Stock ideas - Freehold Royalties Ltd. Update

Freehold Royalties Ltd. Update

Sym: FRU on the TSX at $14.14 (Can)

Q1/24 AS EXPECTED. GUIDANCE UNCHANGED. BOARD REFRESHED 

Aaron Bilkoski^ Dustin Besaw, CFA^ THE TD COWEN INSIGHT

May 7, 2024 

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Q1/24 was largely as expected, and the company remains on track to meet 2024 guidance. We continue to be attracted to the diversified nature of Freehold's royalty assets. Its valuation remains below the royalty peers, despite our view that its growth should be comparable. 

Event: Reports Q1 Results 

Impact: NEUTRAL Q1/24 as Expected by TD; CFPS Modestly Shy of Consensus: Freehold reported royalty production of 14.7 mBOE/d, in line with both TD (14.9 mBOE/d) and consensus (15.0 mBOE/d). Volumes were largely unchanged q/q as recently acquired production (previously announced), which contributed ~0.4 mBOE/d to Q1/24, helped offset cold-weather-related outages in January. Volumes ramped up later in Q1/24, reaching over 15 mBOE/d. CFPS of $0.36 was exactly in line with TD ($0.36), although it was slightly shy of consensus of $0.37. 

Canadian Activity Better Than We Had Expected, Given Cold Weather: There were 5.9 net new Canadian wells drilled in Q1/24 and 0.5 net new U.S. wells drilled. Relative to last quarter, this represents a material uptick (55%) in Canadian activity. Activity on the U.S. assets contracted 29% q/q and 38% y/y. 

New Leases Signed: 20 new leases were signed in Q1/24, with 12 individual operators. It appears that the vast majority of this activity is being done with private or junior counterparties. 

Our View: We are encouraged by the strength in the Canadian activity, which we had anticipated would have ebbed, given the challenging operating environment. This is further helped by the new leasing activity, with an array of operators, with the majority of those being private or juniors companies. The implication of this is that they are earlier-stage and are more likely to grow than larger producers. Although the U.S. well count contracted, it is off a small base (<1 net well). We have come to expect lumpy U.S. drilling, which results in production additions later in the year. 

Peter Harrison Retires from the Board; New Members Added: Founding Board member, Peter Harrison (CNID), will not stand for re-election. In his place will be Mathieu Roy (CNID). Sylvia Barnes will also not stand for re-election, and her spot will be filled by Kim Lynch Proctor - a prominent Calgary director with a law/finance background. 

Dividend Remains Well-covered by FCF; Financial Leverage Continues to Trend Towards Nil: The current yield of 8% remains well-funded. Under strip pricing, we estimate an all-in payout ratio of 64%/58% in 2024/2025E and financial leverage to be nil by YE-2025

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Our Investment Thesis 

Freehold offers cross-border diversification, stable volume growth, an ~8% dividend yield, and is tracking to be debt-free by early 2026. Despite the positive attributes of the royalty model, Freehold is trading at an attractive FCF yield of 12%, which is in line with the average FCF yield of our Canadian E&P universe. 

Forthcoming Catalysts 

Interest rate cuts directionally positive for royalty producers; potential consolidation of fragmented royalty interests through accretive acquisitions; increased growth in oil plays (such as the Permian and Clearwater). 

Base Case Assumptions 

US$75/bbl WTI for 2024E (US$65/bbl long term), US$2.50/mcf HH for 2024E (US $3.50/mcf long term); In-line production; Status quo regulatory and/or fiscal framework 

Upside Scenario 

US$90/bbl WTI, US$4.00/mcf HH represents a 34% increase in our 2025E CFPS and a more attractive FCF yield of 17%; Potentially higher-than-forecast production; Positive changes to regulatory and/or fiscal framework. 

Downside Scenario 

US$40/bbl WTI, US$2.00/mcf HH represents a 56% decrease in our 2025E CFPS and a less-attractive FCF yield of 7%; Potentially lower-than-forecast production; Negative changes in regulatory and/or fiscal framework Price Performance Aug-23 Nov-23 Feb-24 May-24 C$16 15.5 15 14.5 14 13.5 13 12.5 12 Source: Bloomberg 

Company Description 

Freehold Royalties Ltd. is a publicly traded oil-weighted royalty company. It derives its revenue from third-party drilling on lands it holds a royalty interest across Canada and the U.S. Given that capital costs and production expenses are generally shouldered by thirdparties, the business generates high margins and significant FCF.

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Source

TD COWEN EQUITY RESEARCH,

A division of TD Securities

Brookfield buys stake in private debt firm Castlelake's fees

Brookfield buys stake in private debt firm Castlelake's fees

Michael J. Moore, Bloomberg News

May 6, 2024

Brookfield Asset Management struck a partnership with Castlelake LP to get a majority share of the private debt firm’s fee-related earnings, another move in the Canadian investing giant’s effort to grow its credit business. 

Brookfield Asset will invest about US$1.5 billion, including money that the firm’s reinsurance arm will place in Castlelake’s strategies, the firms said in a statement Monday. Castlelake will still operate independently and retains majority ownership of its earnings tied to performance. 

Toronto-based Brookfield Asset recently formed a credit arm to drive growth alongside its traditional real estate and infrastructure funds. It’s looking to manage more credit assets for insurers, including its own, and has turned to partnerships in many instances. 

The Castlelake deal “helps to deploy some of its significant cash ($2.7 billion) on its balance sheet and we think there could be an opportunity to take a greater stake in Castlelake over time,” RBC Capital Markets analyst Geoffrey Kwan said in a research note. 

Brookfield shares were up 1.2 per cent in New York in early afternoon trading. 

The company also has partnerships with Oaktree Capital Management — in which it acquired a majority stake in 2019 — as well as European credit manager LCM Partners, Primary Wave and 17Capital. 

Alternative-asset managers have been pushing into areas beyond traditional buyouts as rising interest rates have made borrowing more expensive. That’s led to a boom in private credit, which jumped in to fill a lending void as traditional banks retrenched. Private equity firms have also been buying stakes in insurers to influence how they invest and grow their balance sheets.

Brookfield Asset expects credit to be its fastest growing business, more than tripling in size over the next five years. The firm is partly relying on credit — including its insurance business — to reach $1 trillion of fee-bearing assets by 2028, up from $457 billion at the end of last year.

Its credit arm also runs investment strategies including so-called insurance solutions, such as investment-grade debt, structured finance and asset-backed financing. But private credit and direct lending remain the biggest part of the business, accounting for 80 per cent of fee revenue last year.

The Castlelake deal is another example of how alternative asset managers are slicing up their different drivers of profit, with fee-related earnings seen as more stable and tied to attracting assets, while performance windfalls — or so-called carry — are potentially lucrative but less predictable. Several large firms have tweaked their pay structures in recent months to give shareholders a larger slice of fee-related earnings and employees a bigger chunk of performance gains.

Castlelake, founded in 2005 by Rory O’Neill and Evan Carruthers, manages about $22 billion, focused on asset-based private credit including aviation and specialty finance. 

The deal is expected to close in the third quarter.

What Bloomberg Intelligence Says 

Brookfield Asset Management’s $1.5 billion deal to acquire 51 per cent of asset-based private-credit manager Castlelake’s fee-related earnings may translate into about $110 million of recurring management fees, or 3 per cent of 2023’s total, we calculate, using a 1 per cent management-fee rate. The deal helps accelerate growth in its credit business, which it pegs as the biggest contributor to its midterm 17 per cent annual FRE growth target.

— Bloomberg Intelligence analysts Ethan Kaye and Paul Gulberg

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Source

https://www.bnnbloomberg.ca/brookfield-buys-stake-in-private-debt-firm-castlelake-s-fees-1.2069374

Descartes Acquires ASD

Descartes Acquires ASD

GlobeNewswireApr 22, 2024 7:00 AM EDT

Descartes Acquires ASD

Strengthens Descartes’ Customs and Regulatory Compliance Footprint

WATERLOO, Ontario and ATLANTA, April 22, 2024 (GLOBE NEWSWIRE) -- Descartes Systems Group (TSX:DSG) (Nasdaq:DSGX), the global leader in uniting logistics-intensive businesses in commerce, announced that it has acquired Aerospace Software Developments (“ASD”), a leading provider of customs and regulatory compliance solutions.

Based in Ireland, ASD provides customs declaration software solutions for logistics services providers (“LSPs”) and shippers, as well as RFID solutions that help the air logistics community track assets. The company’s customs filing solutions, operating under the brand Thyme-IT, help importers, exporters, and LSPs comply with Irish regulatory requirements for imports and exports in a secure and efficient manner. In addition, ASD’s RFID solutions help global airlines and ground handlers eliminate manual tasks and comply with various airline regulations more efficiently through the unique identification, tagging, and tracking of assets.

“Descartes’ Global Logistics Network (“GLN”) was built to help shippers, carriers, and LSPs connect and collaborate to manage the complete lifecycle of shipments,” said Ken Wood, EVP Product Management at Descartes. “This combination with ASD is highly complementary to our current product footprint. ASD adds deep Irish customs domain expertise and a modern multi-country customs technology platform. We also see great synergies for the airline community by combining ASD’s RFID-based solutions with Descartes’ CORE BLE real-time tracking platform.”

“As customers increasingly look to cover more business processes with one provider, we continue to add solutions to the GLN for them to do so,” Edward J. Ryan, Descartes’ CEO. “ASD shares a common vision to serve the wider global logistics community of shippers, carriers and LSPs. We’re excited to welcome the ASD employees, customers and partners into the Descartes family.”

ASD is headquartered in Dublin, Ireland. Descartes arranged to acquire ASD for approximately €57 million ($US 61 million), with €54 million paid at closing from cash on hand and the final arrangements for the transaction expected to occur in Descartes’ fiscal 2025 fourth quarter.

About Descartes Systems Group
Descartes is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, security, and sustainability of logistics-intensive businesses. Customers use our modular, software-as-a-service solutions to route, track and help improve the safety, performance and compliance of delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world's largest, collaborative multimodal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world. Learn more at www.descartes.com , and connect with us on LinkedIn and X (Twitter) .

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Source

https://money.tmx.com/quote/DSG/news/5430043463788240/Descartes_Acquires_ASD

Stock ideas - Mda Ltd (MDA - TSX)

 Stock Ideas

This is not a  stock recommendation, it is an idea. Used chiefly for myself to keep track of information for future reference. An investor must always evaluate the price of the underlying asset before buying. The key question to ask is!...What is the intrinsic value of the business?

Mda Ltd (MDA - TSX)

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Profile

MDA Ltd is a developer and manufacturer of technology and services to the burgeoning space industry. It is an international space mission partner and robotics, satellite systems, and geo-intelligence pioneer. Geographically it serves the United States, Europe, Asia, the Middle East, and Others whilst generating key revenue from domestic sales in Canada.

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Comments from Stockchase

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Investor Insights

This summary was created by AI, based on 3 opinions in the last 12 months.

MDA Ltd. is positioned as a global leader in the space economy with a strong backlog, impressive revenue and EBITDA growth projections, and recent addition to TSX Composite. The company has displayed solid momentum, strong cash flows, and has secured major contracts, leading to positive earnings and revenue visibility. Experts believe MDA is well positioned for continued growth and expansion in the satellite components market.

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Very strong company that is a leader within the space satellite sector. Capex investments are starting to payoff as cash flow begins to rise. Expecting company to win large government contracts. Runway for space exploration limitless. Excellent pick for long term investors. 

James Telfser, April 15, 2024

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Global leader in the field. There's a new "space" economy, and MDA is well positioned to capture a good share. $3B  backlog. Clear visibility for 20% revenue and EBITDA growth per year for the next few years. Recently added to TSX Composite, underfollowed stock. 9x EBITDA, really cheap considering massive growth potential. No dividend.

Stephen Takacsy, March 28, 2024

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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

Forecasts call for sales growth of 23.5% and EPS growth of 21.1% in 2024. MDA has displayed nice momentum following a solid Q3 and has a large backlog of business. Additionally, MDA has started to see cash flows begin to increase. MDA is up 59% in the last year and a  valuation of 17.9x forward earnings is decent considering the strong momentum in the last year and forecasted outlook. We are comfortable adding to MDA at the current levels. 

January 17, 2024

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Last week, the Telesat deal surprised everyone. Nobody saw it coming. MDA developed a technology that really dropped the costs, so they were able to raise the financing. That deal was a feather in the cap, but MDA's demand will grow anyway. He likes the story and is hanging on, not selling any shares.

John Zechner, August 22, 2024

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Source

https://stockchase.com/company/view/6739/MDA-T

Stock Ideas - Mainstreet Eq J (MEQ - TSX)

Stock Ideas

This is not a  stock recommendation, it is an idea. Used chiefly for myself to keep track of information for future reference. An investor must always evaluate the price of the underlying asset before buying. The key question to ask is!...What is the intrinsic value of the business?

Mainstreet Eq J (MEQ - TSX)

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Profile

Mainstreet Equity Corp is a residential real estate company. It is focused on the acquisition, redevelopment, repositioning, and management of mid-market rental apartment buildings. The business specializes in multi-family residential housing operating in a single segment. Geographically it operates in Canadian provinces including British Columbia, Alberta, Saskatchewan and Manitoba. The company generates revenue from rental income and others.

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Comments from Stockchase

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Investor Insights

This summary was created by AI, based on 14 opinions in the last 12 months.

Mainstreet Equity Corp (MEQ-T) is a real estate corporation focused on managing small and mid-size apartment buildings in Western Canada. The company has experienced substantial growth in its number of apartments, units rented, and rental rates. It is led by an excellent CEO who owns half the business. The stock is well-regarded for its disciplined approach to portfolio growth and increasing net asset value. Analysts are optimistic about its potential for long-term compounding and consistent revenue growth. MEQ is considered a well-run, under-followed stock with strong potential for the future.

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It is under-followed since it hasn't raised money in over 20 years. It buys and manages small and mid-size apartment buildings in Western Canada. Its number of apartments has grown substantially and continues to grow. It has a record high number of units rented as well as record high rents. The CEO is excellent and owns half the business.

Jordan Zinberg, April 8, 2024

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Really likes it, though illiquid. Adept at growing portfolio base and NAV, despite not having to issue any equity, the holy grail of real estate. Really likes Canadian western apartment markets, especially where no rent control. Rents go higher, and so NAV goes higher.

Andrew Moffs, March 27, 2024

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Thinks highly of CEO. Great example of building a great business by investing in accretive acquisitions instead of paying out a distribution. Discount to NAV. Migration into Alberta is a great story. No dividend.

Andrew Moffs, November 30, 2023

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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

MEQ operates as a real estate corporation focusing on managing residential rental apartments and is now trading at 27.6x times' Forward P/E, but only at 1.0x Book value. In the last five years, MEQ’s revenue growth has been quite consistent, around 12% on average. Like other real estate companies, the balance sheet is leveraged, with net debt of $1.5B. The net debt/EBITDA is currently around 14.5x. MEQ reinvested heavily into acquiring new properties. As a result, the company has had no dividend payments and limited shares repurchase over the last few years.

We think MEQ has the potential to be a compounder, trading at 1.0x Book value is also an attractive valuation, but the leverage levels need to be monitored carefully, as the debt is quite high. We would be comfortable with this name for a three-year+ timeframe given its cheap valuation and consistent revenue growth.

July 5, 2023

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Source

https://stockchase.com/company/view/2703/MEQ-T

Stock Ideas - Terravest Capital Inc (TVK - TSX)

Stock Ideas

This is not a  stock recommendation, it is an idea. Used chiefly for myself to keep track of information for future reference. An investor must always evaluate the price of the underlying asset before buying. The key question to ask is!...What is the intrinsic value of the business?

Terravest Capital Inc (TVK - TSX)

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Profile

TerraVest Industries Inc is a manufacturer of home heating products, propane, anhydrous ammonia, natural gas liquids transport vehicles, storage vessels, energy processing equipment, and fiberglass storage tanks. The company's operating segments include, : Home Heating and Cooling Products (HVAC Equipment), Compressed Gas Storage and Distribution Equipment (Compressed Gas Equipment), Energy Processing Equipment (Processing Equipment) and Service. Majority of the revenue for the company is generated from its Compressed Gas Equipment segment which manufactures engineered products for the storage, distribution and dispensing of compressed gases including liquid propane gas, natural gas liquids, carbon dioxide and other gases. The company operates in Canada and United States.

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Comments from Stockchase

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Investor Insights

This summary was created by AI, based on 3 opinions in the last 12 months.

TerraVest Capital Inc (TVK-T) is a $1 billion market cap company with no analyst coverage. The company provides storage tanks for the energy fields and is known for its strong acquisition strategies and capital stewardship. The company has demonstrated consistent growth in ROC and EBITDA, with a reasonable valuation and strong balance sheet. Despite the deceleration in growth, experts are comfortable with the outlook and see potential for continued execution going forward.

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He could have made it a top pick. It is about $1 billion in market cap and has no analyst coverage. It provides storage tanks for the energy fields. It is active in acquisitions and they are very good stewards of capital. The ROC is over 20% every year. The P/E is now about 15.

Jordan Zinberg, April 8, 2024

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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

The strength is a bit surprising considering financial terms were not disclosed on the acquisition. TVK is trading at 10.4x EV/EBITDA, the higher end of multiple averages in the last few years ranging from 6.3x to 10.4x, that said, fundamentally, it is not too expensive given the track record of capital allocation, and we are okay to buy some here (perhaps a quarter position) and average into the position over time. We would add more aggressively to the position if it drops below $60. Momentum is very strong but it is not likely to be a straight up move and some consolidation is to be expected. 

April 3, 2024

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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

TVK’s growth was driven mainly through its acquisition strategy and it is now trading at 8.3x times' EV/EBITDA. In the 3Q, TVK’s revenue grew 4% to $150.4M, compared to last year of $145M and cash available for distribution also grew slightly by 9% to $13.2M compared to last year of $ 12.2 M. Growth was slower compared to previous quarters of more than 20%, but  the deceleration in growth was expected after two booming years of explosive demand for oil and gas processing equipment and services. Overall, an okay quarter. It has no analysts and thus no estimates, but we are comfortable with the outlook. 

The balance sheet is strong, with net debt of $250M and net debt/EBITDA is around 2.3x. TVK generated healthy cash flow which was mostly reinvested back into the business through acquisitions (TVK pays dividends but the payout ratio was only 17%). We like TVK, the company is trading at a reasonable valuation with a track record of growing EBITDA consistently while opportunistically buying back shares too, we expect TVK continues to demonstrate execution going forward, would be comfortable to average into the position over time.

August 14, 2023

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Source

https://stockchase.com/company/view/1993/TVK-T

Jordan Zinberg's Top Picks: April 8, 2024

Jordan Zinberg's Top Picks: April 8, 2024

Jordan Zinberg, president and CEO of Bedford Park Capital

FOCUS: Canadian small and mid-cap stocks

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MARKET OUTLOOK:

The recent strength in equity markets has created wide valuation disparities, resulting in an excellent environment for active managers. Our portfolio companies reported very strong results in the final quarter of 2023 and we expect the strength in operating results to continue when the first-quarter earnings season begins in late April.   

The tone of the market has changed significantly so far in 2024 as compared to 2023 and new leadership is emerging, which is a healthy market dynamic. During the first quarter of 2024, the S&P/TSX Small Cap Index outperformed the S&P/TSX Composite, driven primarily by strength in the energy and materials sectors.  

Smaller companies continue to trade at a substantial discount compared with their larger peers, highlighting a segment of the market that offers investors a rich opportunity set.  Notably, we are seeing a significant increase in volume recently among the small and mid-cap stocks that we follow.

Jordan Zinberg's Top Picks

Jordan Zinberg, president and CEO of Bedford Park Capital, discusses his top picks: Goeasy, Enterprise Group, and Topicus.com.

Goeasy (GSY TSX)

Goeasy is a Canadian specialty lender that continues to demonstrate substantial organic growth in their loan book and expansion of their product offering. The company recently reported very strong fourth quarter results, increased their three-year targets, and announced that their will be introducing a credit card product later this year. Based on our estimates, the current valuation represents eight times 2025 earnings, which is very attractive for a company that consistently produces a return on equity in excess of 20 per cent.

Enterprise Group (E TSX)

Based in Alberta, Enterprise Group provides equipment and services to some of Canada’s largest energy companies. Profit margins are expanding rapidly, driven by Enterprise’s power division, which helps customers power their sites with natural gas instead of diesel, thereby reducing both emissions and costs substantially. High insider ownership, underfollowed, juicy margins, and trades on just over three times 2025 earnings, based on our estimates.

Topicus.com (TOI CVE)

Topicus is a vertical market software vendor that was spun out of Constellation Software in 2021. Following the Constellation Software playbook, Topicus looks to acquire mission-critical, high margin businesses in Europe across several different industries. Consistent with Constellation, Topicus offers investors strong revenue growth, attractive margins, and very high returns on capital. 

Jordan Zinberg's Past Picks

Mainstreet Equity (MEQ, TSX)

Under-followed and not well known. 1.7 Billion market cap, but haven't raised money in over 20 years, very little analyst coverage. Acquire and manage small and mid size apartment buildings in western Canada. Been doing this for over 20 years. recent results were quite good. Record low vacancies with high rents. CEO owns half the business. Big institutions don't come in and buy buildings in western Canada so they can come in and buy up properties cheap. Using cheap financing from CMHC. Low cost of capital with good execution of business model. 

Lumine Group (LMN, CVE)

Spun-out from Constellation Software.  Focus on specific sectors (media and telecommunications). Does larger deals than Constellation, specialize on corporate carve-outs (buying divisions of companies that are no longer wanted by the parent). Buying up small vertical software businesses. 

Source Energy services (SHLE, TSX)

One of the largest providers of frack sand in western Canada so their customers are all the big E and P's. they mine the sand in Wisconsin and ship it up by rail to western Canada. Priority in paying down debt, are about to announce a joint venture nest month. Could make 4 dollars a share next year (price is currently at 12 dollars), Going at 3 times forward earnings. Lots of catalysts in the fire.

Other Comments

Terravest Industries (TVK, TSX)

Under-the radar billion dollar market cap, Don't talk to the street very much (The Outsider's). Specialize in storage tanks for energy fuels, it's a pretty much diversified business. Very good stewards of capital, 20 percent grower. 

Propel Holdings (PRL, TSX)

He likes and knows it really well. Management is doing an excellent job. It has doubled its profits every year for the last 3 years. It is hard to keep up this pace but it should be able to continue to have healthy growth and profits. Has a high ROC, good dividend, single digit multiples. Management and insiders own lots

Payfare (Pay, TSX)

It is one of his favourites with a fantastic business model, a very good core business and ROC, and trading at 8 or 9 times earnings. It is good for Uber drivers and others in the gig market since they can access their money quickly. The gig market is growing at 30% per year. It is not well known but there are lots of catalysts coming. It may move outside the gig space. For example it may start to provide fast access to capital in the fast food industry meaning that workers can access their money right after a shift. It is a capital light business.

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Source

https://www.bnnbloomberg.ca/jordan-zinberg-s-top-picks-april-8-2024-1.2056456

https://stockchase.com/expert/view/1469/Jordan-Zinberg