August 10, 2017

Thursday was a negative day in the markets with the S&P 500 down 1.5% and Toronto down 0.9%.

Canadian Tire was a notable bright spot, up 5.4% after releasing a good earnings report.

CRH Medical also managed a gain, up 2.3%.

Boston Pizza Royalties units fell 7.3% to $20.60 after releasing earnings that showed a decline in same-store franchise sales of 1.6% leading to a decline in distributable cash flow per unit of 0.9%. I expect the long term trend to continue to be a slow increase in distributable cash per unit. The fund is distributing almost exactly 100% of distributable cash and plans to continue to do so. The current distribution is $1.38 per year (paid monthly) for a yield of 6.7%. Even given the fact that interest rates are going up somewhat, a 6.7% cash yield that will likely increase slowly over the years seems attractive. It is possible that the distribution would have to be cut if distributable cash per unit continues to decline. But I don’t expect that to happen given that the economy in Canada has been improving. If the distribution were cut, it would likely be a small cut. That would however, spook the market. I would consider adding to positions in Boston Pizza especially if the price stays under about $21.

There was essentially no market reaction to Melcor’s Q2 earnings report. The shares were down 1.1% to $14.20 There were only 700 shares traded. And 300 of those were me buying a bit more. It would appear that there is simply very little interest in this company. And there is likely still considerable fear about the future prospects for home building in Alberta. So, the stock languishes trading at just 49% of book value. And, that book value consists of solid hard assets.

Interestingly, the company indicated that its administrative expenses were up 27% based on discretionary bonuses given the strong results in the quarter. The company continues to add to its land positions and appears to be confident about the future.

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