January 23, 2018

On Tuesday, the S&P 500 was up another 0.2% while Toronto was up 0.1%.

AutoCanada was up 3.0% and Amazon was up another 2.6%.

Boston Pizza Royalties was down 1.5% to $21.18 and yields 6.5%. Despite somewhat higher interest rates this is an attractive yield if the distribution can be expected to grow even slowly over the years. I am somewhat tempted to add to my position. But I will likely wait and see the Q4 results. It may be facing more competition in some markets.

In a related matter, it was interesting to see today that the KEG franchise company will be sold to CARA for $200 million. The franchise company is the operating company that selects franchisees and owns the concept and sets all the rules and does the advertising.

The Keg Royalties Income Fund is a non-operating entity that (I understand) collects and distributes a 4% top-line royalty or franchise fee. It is interesting to note that the Keg Income Fund has a market cap of $216 million dollars and is therefore worth more than the actual operating company.

It’s also perhaps interesting to think about the fact while the Keg Income Fund collects 4% off the top, Servers probably average at least 16% or four times that. Collectively, then Servers are collecting four times what the Fund gets and that is in addition to their wages. The amounts the servers will collectively get in tips over the future years would also appear to worth more than four times what the operating company is worth. That may or may not be “fair” but I find it interesting.

The keg Royalties Income Fund was down 3.8% to $19.00 to yield 6.0%. Just looking at the yield and considering that the units may have declined today based on uncertainty, I would suggest that the Keg Royalty Units are worth considering.

CN Rail reported earnings after the close that were apparently a bit disappointing to the market. Actually the earnings were not that bad with a decline of 2% year over year. It’s unrealistic to think that earnings can rise every quarter. CN also raised its dividend by 10%. It also forecast 2018 earnings per share growth of around 7%. In my experience CN tends to forecast low and usually beats its forecast. In any case, CN has looked expensive to me and I will not be looking to buy unless it falls at least 10 or 15%. CN is considered to be somewhat vulnerable if NAFTA were to be scrapped. Despite having considerable operatins int eh U.S., C.N.’s press release did not make any mention of the impact of the lower income taxes in the U.S. But it’s presentation did indicate there was a gain due to a lower value of U.S. deferred income taxes. The full Management Discussion and Analysis as well as the financial statements will be released on January 31. (I believe this little delay is unusual, in Canada the practice is to not release any results until the full results are available.)