James Telfser.
James Telfser is partner and portfolio manager at Aventine Management Group. His focus is on Canadian equities.
Top Picks:
Easyhome Ltd. (EH TSX)
Easyhome is an under-followed company that is undergoing an exciting and lucrative transformation. Over the past five years, Easyhome has transformed from a home furnishing leasing company (TV's, cellphone, couches, etc.) into a financial services company, providing higher interest consumer loans to those facing temporary credit constraints through its easyfinancial division. By positioning themselves between payday loan providers – who face increasing government pressure – and traditional lenders, Easyhome has been able to build relationships and brand scalability within the Canadian marketplace. A recently announced credit facility for $200-million significantly enhances their growth profile. Easyhome is undervalued, trading at 10.5 times 2015 EPS with a 1.40-per-cent yield, and has a well-defined runway for growth.
FirstService Corp. (FSV TSX)
FirstService is a leading provider of property, business and commercial real estate services with a global reach. The most exciting division and brand is Colliers International, their commercial real estate division, which has been growing steadily both organically and through acquisition. In the most recent quarter Colliers grew an impressive 20 per cent (16-per-cent organic) while expanding margins at the same time. We view FirstService's business as stable and highly scalable with a high proportion or recurring revenues (60 per cent) and see substantial growth potential in consolidating the fragmented global real estate services market. We believe that this is a high quality, disciplined franchise that should easily meet their 5 year target of 11-per-cent revenue growth and we expect to see this stock move higher.
Sandvine Corp. (SVC TSX)
Sandvine is a technology company that provides telecommunication and cable companies around the world the ability to analyze how their customers are using data. Visibility into customer behaviour allows carriers to provide tailored services, products and plans that improve customer satisfaction and profitability. Revenue growth has been tracking north of 20 per cent for the last number of quarters, but management put an end to this positive streak in a recent release where third quarter revenue guidance was pre-announced at roughly flat year-over-year. Investors have been selling shares on this news and we think that it presents a great opportunity to own this company. New business wins in this industry can be lumpy and somewhat unpredictable which many shorter term investors find unsettling. We will be closely monitoring new orders in the coming months to see how they are tracking for the fourth quarter. This is one of the more growth-oriented names in our portfolio, and at current levels we are paying a market multiple to acquire shares in a company with a considerably higher long term growth rate.
Past Picks: August 27, 2013
Essential Energy Services (ESN TSX)
Then: $2.54; Now: $2.65 +4.33%; Total return: 8.84%
Parkland Fuels (PKI TSX)
Then: $17.09; Now: $20.04 +17.26%; Total return: +23.73%
Celestica Inc. (CLS TSX)
Then: $10.69; Now: $11.98 +12.07%; Total return: +12.07%
Total return average: +14.88%
Market outlook:
The strong performance of the Canadian market recently has given us reason to remain somewhat cautious. Our current cash weighting sits at 9 per cent of fund assets and our hedge positions (a combination of shorts and options) provides downside protection on an additional 19 per cent. With our remaining capital, we continue to find and hold long positions in a broadly diversified set of attractively undervalued companies. There has been a relentless shift towards large cap, non-cyclical yield stocks in Canada and we have been very reluctant to follow that trend due to high valuations. This large-cap preference has come at the expense of some smaller market cap companies we own, companies that we expect to prosper greatly in the final months of 2014. We think that the next couple of months will be very exciting for the Aventine Canadian Equity Fund as the companies in which we have built up positions report their third quarter results and the market has a chance to reconsider their stock valuations of these businesses.