September 16, 2020

On Wednesday, the S&P 500 was down 0.5% and Toronto was down 0.8%.

Shopify was down 4.9% to CAN $1166 or U.S. $ 885 as it announced that it will issue about 1.3 million shares in the U.S. at U.S. $900. This will increase the share count by only about 1% which should not a big concern. Shopify has been very astute in taking advantage of its high share price to raise cash from time. This has given it a war chest of cash.  The result is that if the share price were ever to fall substantially, Shopify would be in no danger from that and could go on growing for a long time without needed to issue shares.

Bombardier (which I used to follow but gave up on a long time ago) managed to rise 2.5 cents today which was 6.1% of its pathetically low share price. It is a real shame, almost a financial crime how badly managed this company has been for the last 20 years. After the announced sale of its transportation division goes through (which will take months) it will still be saddled with huge debts. I certainly would not rule out a bankruptcy in its future.

Our report on AutoCanada is updated and rated Sell at $17.90. I sold more of my shares in it today. Looking at its numbers I am baffled by how high the share price has risen since March. It not only recovered from the March lows but it is far higher than it was one year ago. Certainly management has made good progress. They do appear to be out-selling their competitors. But they have continued to have to write-off various assets and have become quite weak financially with a very poor credit rating and high borrowing costs. Debt has been paid down but at the cost of selling off many dealerships in sale and lease-back transactions.  On a positive note, a very successful and large chain of auto dealers in Atlantic Canada has bought 10% of its shares. This investor is knowledgeable about the industry and so perhaps there is potential here that I am no longer seeing. For that reason, I may hang onto a modest position. But in general, I view the current price as an opportunity to get at least partly or mostly out of this company.  In my case I was over-exposed to it and it was appropriate to at least reduce my position. AutoCanada has been a disappointment. Its former management made a disastrous U.S. acquisition. It was also hit by the Alberta recession. The pandemic has not helped although they have come through that surprisingly well. It may have a good future operationally, but its lease costs and higher borrowing costs are going to be a problem most likely.

On another positive note they are benefiting from government programs and booked $26 million in federal wage subsidies in Q2 and they also may qualify for the small business rent relief as individual dealerships may qualify. I suppose that could contribute to a surprisingly good Q3 – but those programs will end.

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