On Wednesday the good times in the stock market continued. The S&P 500 rose 0.6% and Toronto rose 0.7%.
Markets do not rise in straight lines and we should always be prepared for “corrections” at any time. Trimming any stocks that seem over-valued and having cash available for bargains are possible strategies. Of course it is always hard to pull the trigger and trim stocks that have treated us well.
Notable gainers today included:
CRH Medical up 7.2% on Toronto. (But note that our report uses the U.S. dollar price since it reports in U.S. dollars)
Linamar, up 2.4%, Bombardier up 5.7%, Toll Brothers up 2.2%
AutoCanada up 4.4%.
Most of the rate reset preferred shares also rose.
Boston Pizza reported yesterday that it was adding the 13 restaurants opened in 2016 to the royalty pool but that two restaurants had permanently closed. While this is nice in that indicates the popularity of the restaurants it has basically no impact on the distributable cash per unit because the founders of Boston Pizza receive new units representing 92.5% of the added cash flow. The Boston Pizza Royalty Income Trust is a financially engineered construct. One of the results is that their financial reports are difficult to understand. I think they could do a much better job of explaining things in simple language. But in the end all that matter is distributable cash flow per unit and this is driven by same-restaurant food sales. While GAAP earnings for this entity bounce around the distributable cash flow grows slowly most quarters though it has decreased a bit in some quarters as well. This is a very predicatble entity because all we have to do is predict same-store food sales. We don’t have to woryy about predicting the profit margins of the restaurants.
Normally I would NOT consider the reported distributable cash flow of a company to be a substitute for net income. But in the case of Boston Pizza Royalty Income Fund it is. I ignore the GAAP earnings of this entity as I have found them to not be relevant in this case for a variety of reasons.