Updates on Intact Financial, Open Text and Tourmaline Oil Corp

Updates on Intact Financial, Open Text and Tourmaline Oil Corp

Intact Financial (IFC TSX) 

With a 17 per cent market share, Intact Financial is the largest property and casualty insurer in Canada. Intact underwrites auto, home, commercial and specialty insurance policies and is best known for the efficiency of its operations and its consistent underwriting profitability which enables them to target a return on equity five per cent higher than its rivals and which currently stands at 18 per cent. 

As a consolidator of the fragmented insurance market, Intact has grown earnings at a 13 per cent compound rate over the last five years and their pending $12B transformational acquisition of RSA Insurance will add a further five per cent to their domestic market share while putting them immediately on the map in the U.K. Long term macroeconomic forces like climate change and rising property values advantage Intact through higher policy premiums on higher insured property values and over the medium term a “hardening” (i.e. premiums are rising steadily) property and casualty insurance market is providing a significant tailwind to their financial results.

Brian Madden, senior vice president and portfolio manager, at Goodreid Investment Counsel

BNN-Bloomberg Market Call, Spring of 2021

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Open Text (OTEX TSX) 

Open Text is a cloud and site-based enterprise information management software and solutions company. With an installed base of 100 million plus users across over 10,000 companies globally, nearly 90 per cent of the company’s revenues are recurring, which affords them good sales visibility and very limited customer concentration risk. Open Text generates 95 per cent of its revenues outside of Canada, primarily in the United States and Europe. 

The current management team continues to prioritize acquisitions, funded with their prolific free cash flow and since 2010 has deployed some $6.8B across numerous acquisitions. Over the last 20 years, Open Text has generated a compound annual return of 12.4 per cent, more than double what the TSX index has achieved and well ahead of the negative 20 year return of the aggregate TSX tech sector, proving decisively that “boring” tech can indeed be beautiful.

Brian Madden, senior vice president and portfolio manager, at Goodreid Investment Counsel

BNN-Bloomberg Market Call, Spring of 2021

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Tourmaline Oil Corp

Tourmaline is an oil and gas exploration and production company operating in the Alberta Deep Basin, Northeast B.C. Montney and the Peace River Triassic Oil Complex. TOU has a 1.9 per cent yield and a low 10 per cent payout of four quarter trailing cash flow.

Tourmaline’s free cash flow grew 747 per cent year-over-year to $408 million on a four-quarter trailing basis giving a free cash flow yield of 4.8 per cent. Recently reported sales per share grew 66 per cent while cash flow per share grew 103 per cent. Tourmaline’s earnings per share are forecast to grow 307 per cent to $3.21 in cy 2021 giving a cy 2021 price/earnings multiple of 9.0x. Analysts’ eps estimates for cy 2021 were revised UP by 51 per cent in the past 90 days. Tourmaline’s forecast ROE for cy 2021 is 10.6 per cent(C+). On May 6th, Joe Farrell quantitative technical analyst at iA Securities noted “The stock has reversed the primary downtrend in force since 2014

The breakout projects further technical upside back to the late 2016 high at $36.50” implying 27 per cent potential upside.

Robert McWhirter, President of Selective Asset Management

BNN-Bloomberg Market Call, Spring of 2021

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Tourmaline Oil Corp

We see a bullish backdrop for natural gas pricing fundamentals over 2021 and Tourmaline is the best way to play the gas-weighted producers. The company has one of the best balance sheets in the industry, a low-cost asset base and one of the strongest management teams, who have also have been aggressive buyers of their own stock. Strategic corporate acquisitions and dispositions have added value, including recent purchase of Modern Resources and Jupiter Resources, which provide an additional 76,000 barrels per day of current production. The transactions are immediately accretive on virtually all relevant metrics as the company ramps up production on the acquired lands and fully captures what could be some significant cash flow and free cash flow. The spinout of Topaz Resources has also crystallized value for that asset and becomes a source of funding for future acquisitions.

John Zechner, chairman and founder at J. Zechner Associates

BNN-Bloomberg Market Call, Dec 29 of 2020

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