On the eve of the U.S. Presidential election, buyers appear prepared to step into the market ahead of the election results, with futures pointing to a higher open.
In terms of earnings releases, nine companies in the S&P/TSX composite index are scheduled to report third-quarter financial results today – Air Canada, Asanko Gold, Canadian Apartment Properties REIT, Centerra Gold, Emera, Franco-Nevada, Gran Tierra Energy, IAMGOLD, and Toromont Industries.
Let's briefly recap what happened on Friday. The S&P/TSX composite index fell 74 points, or 0.51 per cent to close at 14,509. There were 75 securities in the TSX Index that advanced, 163 securities declined in value, and nine stocks closed the day unchanged. Only two of the 11 sectors in the TSX Index closed in positive territory led by strength in the utilities and real estate sectors.
The S&P/TSX composite index is down 1.88 per cent month to date, down 1.47 per cent quarter to date, and up 11.52 per cent year to date.
On today's TSX Breakouts report, there are just 6 stocks on the positive breakouts list (stocks with positive price momentum), and 69 securities on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that appears on the negative breakouts list. The security is scheduled to report its quarterly results this week, before the market opens on Wednesday. According to Bloomberg, for the past 10 quarters, the unit price has advanced during the trading session immediately after it reported its quarterly results. However, this quarter may be a challenging one for the company. This security is one to watch. If we see an earnings disappointment, this may result in further price weakness, representing a potential buying opportunity. The security I am referring to is Boyd Group Income Fund (BYD.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Winnipeg-based Boyd Group operates a network of non-franchised collision repair centers across North America, mostly in the U.S., under banners such as Boyd Autobody & Glass, and Gerber Collision & Glass. The company is also operates auto glass shops across 31 U.S. states under banners such as Glass America, Auto Glass Service, and Auto Glass Authority. Over 90 per cent of Boyd's revenue stems from the U.S., with the balance from Canada. Revenue, over 90 per cent, are generated largely through insurance carriers such as State Farm Insurance, Allstate, and Geico. The top five insurance customers account for 49 per cent of Boyd's revenue with the largest customer representing 15 per cent of revenue.
Management has targeted doubling the size of its business by the year 2020. The company operates in a highly fragmented industry, allowing Boyd to grow through acquisitions. The company has added 38 collision repair locations so far this year. The company's net debt to EBITDA ratio is low, at 0.7 times at the end of the second quarter, providing Boyd with the financial flexibility to continue to make acquisitions.
Before the market opened on Aug. 12, the company reported better-than-expected second quarter financial results. The company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $30.5-million, up 20 per cent year-over-year, and surpassing the consensus estimate of $29.7-million. Adjusted earnings per unit came in at 76 cents, well above the Street's forecast of 68 cents. The unit price rallied 4.7 per cent that trading day.
Boyd is scheduled to report its third-quarter results on Wednesday. The Street is forecasting EBITDA of $31.3-million, and earnings per unit of 75 cents. The third-quarter could be a challenging one, which may result in price weakness, breaking the company's string of positive moves after it reported. Financial results in the third quarter of 2015 were very strong, with same-store sales up 7.3 per cent, making year-over-year growth more challenging. Furthermore, on the second quarter conference call, management cautioned investors on lost production due to labour shortages, stating, "As we look forward to Q3 (the third quarter), while overall demand for our services thus far in the quarter appears similar to Q2, we have been challenged by some loss of repair production associated with higher levels of technician vacation in the summer months. This vacation related production loss, has been more impactful this year, as the generally favourable collision conditions of the last few years have made it increasingly difficult for us to easily hire additional technicians to meet our growing sales and demand for our services."
Boyd pays its unitholders a monthly distribution of 4.2 cents per trust unit, or 50.4 cents on a yearly basis. This equates to an annualized yield of 0.6 per cent. Management has increased its distribution 15 times over the past eight years.
The payout ratio is conservative, suggesting the distribution is sustainable. The payout ratio was 12 per cent in the first half of 2016.
According to Bloomberg, the units are trading at an enterprise value-to-EBITDA multiple of 10.6 times the 2017 consensus estimate, above its three-year historical average multiple of 9.8 times. Over the past three years, the units have traded at a multiple ranging from a low of approximately 8 times to a high of roughly 11.5 times.
This small-cap company, with a market capitalization of $1.45-billion, is well-covered by the Street. Since the beginning of August, 12 analysts have issued research reports, of which 10 are 'buy' recommendations and two are 'hold' recommendations.
Firms providing analyst coverage are as follows: Alta Corp. Capital, BMO Capital Markets, CIBC World Markets, Cormark Securities, GMP, Jefferies, Laurentian Bank Securities, Macquarie, National Bank Financial, Raymond James, RBC Capital Markets, and Scotia Capital.
The average one-year target price is $91.58, implying there is 14 per cent upside potential in the unit price over the next 12 months. Target prices range from a low of $86 to a high of $100.
The Street is forecasting EBITDA of $124-million in 2016, and forecast to rise 16 per cent to $144-million in 2017. The consensus earnings per unit estimate is $2.96 in 2016, climbing 20 per cent to $3.55 in 2017.
Forecasts have been steadily rising. For instance, at the start of the year, consensus EBITDA estimate was $117-million for 2016 and $136-million for 2017, and the earnings per unit estimate was $2.85 for 2016 and $3.41 for 2017.
Insider transaction activity
Insider transaction activity is low with only one transaction in 2016. Sally Savoia, who sits on the Board of Trustees, purchased 1,000 shares on June 7, at a price of $75.50 per unit.
The units have been in a multi-year uptrend. Year-to-date, the unit price is up 22 per cent. During periods of price weakness, the unit price has remained above its 200-day moving average, only briefly falling below it before quickly recovering.
There is downside support around $75, close to its 200-day moving average (at $75.13). Failing that, there is strong support around $70.
The relative strength index is at 35, suggesting the shares are approaching, but not quite in oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
There is significant overhead resistance around $88, its record closing high was $87.82 set in September.
Liquidity for this small cap industrial security can be relatively low. The two-month historical daily average trading volume is approximately 50,000 units.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Monday's TSX breakouts
|Positive Breakouts||Nov 4 close|
|CS-T||Capstone Mining Corp||$0.92|
|GRT.UN-T||Granite Real Estate Investment Trust||$44.49|
|SW-T||Sierra Wireless Inc||$19.23|
|ABT-T||Absolute Software Corp||$6.07|
|ARE-T||Aecon Group Inc||$13.25|
|AD-T||Alaris Royalty Corp||$17.94|
|AX.UN-T||Artis Real Estate Investment Trust||$11.49|
|ATP-T||Atlantic Power Corp||$2.91|
|BDT-T||Bird Construction Inc||$10.25|
|BEI.UN-T||Boardwalk Real Estate Investment Trust||$47.65|
|BYD.UN-T||Boyd Group Income Fund||$80.50|
|CF-T||Canaccord Genuity Group Inc||$3.67|
|CAM-T||Canam Group Inc||$8.54|
|CWX-T||CanWel Building Materials Group Ltd.||$5.47|
|CAO-T||Cara Operations Ltd||$25.84|
|CHP.UN-T||Choice Properties REIT||$12.90|
|CUF.UN-T||Cominar Real Estate Investment Trust||$14.02|
|CXR-T||Concordia Healthcare Corp||$4.27|
|CPG-T||Crescent Point Energy Corp||$15.01|
|KWH.UN-T||Crius Energy Trust||$8.24|
|DGC-T||Detour Gold Corp||$20.69|
|DHX.B-T||DHX Media Ltd||$6.52|
|DRM-T||DREAM Unlimited Corp||$6.71|
|EMP.A-T||Empire Co Ltd||$18.51|
|EQB-T||Equitable Group Inc||$50.41|
|ET-T||Evertz Technologies Ltd||$16.09|
|XTC-T||Exco Technologies Ltd||$10.75|
|FN-T||First National Financial Corp||$24.12|
|WN-T||George Weston Ltd||$104.28|
|GEI-T||Gibson Energy Inc||$15.68|
|GIL-T||Gildan Activewear Inc||$33.01|
|GS-T||Gluskin Sheff + Associates Inc||$15.09|
|GXO-T||Granite Oil Corp||$4.57|
|HGN-T||Halogen Software Inc||$9.00|
|HWD-T||Hardwoods Distribution Inc||$18.29|
|HNL-T||Horizon North Logistics Inc||$1.58|
|HBC-T||Hudson's Bay Co||$16.00|
|HSE-T||Husky Energy Inc||$14.08|
|IT-T||Intertain Group Ltd||$7.13|
|L-T||Loblaw Cos Ltd||$64.45|
|MDA-T||MacDonald Dettwiler & Associates Ltd||$69.73|
|MRE-T||Martinrea International Inc||$7.13|
|MSL-T||Merus Labs International Inc||$1.17|
|NBZ-T||Northern Blizzard Resources Inc||$3.14|
|PXT-T||Parex Resources Inc||$15.16|
|PGF-T||Pengrowth Energy Corp||$1.77|
|PLI-T||ProMetic Life Sciences Inc||$2.60|
|RRX-T||Raging River Exploration Inc||$10.22|
|RKN-T||Redknee Solutions Inc||$1.87|
|RCI.B-T||Rogers Communications Inc||$52.72|
|SPE-T||Spartan Energy Corp||$3.08|
|SMU.UN-T||Summit Industrial Income REIT||$6.05|
|TOU-T||Tourmaline Oil Corp||$33.79|
|TCN-T||Tricon Capital Group Inc||$8.56|
|TDG-T||Trinidad Drilling Ltd||$2.24|
|WRG-T||Western Energy Services Corp||$2.10|
|WEF-T||Western Forest Products Inc||$1.95|
|WJA-T||WestJet Airlines Ltd||$20.61|