September 28, 2017

On Thursday, the S&P 500 rose 0.1% to yet another record high and Toronto was also up 0.1%

The Bombardier pref shares recovered 6.2%.

Toll Brothers was up 1.8%, FedEx was up 1.9%, Canadian Tire was up 1.4%, Andrew Peller was up 2.2%.

Canadian Western Bank was up another 0.9% on top of yesterday’s 4.9% rise.

CRH Medical has announced another small acquisition. This would seem to be a positive development as the company continues to pursue its growth strategy just as it said it would.

I notice that Liquor Stores N.A. (no longer on our list) was up 2.1%. I saw someplace that there is speculation that it could be allowed to sell marijuana. There is some rationale to that given that Ontario is going to sell marijuana through the same body that runs government owned liquor stores. But those will be separate stores. I certainly would not count on Liquor Stores N.A. being allowed into the marijuana business. Meanwhile, its debts have risen and I don’t know that it would have the capacity to invest much into a new business. It if did get into the business, it would likely have to issue shares.

U.S. markets have been positive in the past couple of days partly due to Trump’s plans to lower corporate income tax. This positive reaction is in spite of the fact that he has trouble getting much of anything passed through the House and Senate. In addition, no one seems to remember that there is a thing called competition which in theory would flow much of the income tax savings through to customers.

Boston Pizza announced that Boston Pizza International has sold $33 million worth of fund units to founder George Melville for $20.64 per unit as part of a reorganizations that it announced on September 19th. The Boston Pizza Royalties Income Fund has always been a financially engineered entity with a complex structure. It is not entirely clear to me if this reorganization has much impact on the value of the units at all. It looks to me like it will lower distributable cash flow a little as a 7.25% loan to that the fund had made to a related entity is being paid off. But the fund will presumably receive cash and could use that to buy back units which is accretive to cash flows per units.

I am also a bit concerned to see how much of the BP Fund, Jim Treliving will end up owning. He will now fully control Boston Pizza International (BPI) and I would want him to continue to have ownership in the BP Fund to give BPI more incentive to treat the fund well. When you have complex structures and related entities there is potential for one entity to be treated more favorably than another. To date, it has always appeared to me that the founders of BP who controlled BPI have always treated the BP Fund very well, for example not burdening the fund with much in the way of administrative costs. And it looks like Jim Treliving / BPI will still have an incentive to treat the fund well as BPI has the option to acquire 10.2% of the units (but I am not at all clear on what if any price they would pay to exercise that option). The other founder, George Melville is basically getting out of BPI and will be the largest owner of the BP fund. So, presumably, he is confident that the reorganization will not be bad for the fund.

So far the market has not reacted in either direction to news of the reorganization. Perhaps the market is a bit unclear as to the impact of the reorganization.