August 16, 2017

On Wednesday, the S&P 500 was up 0.1% while Toronto was down 0.1%.

Boston Pizza Royalties was up 2.7%.

Costco was up 2.1% even after being ordered to pay $20 million to Tiffany’s for selling (very real) diamonds but using the Tiffany name which they were not entitled to do. Although I own Costco shares, it looks very clear to me that Costco is in the wrong and Tiffanys deserved to win this case.

A comment (okay rant) about Aeroplan/Aimia. Aeroplan was a good program when it was part of Air Canada. It was sold off years ago when Air Canada was desperate for cash. Later Aeroplan expanded and bought other loyalty programs in Europe. I have been collecting Aeroplan points for close to 30 years. I used to own shares in it. Over the years it became harder to redeem for flights and it seems to me that on their classic rewards there was a lot of extra taxes and fees that had to be paid in cash. Some years ago, Aeroplan announced a policy of expiring (in my view confiscating / legally stealing) points if there was no activity in a year. At that time I was in contact with the company top management and told them that I thought that was deeply unethical and unfair. Some people collected points mainly from flying and that is not always an every year thing. I simply consider their policy to be a form of “legalized theft.” I signed up to the program before the terms and conditions were changed to allow expiry of points on lack of activity for a year. I sold my shares years ago feeling that if they mistreated the points collectors, they might also mistreat investors.

More recently Air Canada announced it will no longer be a partner with Aeroplan in a few years when its contract runs out.

I had a CIBC Aerogold credit card for collecting points. CIBC sold my account to TD a few years ago. I kept the card out of inertia.

Today I finally switched my TD Aeroplan infinite card to a TD cash rewards infinite card. It was extremely easy since my credit card number will not change. I am tired of points cards. I would rather just have the cash back card.

The danger I now face is that my Aeroplan points will be expired (stolen from me) if I have a year of inactivity with Aeroplan. I will be trying to use up my points.

It’s my view that people should consider using up their Aeroplan points. I see little reason to stay with an Aeroplan credit card other than to generate the activity to insure your points are not expired for lack of a transaction in a year.

On top of being what I consider to be an unethical company, Aimia has a weak balance sheet. They owe $3,276 million in reward points (after deducting points they unethically expired). You might think that the money they collected for such points would be in cash and investments. No, they only have $790 million in cash and investments. Much of the money collected in selling points was invested in buying other loyalty programs. Aimia shows a net equity on its balance sheet of just $27 million. Assets (which are mainly goodwill and similar intangibles) are $4,295 million. I would have thought this should have been a strong cash generating business. I don’t know why they have a paltry book equity of $27 million. It is true that the actual debt is relatively modest at $449 million. But at a glance I would say the balance sheet is very weak. The share price recently plunged from the $9.00 range and is now at $2.14. The book value per share is just 18 cents per share. Possibly the cash flows justify the $2.14 and more, but I would not count on that.

I don’t know if the shares of Aimia will recover. When the shares plunged a few moths ago, I took a quick look and saw the weak balance sheet and tiny book value per share and decided I was not interested in owning shares.

In my view this is a morally and financially weak company.

It was supposed to generate loyalty to Air Canada. I believe it did the opposite.

This rant is an addition to my “Thoughts on Aimia / Aeroplan of June 14 this year”