2026, Canada's economy is showing signs of improvement after a weaker-than-expected start to the year. On July 15, the BoC held its policy rate at 2.25% for a sixth consecutive decision, noting that growth resumed in the second quarter at an estimated 2.5% annualized pace and that the sources of expansion are broadening. Following the first quarter in which GDP was essentially flat versus a year earlier, the BoC’s new Monetary Policy Report projects modest growth of 0.7% for 2026, probably too pessimistic, Growth should accelerate to 1.8% in both 2027 and 2028. Business investment is picking up, boosted in the near term by the resource sector, particularly the oil and gas industry, while government spending on defense and infrastructure continues to support demand. Labour markets remain soft, with unemployment at 6.5%, and housing affordability and trade uncertainty remain the principal domestic constraints. 

On trade, the July 1 CUSMA review deadline passed without an agreement to extend the pact. The agreement remains fully in force until 2036, and tariffs were unchanged until Trump threatened to increase them by 50%. CUSMA is now subject to annual reviews, institutionalizing the uncertainty that has weighed on trade-exposed investments. Roughly 90% of Canadian exports to the U.S. have remained duty-free under CUSMA, while noncompliant goods face a 10% tariff, and President Trump's musings that the U.S. would be "better off" without the agreement ensure that renegotiation risk remains a persistent overhang. Still, businesses are finding ways to navigate the uncertainty, and exporters continue to diversify to non-U.S. markets.  

The war with Iran remains the dominant wildcard. A fragile ceasefire had allowed oil prices to return to pre-war levels by early July, but renewed U.S. strikes, Iranian attacks on shipping in the Strait of Hormuz and Houthi threats on Red Sea navigation then sent Brent back up to mid 1990s levels. This is still below this spring’s level and recent highs of over US$100, but recently oil has sold off yet again, a volatile reminder of how quickly things can change. The inflationary consequences are visible: Canadian headline CPI rose to 3.2% in May, the fastest pace since late 2023, driven by a 35% surge in gasoline prices. Encouragingly, inflation excluding gasoline was just 2.2% and the BoC's core measures held near 2%, indicating that the energy shock has not yet broadened into generalized inflation. In fact, inflation and inflation expectations remain well anchored and are likely to decline in the future under deflationary pressure stemming from productivity effects of the massive AI build out and downward pressure on wage rates.  

The BoC has made clear it will look through the initial price shock but stands ready to act if inflation spreads beyond the gas pumps. A prolonged hold therefore remains the most likely path, with the next decision on September 2. The contrast with the U.S. is striking. Its economy is growing at about 2.5%, powered by strong consumption and booming AI investment, but inflation is running above 4%. Under new Chair Kevin Warsh, the Fed has held its funds rate at 3.5% to 3.75% while turning decidedly hawkish, raising its 2026 inflation forecast to 3.6% from 2.7%. Markets assign roughly one-in-four odds of a rate hike at the July 28-29 meeting, and futures point to policy rates approaching 4% by year-end, despite soft June payrolls of 57,000 jobs. Canadian policy rates thus sit well below U.S. rates. For the Canadian dollar, these crosscurrents largely offset. The Loonie touched a 15-month low of 1.425 per U.S. dollar in late June before rebounding to around 1.40, helped by strong domestic employment data and the BoC's steady hand. Oil strength provides some support, but U.S. rate differentials and bouts of risk aversion limit the upside. We expect the currency to remain range-bound between roughly 1.39 and 1.42 until there is greater clarity on trade and the war.  

Fiscal policy remains a counterweight to private-sector caution. Ottawa's deficits have become large but Canada's debt-to-GDP ratio remains among the lowest in the western world, leaving room for continued robust spending on defense, infrastructure and tariff support. In the U.S., large deficits, inflation fears and uncertainty over Fed policy and de-dollarization pressures continue to keep long-term Treasury yields elevated. The Canadian financial system remains resilient, with OSFI maintaining its focus on real estate lending, non-bank financial institutions, private credit, and liquidity risk as geopolitical shocks persist. Canada's outlook remains one of slow growth with high variance, but momentum is finally turning. Energy volatility creates inflation noise and trade frictions restrain investment, yet the 2nd quarter rebound suggests the economy is working its way through this period of global upheaval. As oil prices normalize, disinflation should resume, allowing the BoC to eventually ease further, while healthy corporate profits continue to support a resilient economy and capital markets. The Canadian equity market has risen sharply, correcting some of the extreme undervaluation of past years. However, opportunities exist in the broader market and in overlooked sectors that remain undervalued.

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Source

https://lesterasset.com/news/

The Small Investor and the Competition for Information

The Small Investor and the Competition for Information

We're looking for the prospect of an accelerating rate of positive change. That means we're naturally drawn to management changes, turnarounds, or, more generally, to situations in which changes in the macroeconomic, competitive or regulatory landscape require a company to remake what it does or how it does it. That strategy is particularly tailored to small caps. Simpler business models are easier to analyze and cross-check, while at the same time change happens faster in small companies, making for more investable inflection points. One or two people can also make a big difference, quickly.

Mariko Gordon, Daruma Capital Management

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In Chapter five of The Big Secret for the Small Investor, Joel Greenblatt framing small-cap stocks and special situations around a single central thesis: To beat Wall Street, the individual investor must "change the game" and play where big institutional money cannot go.

While Greenblatt devoted an entire classic book (You Can Be a Stock Market Genius) to corporate restructurings, in The Big Secret, he contextualizes both small caps and special situations as primary structural advantages for the small investor.

1. Small-Cap Stocks: The Institutional Blind Spot

Greenblatt emphasizes that large mutual funds, hedge funds, and pension funds manage tens or hundreds of billions of dollars. Because of their massive size and regulatory constraints, they face strict limits:

• The Liquidity Trap: A $10 billion fund cannot take a meaningful position in a $200 million small-cap company without moving the stock price or owning an uncomfortably large percentage of the business.

• Analyst Neglect: Because Wall Street brokerage firms make their money selling ideas to large institutions, analysts rarely cover small-cap and micro-cap stocks.

• Wilder Inefficiencies: Less analyst coverage and lower trading volume mean small-cap prices are far more susceptible to emotional swings, neglect, and mispricing. This creates wider margins of safety and much larger discount-to-value opportunities for individual investors.

• Systematic Edge: Applying value-based screens (like fundamental weighting or his Magic Formula framework) yields even higher relative outperformance in small-cap universes than in large-cap universes simply because the mispricings are so much more severe.

2. Special Situations: Profiting from Forced Selling

Greenblatt highlights special situations—such as spinoffs, liquidations, restructurings, bankruptcies, asset sales, and rights offerings—as another area where big institutions consistently hand bargains to small investors:

• Institutional Mandates & Forced Selling: When a large parent company spins off a small subsidiary, institutional managers frequently sell the spun-off shares immediately regardless of valuation. They do this because the spin-off is too small to affect their portfolio, falls outside their fund's mandate (e.g., non-dividend paying, different market cap sector), or is not included in their benchmark index.

• Price Distortions: This indiscriminate, mechanical dumping creates severe price declines that have nothing to do with the actual underlying business quality or economic prospects of the spun-off company.

• Focusing on "Obvious Bargains": Greenblatt advises small investors not to overcomplicate things. Instead of getting bogged down in intricate financial modeling for every deal, investors should cherry-pick special situations where the valuation mismatch is so obvious that it requires minimal effort to recognize a "50-cent dollar".

3. The Core Advantage of the Small Investor

Ultimately, Greenblatt links small caps and special situations back to the unique structural advantages of being an individual:

• No Career Risk: Wall Street managers worry about short-term quarterly tracking errors against their benchmark or getting fired by clients. Individual investors answer to no one and can afford to sit through temporary volatility.

• Position Size Freedom: Individual investors can move in and out of smaller, illiquid opportunities without moving market prices.

While Greenblatt concludes that most individual investors might be best served by automated, fundamentally-weighted index strategies, he makes it clear that for those willing to do individual stock research, small caps and special situations represent the fertile ground where an individual actually holds a permanent edge over Wall Street.

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Postscript

The bottom line here is that there is much less competition for information in the small and mid-cap universe. And even less information if you consider corporate restructuring in this sector of the market as well. This is the big advantage the do-it-yourself investor has at his disposal if he is willing to apply himself and do his own work. The media focus on the mega-caps which are all over-owned and over-analyzed. The competition for information in this area of the market is fierce. Don't go there.

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Source

Google Gemini

Stockwatch - Follow-up on Stella Jones Inc (SJ.TO)

Stockwatch - Follow-up on Stella Jones Inc (SJ.TO)

"Information must always be related to the degree to which it is known"

Justin Mamis

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Latest developments

Stella-Jones Inc. (TSX: SJ) reported its second quarter 2026 financial results.

Executive & Management Summary

CEO Eric Vachon highlighted continued volume strength in core utility products, counterbalanced by temporary cost pressures and non-recurring restructuring charges:

• The Good: Strong volume momentum in wood utility poles (up 7%) and solid contributions from the Brooks Manufacturing acquisition ($29 million added in Q2). Demand for steel lattice towers remains robust.

• The Drag: Margins were squeezed by elevated site-specific environmental control and maintenance costs, higher fuel prices, and operational downtime related to plant modernizations.

• Outlook & Margins: Management expects margins to improve in the second half of 2026 as operational costs moderate. While full-year 2026 adjusted EBITDA margin will likely fall slightly below 17.5%, management reaffirmed its target range of 17.5% to 18.5% over their three-year outlook period, supported by pricing cost-recovery mechanisms and network optimization.

Key Divisional Performance & Recent Developments

1. Railway Ties Network Optimization

• Stella-Jones recorded $32 million in impairment and restructuring charges during Q2 to optimize its railway tie production network.

• This move comes in response to ongoing soft demand and reduced capital spending from Class 1 railroads.

2. Steel Structures & Capacity Expansion

• Equipment changeovers took place in Q2 at the Candiac facility to double plant capacity by Q3 2026. While this created temporary operational friction during the quarter, the expansion remains on schedule.

• Development of the new greenfield U.S. lattice tower facility is progressing as planned to capitalize on long-term grid modernization infrastructure spending.

3. Segment Breakdown

• Utility Products ($510M | 49% of sales): Up 7.1% year-over-year. Organic utility pole growth remained solid (+1%), backed by multi-year utility customer commitments.

• Residential Lumber ($234M | 22% of sales): Down 4.9% from $246M in Q2 2025 due to lower underlying market pricing for lumber.

• Industrial Products ($45M | 4% of sales): Held steady year-over-year ($46M in Q2 2025).

• Logs & Lumber ($18M | 2% of sales): Down 30.8% due to reduced log trading volumes.

4. Financial Health & Liquidity

• Stella-Jones generated $192 million in cash flow from operations during the quarter.

• Total available liquidity stood at $759 million as of June 30, 2026, keeping net debt-to-adjusted EBITDA at a manageable 2.5x.

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Stella-Jones outlined its 2026–2028 Three-Year Strategic Plan and Financial Objectives at its Investor Day, establishing a rolling multi-year framework designed to capitalize on North American utility grid modernization and infrastructure replacement.

Core 3-Year Financial Objectives (2026–2028)

Metric	2026–2028 Objective Target	Historical Comparison (2023–2025)	Strategic Significance
Annual Revenue	~$4.0 Billion by 2028	~$3.5 Billion	Driven by utility demand and recent M&A.
Organic Sales Growth	4% – 5% CAGR	4.5% CAGR	Excludes future unannounced acquisitions.
Adjusted EBITDA Margin	17.5% – 18.5%	17.9%	Maintained through pricing cost-recovery mechanisms.
Earnings Per Share (EPS)	> 10% CAGR	New Metric	Replaced dollar-based return targets to align with equity growth.

Segment Growth Drivers & Operational Assumptions

1. Utility Poles (Wood): Expected to drive mid-single digit organic growth. Tailwinds include multi-year spending by electric utilities to replace aging wood infrastructure, increase grid resilience against extreme weather, and support rising electricity demand.

2. Steel Structures & Adjacent Products: Recent bolt-on acquisitions (such as Brooks Manufacturing) are projected to contribute ~$225 million in incremental sales by 2028. Capacity expansions at the Candiac steel plant and the new U.S. greenfield lattice tower plant support this pillar.

3. Railway Ties: Targeted for low-single digit organic growth. Focus is on maintaining high market share while optimizing the plant network to reduce structural costs.

4. Residential Lumber: Modeled to stabilize at $600M – $650M in annual sales, keeping the company’s revenue mix heavily weighted toward non-cyclical utility infrastructure (~80% of earnings profile).

Capital Allocation & Cash Generation Strategy

• Free Cash Flow Conversion: Management targets an EBITDA-to-free-cash-flow conversion rate of ~50%.

• Maintenance Capex: Reinvesting ~2.5% of annual sales ($85 million to $95 million per year) into maintenance and plant automation.

• Dividend Growth: Maintaining a consistent payout ratio target of 20% to 30% of prior-year reported EPS.

• Share Repurchases: Transitioned to an opportunistic buyback model, preserving balance sheet capacity for strategic M&A when attractive opportunities arise.

• Leverage Target: Target net debt-to-EBITDA ratio remains 2.0x to 2.5x, keeping an investment-grade rating while allowing temporary flexibility for strategic acquisitions.

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Senior Management

Éric Vachon, CPA, CA, is the President, Chief Executive Officer, and Director of Stella-Jones Inc. (TSX: SJ). He has led the company as CEO since October 2019, continuing a long career with the organization spanning nearly two decades.

Executive Background & Career Trajectory

• Credentials: Holds the Chartered Professional Accountant (CPA, CA) designation, bringing a heavy financial background to operational leadership.

• Joined Stella-Jones (2007): Started as Director, Treasury and Financial Reporting.

• Executive Roles: Advanced through key leadership positions within the company, including:

  • Vice President Finance, U.S. Operations

  • Vice President and Treasurer

  • Senior Vice President and Chief Financial Officer (CFO)

• Appointed CEO (2019): Named interim CEO in July 2019 following the departure of former CEO Brian McManus, and permanently appointed President, CEO, and Director in October 2019.

Strategic Focus & Leadership Style

Under Vachon's tenure, Stella-Jones has focused on expanding its footprint as a core North American utility and infrastructure supplier:

1. Focus on Infrastructure: Pivoted heavily toward high-demand infrastructure products (utility poles and electrical transmission steel structures) to reduce reliance on cyclical consumer lumber markets.

2. Disciplined M&A: Spearheaded strategic acquisitions to expand capacity, such as the acquisition of Brooks Manufacturing in the composite and wood cross-arm space.

3. Operational Optimization: Led long-term capital investments in facility modernization (e.g., Candiac facility expansion) and proactive network rationalization within the railway tie business.

4. Capital Allocation: Maintained a disciplined approach to balance sheet strength, aiming for consistent dividend growth while keeping net debt within target leverage ratios.

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Source

Google Gemini

Telus slashes dividend and reports Q2 loss as new CEO Victor Dodig takes the helm

Telus slashes dividend and reports Q2 loss as new CEO Victor Dodig takes the helm

Not a good month for two of my dividend stocks. First Bridgemarq Real Estate (Bre) announces a major re-org of the company which included slashing their dividend payout. Now Telus is doing the same thing...That's investing, sometimes you are going to take hits like this. The important thing to do is not to panic. Neither one of these companies represents a large holding for me. I am however taking a significant hit on my dividend income. I suspect both of these stocks are now trading at or near their lows. I'm going to continue to hold them and see if the management teams can turn things around.

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The Canadian Press, July 31, 2026 at 1:35PM EDT

Telus Corp. cut its dividend by more than half on Friday as it reported a loss in its latest quarter, signalling a new direction following a change in the company’s top job.

The telecom company reported a loss attributable to common shareholders of $1.8 billion or $1.17 per share for the quarter ended June 30. That compared with a profit of $7 million in the same quarter last year.

Also Friday, Telus slashed its quarterly dividend, a move it said is expected to generate around $2.7 billion in savings through 2028, which it will use to reduce its debt.

It will now pay shareholders a quarterly dividend of 18.75 cents per share, down around 55 per cent from its previous payout of 41.84 cents per share.

The move “sets our company up for transformation strength going forward,” said Telus’ new president and CEO Victor Dodig in an interview Friday, as he marked his first earnings report with the company.

Dodig, the former chief executive of CIBC, took the helm at Telus earlier this month. He succeeded longtime CEO Darren Entwistle, who had led the company for more than 25 years.

The dividend cut was steeper than some analysts forecast, with Desjardins’ Jerome Dubreuil saying Telus was “ripping off a much bigger Band-Aid than we had expected.” Dodig said the move was designed to avoid repeating it in the future.

“When you look at a serious decision like a dividend reset, you want to make sure you’re at the appropriate level and you want make sure you do it once and you’re done,” he said.

“It may have been slightly higher than some expectations. I think many of them, when they really look at it, they’ll say, ‘OK, we understand what you’re trying to do.’”

Telus also announced it would remove its discounted dividend reinvestment plan effective Oct. 1. The plan has allowed shareholders to use their dividends to buy Telus shares from the company at a discount to the market price.

It had previously said late last year it would begin phasing out the program in 2026, eventually removing the discount entirely by 2028.

Scotiabank analyst Maher Yaghi said the dividend cut “was necessary to restore financial flexibility,” as he called it a “weak quarter” for the company.

“The action is the right one, but the size of the guidance reduction shows it was not discretionary,” he said in a note.

“The debate now moves to execution: cost reduction, (capital expenditure) normalization, and monetization proceeds will determine whether the new framework will decisively turn around expectations.”

The telecommunications giant also updated its guidance for the year, saying it now expects consolidated service revenue to be flat to negative two per cent, compared with its previous forecast of two to four per cent growth.

Telus attributed the downgrade to pressures on fixed data, Telus Digital and slower-than-anticipated growth in Telus Health.

Capital expenditures for 2026 are now expected to be approximately $2.6 billion, up from $2.3 billion, reflecting inflation and supply chain dynamics, investment toward AI data centres, along with network infrastructure upgrades.

Dodig said the updated outlook reflects “an abbreviated detour” as the company undergoes a transformation under his watch — plans for which he said would be revealed later this year.

“We’re dealing with new realities in the world,” said Dodig.

“I think the more we can simplify around our core business in particular and harness those assets and invest in those assets, those are our crown jewels.”

He said Telus would have a “greater focus” as it looks to simplify the number of businesses in its portfolio, including through monetization.

“But we want do that in a very thoughtful way so that we realize their full value because all of the businesses that we have are good businesses. Whether we should have them for the long run or someone else should have, that’s the kind of stuff that we’re working on,” said Dodig.

“Doing more with less will deliver greater returns, and a greater focus on return on capital going forward is something that we’re going to be focused on.”

RBC analyst Drew McReynolds said although the dividend cut was “widely expected,” it will weigh on the company’s stock price. He said that move, along with the downward guidance revision, “points to unanticipated short-term pain, which we expect to pressure the shares today.”

Dodig confident in telecom assets

On an adjusted basis, Telus said it earned 16 cents per share in its latest quarter compared with an adjusted profit of 22 cents per share a year earlier. Operating revenue and other income totalled $4.92 billion in the quarter, down from $5.08 billion a year earlier.

Dodig noted Telus has performed “relatively well” in a telecom market lacking tailwinds. The sector has faced challenges in recent years, including declining prices and a lack of population growth leading to fewer new subscribers.

But the new chief executive said those are factors Telus can overcome.

“We won’t be obsessed with the economy because we don’t control the economy. We control our strategy,” Dodig said.

“As I kind of look at what lies ahead, I think the demand for what we do is going to continue to increase. As the economy digitizes and as data becomes more and more important ... I can’t think of a better business to be in than our own with the assets that we have.”

Telus’ total telecom subscriber connections for the quarter reached 17.9 million, up from 16.9 million in the second quarter of 2025. It added 17,000 net mobile phone subscribers in the quarter, a decrease of 38,000 year-over-year.

Its mobile phone churn rate — a measure of subscribers who cancelled their services — was 1.08 per cent in the second quarter, up from 1.06 per cent a year ago, due to “customer switching decisions in response to continuing marketing and promotional price competition.”

Mobile phone average revenue per user was $56.36 in the quarter, a decrease of 22 cents or 0.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in roaming revenues and the commoditization of telecom services in the public sector.

Telus reported it signed up 20,000 net internet customers, a decrease of 7,000 year-over-year.

There were 187,000 connected device net additions, an increase of 75,000, reflecting fewer deactivations in the transportation and connectivity industries.

This report by The Canadian Press was first published July 31, 2026.

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Source

https://www.bnnbloomberg.ca/business/2026/07/31/telus-reports-q2-loss-announces-dividend-to-shareholders/

Tim Regan’s Top Picks for July 29, 2026

Tim Regan’s Top Picks for July 29, 2026

BNNBloomberg.ca Staff...July 29, 2026 at 1:29PM EDT

Top Picks from Tim Regan, Managing Director, Kingwest & Company

Focus: North American Large Caps

MARKET OUTLOOK:

It is an uncomfortable time to follow the news, and a poor time to mistake the news for the market.

The Ukraine war grinds on and the Middle East is in flames. Oil pushed past US$110 earlier this year.

U.S. President Donald Trump tariff brinkmanship continues unabated. This is precisely the weather in which prices detach from what businesses are worth. Step back and the picture is steadier than the headlines suggest.

There has not been a real recession in either Canada or the U.S since 2008 to 2009. Covid’s brief, V-shaped slump was not a traditional cyclical downturn. It was met with unprecedented government support that produced the highest inflation in forty years, driving interest rates back toward what we regard as more normal levels.

Money is no longer nearly free. The broad U.S. equity market rally this year was driven by earnings, not speculation. In the first quarter, S&P 500 companies grew earnings per share by 18 per cent. Excluding the largest technology companies, the median company still grew earnings 14 per cent, well above long-term averages. We did not own the semiconductor stocks that led the market, which explains much of our relatively soft quarter in the U.S.

Canadian economic growth remains modest. Trade and tariff uncertainty are restraining hiring and limiting capital spending largely to maintenance. Even so, our Canadian holdings produced a strong second quarter, bringing our year-to-date return broadly into line with the index. We do not speculate in the stock market. We own businesses. When you own a business, you own its prospective yield: the cash it will earn in the years ahead. But the future is unknowable. It is an expectation shaped by confidence as much as by arithmetic. John Maynard Keynes called these shifting waves of optimism and pessimism “animal spirits.”

TOP PICKS:

Brookfield Corp (BN TSX)

There are three main reasons we bought Brookfield Corp rather than simply buying its listed affiliates.

The public affiliate assets approximate the stock price

• Brookfield Corp owns about 73 per cent of Brookfield Asset Management (BAM), a global alternative asset manager with $603 billion of fee-bearing assets. Fee-related earnings are roughly $3 billion across infrastructure, energy, private equity, real estate and credit. BAM is the crown jewel of the group.
• In addition, Brookfield owns 45 per cent of Brookfield Renewable Partners ($16B), 26 per cent of Brookfield Infrastructure Partners ($8B), and 43 per cent of Brookfield Business Partners ($1.5B).

The privately owned assets add more value

• Brookfield has historically invested its own balance sheet alongside client capital. This creates a powerful compounding engine because of its unquestioned strength as a capital allocator.
• Wealth Solutions. Insurance operations focused primarily on annuities. These are not insurance in the conventional sense. They insure retirement and make a spread. It has roughly $180 billion of insurance float invested.
• Real Estate spanning 88 million square feet across 113 properties in gateway cities The core real estate portfolio runs above 95 per cent occupancy, with leasing demand strong.

The leaders are exceptional and the team is deep

• Bruce Flatt has run Brookfield for over 20 years and is the star. Flatt’s own stake runs to more than 107 million shares, worth close to $7 billion. At 58 years old, Bruce continues to have a runway to compound value at Brookfield.
• Brookfield today is driven by a deep bench of executives and investment professionals, including leaders such as Connor Teskey, Nick Goodman, and the leadership teams across the various entities

Management puts intrinsic value at $92 a share today, rising to $190 by 2030. The stock trades near $64, about 0.7 times what it is worth. The gap between price and value should close as Wealth

Solutions scales, the infrastructure pipeline turns to cash, and real-estate earnings recover. Across most of the past decade BN has traded at roughly a 10 per cent to 30 per cent discount to NAV in “normal” periods, widening to 30 per cent to 60 per cent+ in stressed periods.

Management has laid out the path to $190 a share by 2030. The market is paying $64. We do not need everything to go right, only for the plan to be roughly correct.

ALLEGION PLC (ALLE NYSE)

Allegion owns the leading franchise in commercial door hardware. Schlage has made locks for more than a century, and its products are written into building codes and specified by architects. A modest earnings miss cut the share price 8 per cent in a day two quarters ago. Yet the business is steadily becoming an electronic access-control company. Electronics and software have grown from 21 per cent of revenue to 33 per cent in five years, creating a growing stream of upgrade demand from an installed base measured in decades. The market saw an earnings hiccup. We valued durable security infrastructure.

15x	20 per cent	50 per cent
PRICE TO CASH EARNINGS	RETURN ON CAPITAL	REVENUE FROM AFTERMARKET

We do not forecast stock prices. We own businesses where the economics do the work: essential products, recurring cash generation, disciplined management and multiple opportunities to reinvest at attractive returns.

Allegion has all four, which is why we have owned it since the day it became a public company.

Five years from now, the installed base will be larger. More doors will be electronic. Revenue per opening will be higher. Recurring software revenue will represent a greater share of the business, and switching costs will be stronger than they are today. Every upgrade strengthens the franchise.

If Allegion continues to reinvest roughly three-quarters of its earnings at around a 20 per cent return, continues the current dividend policy and holds its debt ratio steady, cash earnings should roughly double over the next five years.

Over that time, the business mix should continue shifting toward higher-value recurring revenue that deserves a higher valuation multiple. If the multiple merely returns to a more normal 20x cash earnings, the shares should more than double over that period.

Thomson Reuters (TRI TSX)

Bought recently at $127. It was down 55 per cent from its’ 52 week high. We paid an average price for an above average business. High-recurring, high-retention growth business with an AI tailwind and capital returns.

Investors are pricing the existing business too cheaply and assigning essentially zero value to its future growth. We think the AI fears that drove the selloff have it backwards.

The business: Thomson Reuters is a content-enabled technology company serving legal, tax, audit, accounting, compliance, and risk professionals. Three core segments, Legal Professionals, Corporates, and Tax, Audit & Accounting, together the “Big 3,” which make up roughly 82 per cent of revenue. These are sticky franchises with over 80 per cent recurring revenue, over 90 per cent customer retention based on multi-year contracts. The company generates US$2B of free cash flow on US$7.5B of revenue, supported by a fixed cost base which generates strong incremental margins.

Why we bought it: AI is a tailwind, not a threat. Around 22 per cent of recurring revenue already comes from AI-enhanced products, and TRI’s moat of proprietary content plus thousands of in-house attorneys and tax experts is something LLM startups cannot replicate. Represents a US$275m cash flow opportunity.

International is underpenetrated and growing fast. Organic growth is running at 16 per cent and management expects it to accelerate in 2026 across Latin America, Southeast Asia, Brazil, and Canada. US$200m cash flow opportunity.

Operating leverage. With staff at 60 per cent of costs and revenue recurring, the company is targeting roughly 100bps of margin expansion every year through 2028. US$185m cash flow opportunity.

Value: Cash earnings grow to US$2.7B in three years from US$2B in 2025, about 11.5 per cent annualized. With net leverage at just 0.6x EBITDA against a 2.5x target, TRI has roughly US$6B of capacity for buybacks and acquisitions through 2027 and has committed to returning at least 75 per cent of free cash flow to shareholders. Steady buybacks shrink the share count and lift cash earnings per share from US$4.30 to $6.40, a 14 per cent annual growth rate.

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Source

https://www.bnnbloomberg.ca/markets/2026/07/29/tim-regans-top-picks-for-july-29-2026/