Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A report by Scotiabank analyst Himanshu Gupta identifies ‘cash flow compounders’ in the domestic real estate sector,
“We now have three cash flow compounders under our coverage namely Colliers (CIGI), FirstService (FSV) and StorageVault (SVI). All three names combined account for approximately 25 per cent of the S&P/TSX Real Estate Index … All three are roll-up stories. All three are market leaders in their respective highly-fragmented markets and enjoy competitive advantage which translates into superior organic growth. All three are Corporations and not REITs. All three have higher insider ownership.
“All three names have printed double-digits earnings growth over the last five years. We expect superior growth in the next two years as well.
“All three are the top performers within our entire coverage universe (Exhibit 59). We looked at total returns since June 2015 (since CIGI’s incorporation), and Summit Industrial (SMU) is the only other name within the top #4 performers list (apart from SVI, FSV and CIGI). Recall - SMU was privatized by a JV comprising GIC and DIR in Feb’23. We have SO-rating on CIGI and SVI, and initiated coverage on FSV with SP-rating. Our pecking order is CIGI, SVI and FSV. With CIGI, we expect acceleration in earnings growth in 2023-25E at +17.2% CAGR [compound annual growth rate] (vs +11.9% CAGR in 2016-23A). For FSV and SVI, we expect nearly double-digit earnings growth in the next two years but a bit slower than what they have achieved in the last several years”
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BofA Securities investment strategist Michael Hartnett’s weekly report was even more strident than usual (my emphasis),
“The Biggest Picture: 10-year annualized return of US Treasuries at 65-year low (0.6%); 2020s era of war, protectionism, fiscal excess, scarce energy/housing/labor = higher inflation & higher cost of capital until recession sparks “buy bond humiliation.” Tale of the Tape: “ABB” (Anything But Bonds) Bull inciting greed for inflation hedges & monopolistic cash flows (new highs gold & Magnificent 7) + fear of leverage (see REITs, KRE [S&P Regional banking ETF] , RTY [Russell 2000]) & duration (XBI [S&P Biotech SPDR] ); “no landing” probability rising…rare for tech & commodities both top-of-the-price , but consistent with no landing and very 1999″
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BMO senior economist Robert Kavcic tackled the announced changes to domestic mortgages,
“Canada announced a few new housing affordability measures on Thursday, ahead of next week’s budget, including an extension to 30- year amortizations for some buyers. The extension will apply to first-time homebuyers of a new build, with an insured mortgage. We don’t have a precise estimate on the share of housing activity that this will cover, but suffice it to say that the policy change drills down into a small segment. First-time buyers are just under half of transaction activity, with their share falling in recent years while investors and moveup buyers have gained. At the same time, insured mortgages have fallen to just around 15% of new originations recently. As for affordability in this sliver of the market, a switch from 25 to 30- year amortization will add about 8% to buying power at a 5% mortgage rate with a fixed downpayment. This could shift some incremental activity toward new builds among first-time buyers (until prices adjust), but the overall market impact should be limited. And that’s a good thing, as juicing demand is rarely the right prescription for a market already struggling with excess demand”
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Diversion: “New Boeing Whistleblower Claims Certain Planes Could ‘Break Apart’ Midair” – Gizmodo
Scott Barlow