Author: Robert Samuels

Energy Stocks Continue Decline Despite TSX Rebound

The TSX rebounded on Thursday after sharp sell-offs this week due to the surge in COVID cases. Materials and financial stocks led the rally and gained more than 1% each. However, energy, reflecting the general trend in markets around the world, continued to decline amid weaker oil prices and slowing demand. The energy sector dropped 1.4% as U.S. crude prices were down 3.6% a barrel, while Brent crude lost 3.4%. Cenovus Energy also reported its third straight quarterly loss, despite just days ago they acquired rival Husky Energy Inc.

Alamos Gold Inc, was the largest percentage gainer on the TSX, jumping 11.9% after third-quarter earnings beat estimates. However, a different gold company, OceanaGold Corp, led the losers, falling 8.1% after reporting a higher quarterly loss.

This has been a rough week for the TSX, and global markets in general. In the previous session, the Candian index fell by 2.7% due to jitters from the surge in COVID infections ravaging Canada.

 

 

 

 

Canadian Health Regulators Evaluating Moderna Vaccine In Real Time

Massachusetts based biotech company Moderna is in the final stages of its COVID-19 vaccine approval process. The company, which focuses on drug discovery, drug development, and vaccine technologies based exclusively on messenger RNA, has a very promising COVID-19 vaccine candidate.

Moderna, which has already been deep in vaccine trials in America, is now engaging with international regulators to fast track the approval of its COVID-19 vaccine candidate. Specifically in Canada, health regulators will evaluate the clinical trial data from the vaccine candidate in real-time in order to speed up the approval process in Canada.

Moderna’s rolling submission was accepted last week under the Canadian Minister of Health’s Interim Order, which permits companies to present safety and efficacy data and information as they become available, rather than waiting until a clinical trial ends.

Prior to initiating the fast tracked approval process in Canada, Moderna released encouraging data about its preclinical viral challenge study and its Phase 1 study of its vaccine candidate in healthy adults (ages 18-55 years) and older adults (ages 56-70 and 71+).

Moderna’s vaccine candidate is now the third COVID-19 vaccine candidate accepted by Canada for this rolling submission process. Canada has already accepted BioNTech and Pfizer’s candidate and AstraZeneca’s candidate for the fast-tracked review process. Although several of Moderna’s testing subjects experienced adverse side effects, the trials have gone through relatively smoothly with positive results.

The Canadian government is attempting to be as transparent and as safe as possible with this rolling review program. No vaccine candidate can be approved for this program until all necessary safety measures are met. Canada will also publish all evidence and data following the approval of the vaccine. The government also pledged to order up to 20 million doses of Moderna’s vaccine once it fully completes the approval process.

Second Largest REIT In Canada Reports $60-Million Decrease In Profit

Before COVID-19 began ravaging North America in March 2020, the real estate market in Canada was the most stable that it had been in decades. According to CMHC in 2019, the national vacancy rate was 2.00%, the average turnover rate was 17.10%, and the average rental growth rate was approximately 4.10%-up from 3.60% in the prior period. Additionally, almost every market in Canada posted positive rental growth in 2019.

Despite the remarkable resiliency of Canadian real estate, RioCan Real Estate Investment Trust said that its third-quarter profit was down $60 million from the same time last year due to the impact of COVID-19 on its tenants.

RioCan is the second-largest REIT in Canada and owns 289 primarily retail properties. RioCan’s holdings consist primarily of supermarkets and shopping centers. RioCan’s major holdings include Lawrence Allen Centre in Toronto, Chapman Mills Marketplace in Ottawa, RioCan Centre Kingston in Kingston, and Burlington Centre in Burlington, and its largest tenant is Loblaw, which makes up about 5% of their rental revenue.

Unfortunately, COVID-19 had a negative impact on RioCan and its holdings. RioCan reported $117.6 million of net income or 37 cents per unit for the quarter ended Sept. 30. This is down from $177.6 million or 58 cents per unit in the 2019 third quarter. RioCan blamed this year-over-year decline on pandemic-related provisions related to rent abatement, bad debts, and higher net fair value losses.

Revenue fell to $302.3 million from $353.9 million a year earlier, while Cash flow from operations also declined to $128.8 million from $142.8, and  41 cents per unit from 47 cents per unit. Cash flow from operations, when evaluating REITs, is especially important.

RioCan also made sure to note that as of the end of the quarter on Sept. 30, almost all of its tenants were open and operating compared to only 85% at the beginning of the quarter. However, one can only wonder if this will last due to the second COVID wave ravaging Canada and the shutdowns it has caused.

FY20 Was Brutal For Score Media and Gaming

Toronto based Score Media and Gaming released its financial results for both the quarter and fiscal year ending August 31, 2020. To put it mildly, it was not a pretty sight.

Although the digital sports media company started off 2020 with a bang after launching its gaming operations, after seeing their financials, it’s clear that COVID took an unavoidable toll on its core business operations. Score reported widening their loss by 300% in FY 2020, and also reported a  33.5% decline in revenue. Revenue was $2.5 m for Q4 F2020 ($6.4 m 2019), compared to total revenue was $20.7 m ($31.1 m 2019) for the 12 months ended August 31, 2020.

Score, despite the rousing start to its 2020, also reported negative net gaming revenue due to advertising expenses and fair value changes on unsettled bets. In Q4 F2020, Score also reported an EBITDA loss of $8.3 million compared to a loss of $4.1 million in 2019, and a loss of $30.5 million for the full year compared to a loss of $6.5 million in 2019. Outside of COVID causing the suspension of sports, Score’s increased expenses from expanding its gaming activities caused the negative EBITDA as well.

Despite the glum reports, Score ended their earnings report with both short term and long term optimism. They mentioned that despite the headwinds, they managed to successfully prepare for the return of sports, and expand both Colorado and Indiana with the launch of theScore Bet. The total gaming handle on theScore Bet was up more than 500% year-over-year in September. Media revenue also set an all-time high record for a single month in September, as advertisers were desperate to engage with fans. Score plans on expanding to even more states in 2021, and seemed very optimistic about their future prospects.

Score Media and Gaming Inc. is publicly traded on the TSX, and is a digital sports media company. The Toronto-based company’s television network was acquired by Rogers Communications in 2012. Today, Score owns and operates a digital sports media platform and sports betting products that deliver sports scores, data, news, and sportsbook offerings.

School Re-openings Have Driven Canada’s Unexpected Job Growth…But Can It Last?

Largely due to school re-openings allowing parents to return to work, Canada’s economy is showing better than anticipated job growth. Canada added 378,200 jobs in September, more than double the median forecast of 150,000. With five straight months of job gains, Canada’s labor market has now recovered three-quarters of the 3 million jobs lost during March and April. September’s unemployment rate also fell to 9% from 10.2% in August. Economists were expecting an unemployment rate of 9.8%. These figures are extremely positive for Canada and show that the labor market is recovering faster than anticipated.  The recovery in jobs has been mostly in full-time work, with breadth across all industries. The education sector notably added 68,300 jobs for the month.

Women aged 25 to 54 were the main catalyst for the surprising job numbers. This demographic saw their unemployment rate drop to 7% in September, which was the lowest rate among the major demographics, and the closest to pre-covid levels.

It’s very uncertain, however, if this recovery is sustainable. Canada is heavily in the midst of a second wave of Covid-19 and is shattering daily records for new cases. After the delayed data from last weekend came in, it revealed that Canada broke their daily record for new coronavirus cases. On October 25th, Canada for the first time reported over 3,000 new cases. As countries like France and Germany reimpose lockdown measures, some cities in Canada have followed suit and reimposed restrictions. Many businesses have been forced to shutter again in order to slow the spread and curb the outbreak. If these restrictions continue and gradually become more stringent, all the progress made during the current recovery could be all for nothing. It’s possible that even more damage could be done to the labor market if this pace continues.

 

 

Invesco Launches Unique S&P/TSX Composite ESG Index ETF In Canada

Leading ETF provider Invesco Ltd. (NYSE: IVZ) announced the launch of the brand new Invesco S&P/TSX Composite ESG Index ETF (ticker symbol: ESGC) by Invesco Canada Ltd. The ESGC ETF, which will be listed on the TSX, will be the very first Canadian-listed ETF to track the S&P/TSX Composite ESG Index.

What is the S&P/TSX Composite ESG Index? This index uses the S&P and Dow Jones’ Environmental, Social, and Governance (ESG) criteria to select companies from the benchmark Canadian S&P/TSX Composite Index. This unique criterion, for the first time, gives Canadian investors access to notable Canadian companies that strong ESG fundamentals while still offering a risk/return profile similar to the benchmark Index.

ESG investing is also known as “sustainable investing.” This is a style of investing that looks beyond clean balance sheets and returns. Rather ESG investing looks to invest in companies that offer positive returns combined with a positive long-term impact on society, the environment, and the performance of the business. By measuring the sustainability and social impact of an investment in a company, many investors believe that these criteria help to better determine future financial performance. The ESGC ETF specifically screens companies to exclude those involved in tobacco, weapons, thermal coal, and with a disqualifying UN Global Compact score.

Invesco has been one of the first companies to focus on investing in the ESG space, having launched cleantech ETFs in 2005.  This will be the ninth ESG focused ETF that Invesco has launched in the Americas. Over half of these ETFs have been around for more than 15 years as well. In the EMEA region, Invesco has eight ESG ETFs that screen companies across three different global regions.

The ESCG ETF has been trading on the TSX since October 8th.

 

 

 

Both American and Canadian Market Indexes Are Very Narrow

On the surface, both the American S&P 500 and Candian TSX, have recovered nicely since the March 2020 crash. While the TSX has made up nearly all of their losses from the crash, the S&P is now up nearly 5% since the start of the year.

However, if investors look more deeply, the recovery since the crash looks more like a narrow ETF, than a broad index. The S&P 500 and the TSX are supposed to be broad indices representing companies in the US and Canada. However, look closely at the indices’ returns and where they are coming from. The results of how narrow they are, are staggering. 

If you simply remove the Top-5 best performing names from the S&P-Apple, Amazon, Microsoft, Nvidia, and Facebook- and the Top-5 best performing names from the TSX-Shopify, Barrick, CN Rail, CP Rail, and Wheaton-suddenly, the 2020 recovery doesn’t look so impressive. In fact, the performance of the indices turns substantially worse.

The S&P 500 becomes marginally negative for the year, while the TSX drops deep into correction territory. In fact, Shopify alone is responsible for over 4.5% of the TSX’s returns this year.

Why does this matter? It supports the notion that the market’s recovery from COVID only reflects certain tech stocks that have been able to adapt to the “new normal.” Shopify and Amazon, for example, have largely benefitted from more people staying at home, and the increased need for e-commerce.

While stocks like Shopify are up over 150% this year, look at non-tech Canadian stocks. Financials such as the Royal Bank of Canada (RY) and Toronto-Dominion (TD) are down 13.12% and 22.29% respectively, and energy stocks such as Enbridge (ENB) and TC Energy (TRP) are down 31.35% and 22.35% respectively.

While the recoveries of both the S&P and TSX certainly are impressive after that dreadful March 2020, not everything is always as it seems. Be mindful that the stock market does not always reflect reality and the broader economy.

Shopify’s Latest Earnings Report Crushes Estimates

Shopify (SHOP) continues to be a Canadian success story.

The Ottawa-based e-commerce platform reported third-quarter earnings results that crushed estimates. This can be largely attributed to the surge in e-commerce demand due to the COVID-19 pandemic.

Shopify posted a third-quarter net income of $191.1 million, or $1.54 a share, compared to a net loss of $72.8 billion, or 64 cents a share a year ago. On an adjusted basis, Shopify earned $1.13 a share- easily eclipsing analyst estimates of 52 cents a share. This adjusted figure also surged from last year’s adjusted figure of a 29-cent loss per share.

Shopify’s revenue this quarter also nearly doubled to $767.4 million from $390.6 million. Analysts were expecting revenue to grow to only $663.1 million. Much of the company’s revenue this quarter came from $245.3 million in subscription revenue from new customers joining the platform.  Shopify also made $522.1 million in revenue largely driven by merchant-solutions and growth in gross merchandise volume. Shopify witnessed a $30.9 billion in gross merchandise volume for the quarter, up 109% from last year.

Shopify also attributed much of its third-quarter growth to its new payment option for select merchants. This new payment solution allows consumers to split their payments into installments. According to Shopify’s Q3 earnings release, this “buy-now-pay-later” option has helped merchants “boost sales through increased cart size and higher conversion.”

Just two days ago, Shopify also announced a partnership with hot social media video app TikTok to attract more merchants. Shopify said that the partnership will allow its 1 million+ merchants to sell products in the form of shoppable video ads, where TikTok users can click on an ad to buy the product.

Although Shopify declined to provide any forecasts or projections for the fourth quarter, they have seen shares gain 156% so far this year.

Through its proprietary services, Shopify has revolutionized e-commerce and direct-to-consumer sales. The company offers online retailers a package of services aimed at simplifying the process of running an online store. Shopify provides users with services ranging from payments, marketing, shipping, and customer engagement tools.