August 8, 2016

On Monday, the S&P 500 fell 0.1% while Toronto rose 0.7%.

The biggest gainer on our list was AutoCanada, up 3.2%.

Stantec was down another 2.6%. Looking at the conference call transcript, analysts asked about the project execution problems in Q2. But the explanation seemed good and it does not sound like a major concern. Analysts were concerned about the ability of the company to show better comparable numbers in the last half of 2016. Stantec explained that certain costs related to acquisitions are not adjusted for. They just adjust for external costs. This means that one could view Stantec’s earnings as being slightly higher than reported on an adjusted basis. Analysts were concerned that certain rsults came in lower than¬†projections. (Perhaps these analysts don’t understand that the business is inherently somewhat cyclic and unpredictable).

Statistics Canada reported June building permits. The statistic that interests me most is the single family permits for Alberta. And those are now running at about 800 per month in Alberta. That’s down from about 1000 last year and closer to 1500 in 2013 and 2014. So that is a big decline. But the good news is that home building in Alberta is still happening. The reality is that that home building and therefore selling single family building lots is a very cyclic business. But Melcor can weather the storm and or adjust to the smaller volumes. And meanwhile its income properties division is much more stable. Melcor also develops commercial buildings. I suspect they will scale back on that. The good news there is that it is a business where they¬†use others to do the physical work so they don’t have a huge amount of fixed costs. Melcor is scheduled to report Q2 earnings after the close on Wednesday. While Melcor is cyclic, it has not had a loss on an annual basis since 1987. And I don’t suspect any such loss is in the cards in the next year or so, although I can’t guarantee that.