Is CWB being punished for good perfromance?

  On September 15, Canadian Western Bank (CWB) released it's third quarter performance and what a quarter it was.The normally staid Canadian Western Bank showed double digit loan growth,higher net interest margins and adjustable cash earnings per share of $.75 per share which is up 9%.In addition, it raised it's  quarterly dividend to $.26 per share which is up 8% over the same quarter in 2017.What could be better than that?Well actually the share price could go up,not down!Before the quarterly report the share price was about $38/share and now it trades at $33 per share.

Second Quarter Highlights

Total loans reached $25 billion for the first time in the second quarter.This was achieved by 12% loan growth over the second quarter in 2017.And the CEO expects 2018 to have double digit loan expansion.Once again their growth in Ontario has been a significant part of this loan expansion.Shareholder's net income for Q2 was at $62 million which is up 11% over 2017;and for 9 months was $2.23 per share.Consequently adjusted earnings per share is on track to hit $3.00 per sharefor 2018.CWB tells us that their acquisition of ECN Capital assets contributed $.04 per share to total earnings.And that there was a significant contribution for their expansion into Ontario.

Safety Concerns

CWB is not only a bank with good growth but it is safe for investors also.It has very strong Basel III capital ratios.All capital ratios are at the upper limit of requirements.Also it's provision for loss income is up by $111 million or 10%.On the other hand, impaired loans now make up only .53% of assets compared to .74% in 2017.The dividend has been raised but the payout ratio remains in the 30-36% area which is considered very safe.And it's price/earnings ratio is at 12 which is quite conservative for Canadian banks which on average is higher.

Recommendations for Price Improvement

It could be that CWB  is suffering from the new kid on the block syndrome.It is growing faster than most of the established banks in Canada.After their strong second quarter results this blog thought CWB  would be trading at $40 to $41 per share.It is in effect, catching up.So it is possible that the other banks are selling off their stake in Canadian Western Bank to slow their growth.And there may be more selling to come but CWB must keep making improvements.With that in mind CWB must continue it's expansion into Ontario and even add another  branch here.This blog would like to see a separate identity called Canadian Western Trust (CWT) which would contain many of it's divisions such as CWB Maxium,CWB Optimum Mortgage,CWB National Leasing and CWB Franchise Finance.And their online divisions put together and called Mango or some such thing.Lastly in order to get more attention it could buy a small mutual fund dealer at today's cheap prices.These moves might reduce their loan growth and earnings growth which is substantial but raise their stock price.Unfortunately until retail investors join it will be a tough ride to get to $35 per share by January.

http://www.manulife.com/;https://www.fairfax.ca/

Power Financial has Simpler balance sheet plus Wealthsimple

     Power Financial has always been closely connected to Power Corp. and their finances are intermingled.But the wedge is in and now they are becoming more differentiated.For example, Power Financial hasa yield of 5.8% and market cap of $21 billion while Power Corp has a yield of 5.3% and market cap of $13 billion.Yet the biggest contributor to Power Corp.'s net earnings is by far Power Financial.And Power Corp. tells investors that it still owns 65.5% of Power Financial.And now POW tells it's shareholders that it owns 100% of Sagard Holdings and Sagard China which appears to be largely a mutual funds operation.But the big change is that Power Financial shows that it owns 81% of Wealthsimple a very large broker in Europe.As of yet no accounting has been made for  it's income contributions to Power Financial.
                  The Second Quarter
 Firstly Power Corp had a very good quarter and the main contributor to this good quarter was of course, Power Financial.PWF had a good quarter mainly because of Great West Life Insurance.Great West Life reported net earnings of $831 million and contributed $562 million to PWF.IGM Financial contributed $121 million and Pargesa Holdings a further $36 million.Total Q2 net earnings were $658 million the highest amount in corporate history.Putnam Investments, another holding, had a very good quarter.PWF had a record high assets under management (AUM).But as already mentioned ther is no mention of income contribution from 81% owned Wealthsimple.This new platform started in Canada but has spread to U.S.A and England.But as of today has only $2 billion in AUM.
                 Potential Changes
  One of the most natural changes is to make the quarterly report more investor-friendly.About the only information on the report is net earnings and the contribution from other companies to it's net earnings.Surely this is a holdover from the days when POW and PWF were so closely intertwined.Not so much information was required.This blog would like to see cash flow and free cash flow and payout ratios.Also the contribution from Wealthsimple is needed.                                                                                       
                                                                  
                       

     This blog is surprised to see that POW still owns 65.5 % of PWF.An earlier blog on Workathon showed the ownership at 61%.And frankly had hoped that the ownership would now be down to 55to 59%.This is the greatest use of funds that PWF could have.As POW takes almost 70% of their net earnings.One of my blogs on Blogdaleupsome states that the next best use of funds would be increasing ownership in Great West Life it's greatest contributor of net earnings (see Blogdaleupsome 04/05/2018).Qtrade,a small financial broker,shows that  PWF cash flow in 2017 was about $1.7 billion.That will be minus the $800 million paid to POW.This is still a tremenduous amount of cash that can be used to pay down POW ownership  in PWF and increase ownership of GWO and also expand investment in Wealthsimple.Power Financial moves slowly and so there will not likely be large changes made in 2018.Look for PWF to stay in a tight range around $30 in 2018 but also look for news about increasing ownership of Great West Life or decreasing ownership from POW.                                https://www.powerfinancial.com/en/

Algonquin Power continues Independent Venture outside of Liberty Utilities

Algonquin Power has shown good increases in earnings since 2015  but it's price has not reflected this growth.Consequently it's price/earnings ratio is around 8 times and much lower than the average P/E ratio for the industry.This although revenues and earnings  have shown good growth. One of the main reasons for this dichotomy is that many investors find that their earnings are locked in to the American regulatory system.Much of it is tied up in their largest American investment called Liberty Utilities which is a huge utility mostly in Kansas and Missouri.AQN has wrapped many of it's other American utilities (both regulated and non-regulated) into Liberty which I think has a listing on the NYSE.This blog has called for Algonquin to float a large secondary issue of Liberty shares and use the funds to make investments and move out from under the American regulatory umbrella.

Outside of the Umbrella           

To be fair AQN has made a number of moves outside of the umbrella recently.First it has acquired a number of  American wind farms which are not regulated;they have a power purchase agreement (PPA)But in comparison to Liberty Utility and the AQN regulated assets these properties make up only a small percentage.But Algonquin has made another move by raising money in a secondary AQN equity issue and investing it in a Spanish utility called Atlantica Yield.In fact, it owns about 35% of this quite large European utility.And in a rather strange event a regulator has allowed Liberty Utilities to pursue the development of up to 600 MW of wind power which usually is unregulated.

A Higher P/E ratio

AQN's adjusted EBITDA(earnings) has almost tripled since 2015.But their stock price increased by only 33% from $9 to $12 a share.This kind of growth  in earningsshould produce an above average P/E ratio and then a higher price.But AQN's P/E ratio has remained at about 8 times which is below the industry average of 15.As AQN moves out from under the regulated umbrella it's P/E ratio will rise perhaps to 11 or 12 in 2019.

https://www.fairfax.ca/

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Transalta lost money in Australia;now is a good time to buy

                                                    Introduction
                        Australia has beautiful,quiet beaches like the one in the picture above and Transalta built 2 power projects near the beach in Australia in 2017.They built the South Hedland gas transmission project and the Solomon Power Station.But they lost the contract to supply power from the Solomon Power Station and had to sell the power station at a loss in 2018.They took a small loss in the first quarter and a very large loss ($105 million) in Q2.There may be a another small loss in Q3 but it appears that the worst is over.In addition, prices for power and other  Transalta services have moved up in Alberta. In total,Q2 showed mixed results as although free cash flow was higher by $66 million over 2017 adjusted EBITDA was down by almost 20% over 2017.
                                              Q2 and 6 Months   
    The second quarter showed funds from operations at $188 million almost the same as in 2017.But free cash flow showed a 220% increase from $30 million to $96 million.And for 6  months free cash flow increased from $209 million to $334 million.While net debt decreased by $345 million resulting in a debt/equity ratio of 3.0.At the same time TA acquired two construction ready wind projects in United States.TA also purchased and cancelled 587,300 common shares.And TA's interest in Transalta Renewables reduced from 64 to 61%. TA exercised the early redemption of 6.40% debentures due November,2019 for $425 million funded from a coal bond offering of $345 million at a lower interest rate.These pretty good results were somewhat marred by the charge against income from The Solomon Power Station sale.         

                                                   Overall Results
    Transalta Power has improved  it's finances considerably since 2015.For example, it has acquired  3 or 4 wind projects which have been transfrerred to Transalta Renewables which kept it's majority interest in RNW.And it has produced a steady cash flow that has been used to reduce it's debt and was up this quarter.Transalta was trading higher until the first quarter of 2016 when it reduced it's dividend and the stock fell to the $4 area (see workathon 22/02/2017 and 25/10/2016).It has gradually climbed back to the $7.50 level.The cash flow used to pay it's dividend has been used to pay down debt  for which  in total $1.2 billion has been eliminated since 2015.Transalta Power will continue it's steady climb back to $8.50.The loss on the Solomon power plant will slow it down temporarily.But more importantly this climb will be helped by the increase in oil prices and power prices in Alberta.
                                                   https://www.otpp.com/home  https://www.canadianbusiness.com/                                              

Intrinsync Technology sees no End to Revenue from Open-Q Computing Modules

Intrinsyc Technology keeps  piling up sales for it's main product,Open-Q computing modules.In fact revenues were up 40% over Q2in 2017 and it's backlog was equal to a year's sales.EBITDA was US $450,000 in comparison to US$95,000 in Q2 2017.And for 6 months  EBITDAwent from CDN.$276,000 to CDN.$970,000.But unlike many junior technology companies it's growth rate over the last 5 years has been relatively ordinary.And it is not expanding it's product line very much.Although it has taken a small position in a company called Stream TV Networks.

A Connected Product Line

This blog has suggested to ITC several times that it cannot afford to rely solely on it's Open-Q computing modules.Although this product has done well and is growing.Can they count on Qualcom to continue to invest in and improve this line that apparently has few customers.What they need is complimentary product lines to augment this relatively successful technology product.With this in mind this blog has suggested it look at small telcos that have an online business.No news has been forthcoming here.If this has happened then expect revenues to start to grow even faster than in the past.However margins may be lower and earnings will take more time.             

Conclusion 

Intrinsyc is a very interesting company and it is at a crossroads.It will face more and more risk 2 and 3 years down the road from it's  present relationship with Qualcom.At the same time there is some risk from investing in a new area.ITC is trading in the $1.50 area now and could easily hit $2.50 with news of a new product line.Another strategy is to add expertise so that they do not rely so much on Qualcom.Either way ITC is dependent on technical news to move past the $2.00 level now.

https://www.fool.com/  ;  https://www.omers.com/  

Fiera Capital is one of the Fastest growing Financials Period

  

Fiera Capital has been analyzed in a couple of  my other posts on Workathon (see 10/23/2017).It has grown since that blog so that now it has $139 billion in assets under management (AUM) which is an 11% increase over it's AUM in the last blog.This is a very substantial growth rate for a Canadian financial institution.In addition, quarterly revenues grew 15% over Q2 in 2017.Although adjusted EBITDA per share remained constant at $.35 per share.The increases came from the acquisition of CGOV Asset Management and Clearwater Capital.

6 Month Performance

              Fiera had a good second quarter with revenues up 15%;the main factor causing the increase was the acquisition of CGOV and Clearwater Capital.It also renegotiated the terms of it's credit agreement so that now it's  capacity is $600 million.Revenues for the 6 month period were $350 million up 22% over 2017.Earnings were ahead also by 20%.
                         Comparison of Junior Financials
   In a previous blog on Blogdaleupsome (Sept. 22,2017) 3 junior financials are compared,that is, AGF Management,Guardian Capital and Fiera Capital.Later we took a quick look at Goeasy Financial.All 3  have dropped in price from a year ago.Fiera Capital showed the biggest increase in AUM from less than $125 billion to almost $140 billion.But it issues shares to make it's acquisitions and this dilutes earnings.So adjusted EBITDA per share was  flat  since Q2 of 2017 and adjusted net earnings per share was actually down slightly.The other two showed slight increases in earnings but nowhere near the same growth.A company just recently included with this group is Goeasy Financial.It is smaller in market capitalization but has a growth rate even surpassing Fiera Capital.Down the road there may be some consolidation and Fiera and Goeasy will likely remain
      This appears to be a tough market for junior financials.AGF's price has withered as has Guardian Capital.Fiera Capital's price has also stalled.But there can be no doubt that Fiera has had the largest growth in AUM  and revenues.Fiera's problem is that e.p.s. has remained flat.In comparison, Goeasy Financial has had  good growth in revenues and earnings and it's price has flourished.
                                        www.sprottassetmangement.com www.themotleyfool.com

Emera will have 7 annual dividend increases

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Emera has had 4 years of 7% annual dividend increases and has given guidance that there will be 3 more years of 5% dividend increases.Consequently it's yield now is 5.6% and is one of the highest yields of major utilities.A good part of this dividend program has been created by the acquisition of Teco Energy,a Florida utility.Even though it is true that owning Teco has caused greater investment expenditures than planned for.                                                                                               Emera's CEO says that their payout ratio will stay in the range of 45-55% of adjusted funds from operations.And that means that Emera has paid for these continuous dividend increases by  having continually increasing revenues and earnings.For example,revenues have more than doubled from 2014 to 2017 and earnings have more than doubled also in this same period. 

The Second Quarter

Second quarter net income was $.38 per share compared to $.47 in  Q2 of 2017.While e.p.s for 6 months was $1.56 compared to $1.95 in 2017.And adjusted net income for the 6 months was $313 million or $1.35 per share versus $269 million or $1.27 per share.But these are derived or accounting measurements;more importantly operating cash flow

  increased from $703 million to $767 million or almost $.35 per share for the 6 month period.

                Right from the start Emera found that it underestimated the investment required by the condition of the plant and by the regulated authorities.This year Emera says that it has $1.7 USD billion " of regulated rate base investment opportunities".That will include a $850 million USD investment to modernize it's Big Bend Power Station  in Tampa Bay, Florida and building a number of solar power stations.Also more money will be put into it's Maritime Link that connects Maine to the grid.

The Second Half 

Increases in earnings are expected in Emera Maine,Nova Scotia Power,Emera Florida and the Maritime Link.Very likely, little revenues will be generated from their new solar projects in 2018.But this blog expects operating cash flow to increase by 10% over 2017.EMA has traded in the $42-$43 price range  for most of the year and a 9-10% increase in e.p.s should send the price to the $45 area sometime in the second half.

                                             http://www.cppib.com/en/ ;https://www.zacks.com/