December 9, 2019

Markets were down somewhat on Monday. The S&P 500 and Toronto were each down 0.3%.

Stantec was up 1.8%. 

Linamar was up 1.0% which is not bad on a day the market was down.

Constellation Software was down 3.5%. Any pull back in that stock has historically been a buying opportunity.

Boston Pizza Royalties announced (after the close of trading) their next distribution which is unchanged. No reduction to the distribution. This could possibly mean that the Q4 same-store sales are not looking too bad. Or, it could just mean that a reduction has simply been delayed. They will not want to make a reduction. But with a 104% trailing year payout, they have to be able to achieve or at least forecast an increase in same store sales to avoid a cut. They have some cash on hand that could allow them to delay a cut until Q4 2020 if same store sales stay flat. Any sustained increase in same-store sales will likely mean no distribution reduction. Any material further reduction in same store sales (even 2% or 1% sustained over a few quarters) would likely force a cut. Meanwhile, it would appear that a cut is already priced into the unit price.

Toll Brothers was up 1.3% today. It then reported, after the close, its Q4 earnings which although definitely lower than last year’s Q4 did beat analyst expectations. On a negative note, their profit margins on sales were lower and the analysts tend to view that as quite negative. On the positive side their signed contracts for new homes were up 12% in dollars and 18% in number of units (they are selling more lower priced homes). I am not sure what the expectations were but that gain seems like good news. They also indicate that they will increase the number of selling communities by 10% during fiscal 2020 – that is good growth. They forecast that the next quarterly report will have a year-over-year  increase in homes sold of between 8 and 21 percent. It would likely be a smaller increase in dollars but nevertheless that outlook seems reasonably positive. They also indicated a $10 million unusual expense for next quarter. Overall, this seems like a positive earnings report but sometimes the market decides to focus on the negative aspects and so we shall see how the price reacts. They have a conference call tomorrow morning that could also influence the market reaction.

CMHC released November housing start data. Multi-family starts are always volatile month to month and I am more interested in single family starts, especially in Alberta. Single family starts were down 8% nationally and 10% in Ontario. But they were up 12% in Alberta. Edmonton was up 4% and Calgary was up 26%. The Alberta gains are in comparison to quite weak numbers form last year but the gain is welcome news.

However, meanwhile the Alberta Economic Development department released its latest updated figures. They had updates for nine of 33 indicators that they track. All nine were down year over year. Active drilling rigs were down 28%! Even air passenger traffic was down. But that included Edmonton shown 26% which I find implausible (possibly a data error). In any case seeing all nine updated indicators in the red was an ugly picture. Looking at the 33 indicators over the past five years, they have gone from largely green (positive) around 2014 to mostly red (negative) by 2016 to majority positive by about the start of 2018 to now mostly negative. It could be that Alberta is seeing a double dip recession . It had GDP growth in 2018. Growth then turned lower. 





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