July was a month of mixed signals:

• Inflation continued to soar which drove the Central Bank in Canada to raise its rate by 1% and the US Fed by 0.75%.
• The US had two consecutive quarters of negative GDP growth and the 2-year/10-year yield curve inverted, each indicating a recession in the offing.
• A new strain of COVID impeded the full reopening of the China supply chain.
• But energy prices declined in North America and the stock market rebounded with the TSX up some 5% on the month and the Nasdaq Index up more than 10% on expectations that inflation will peak soon.
• Increases in the technology and the consumer discretionary sectors contributed to this result.
• In Canada, the strength of the resource sector kept GDP growth positive (barely) over the last two quarters and consumer spending continued to grow, albeit at a reduced pace, buttressed by excess savings, full employment, and rising wages.

With this background, the following table lists the top and bottom stock performers for the month. We have also included a column showing the industry each company belongs to.

Shopify Inc (SHOP)

The best performer in the month was Shopify Inc (SHOP) whose stock was up some 34% for the month, but down 69% YTD as it was the worst performer in April. This gives some indication of its volatility.

It is a leading provider of essential internet infrastructure for commerce, offering tools to start, grow, market, and manage a retail business of any size. It is particularly attractive to small businesses and occupies a nascent software niche that is growing rapidly.

Results announced on July 27^th were a disappointment to investors: Revenues for the quarter ended June 30 were US$1.3 billion, up only 15.7% over the prior year period and a net operating loss of US$190 million was recorded, compared to a US$139 million profit in the prior period. However, due to improved general market sentiment for growth stocks, the company shares did well in July. The expansion of R&D and sales and marketing teams chiefly accounted for this result. A significant unrealized loss on equity holdings of US$1 billion led to a net loss of US$1.2 billion for the quarter. Another and perhaps more significant factor influencing the share price was the announcement that a 10% reduction in headcount had been initiated. Management anticipates that the adjusted operating loss will be materially higher in the 3^rd quarter than in the 2^nd and that the 4^th quarter loss will be less than the 3^rd, but more than the 2^nd. There remains some US$3.4 billion of cash plus US$3.6 billion of marketable securities on hand on June 30^th. Growth is expected to continue, led by the Merchandise Solutions segment, but it appears that it will be some time before expenses are brought into line.

TFI International In (TFII)

The second best performer was TFI International In (TFII) whose stock was up 27.35% on the month and down 7.1% YTD. It is a North American leader in the transportation and logistics industry, operating across the United States, Canada, and Mexico through its subsidiaries. It has some 28,286 employees and operates in four separate segments: Courrier (6% revenue); LTL (44%); TL (28%); Logistics (22%).

Total revenue for the quarter ended June 30, 2022, was US$2.4 billion, up $585 million, or 32% over the same period one year ago, primarily due to acquisitions and fuel surcharges. Adjusted net income was US$241 million ($2.61 per share) up 76% and adjusted EBITDA at $441.9 million was up 55%. Free cash flow was north of US$300million and the dividend was raised to $0.27 per quarter, up17%. These results benefitted from a continuing rebound in economic activity and transportation demand following pandemic-related weakness. North American growth has slowed recently, but TFII’s diversity across industrial and consumer end markets and many modes of transportation helped it to generate record results during the second quarter. This diversity is expected to sustain reasonable results in the uncertain future as management believes the company is well positioned for continued solid operational and financial performance in 2022.

Goeasy Ltd (GSY)

The third best performer was Goeasy Ltd (GSY) whose shares were up 22.84 % on the month and down 32.78% year-to-date. It provides non-prime leasing and lending services through its easyhome, easyfinancial, and LendCare brands. With some 2,300 employees, GSY offers a wide variety of financial products and services to off prime customers who can transact seamlessly through an omni-channel model at over 400 locations and point-of-sale financing offered in various verticals, through more than 4,000 merchants across Canada.

Results for the first quarter ended March 31, 2022, were published on May 11^th and were pretty much in line with expectations. Revenues for that quarter were $232.1 million, up $62 million, or 36.4%; Gross consumer loans receivable increased from $1.28 billion as of March 31, 2021, to $2.15 billion as of March 31, 2022, an increase of $877.0 million, or 68.7% (about half from acquisitions); total operating income for the quarter was $80.0 million, up $16.0 million, or 25.1%, when compared to the comparable period of 2021. Net income was $26.1 million ($1.55 per diluted share) down significantly from the prior year's net of $112 million. There was a negative swing of some $105 million in other income which accounted for this result. Adjusted net income at $45.8 million was up 24.8%. The publication included forecasts for the next three years which call for a 75% increase in gross consumer loans to $3.5 billion at end of 2024, with a return on equity of 22%. It may be that the announcement on July 5^th that the securitization facility was increased by $500 million to $1.4 billion was a catalyst in support of the share price movement during the month.

Park Lawn Corporation (PLC)

The third worst performer was Park Lawn Corporation (PLC) whose shares were down 2.82% during the month, and down 20.29% year-to-date. PLC is a funeral, cremation and cemetery provider which claims to be the fastest growing entrant in the industry in North America. Currently, it has 144 funeral homes and 136 cemeteries. Of its $1.3 billion in assets, 13.8% is in Canada and 86.2% in the USA where 90.2% of revenue arose. Results for the first quarter of 2022 were announced on May 12^th. Net revenue for the quarter ended March 31^st at $83.2 million was up 12.4 million or 17.5%, largely due to acquisitions. Net earnings at $8.7 million were up 12%. Earnings per diluted share were $0.25, down slightly from the prior year period due to some dilution from the sale of shares in 2021. The stock price has been fluctuating between $30 and $35 for the last 3 months reflecting changing market sentiment over a fairly strong stable operator. It has some US$30.7 million in cash on hand and continued tuck-in acquisitions can be expected. One headwind is the death rate from COVID has declined substantially.

Richards Packaging Income Fund (RPI.UN)

The second worst performer was Richards Packaging Income Fund (RPI.UN) whose stock was down 7.15% for the month and down 22.9% year-to-date. RPI.UN serves a customer base of approximately 18,000 regional food, beverage, cosmetic, healthcare, and other enterprises. The primary source of revenue is from the distribution of over 8,000 different types of packaging components and healthcare products which are sourced from over 900 suppliers and four dedicated manufacturing facilities. On July 27^th results for the quarter ended June 30^th were published showing revenues at $119.7 million, up $6.7 million or 5.9%; this produced net income of $11.5 million ($1.04 per diluted share). Adjusted EBITDA was $19 million, only $650,000 or 3.4% ahead of the prior year period. These are not blockbuster results. July revenue was down approximately $4 million due to an oversupply in the cosmetics marketplace offset by the Canadian dollar weakening by $0.02 to $0.78. The current sensitivity for every one cent movement in exchange rates to revenue is $0.6 million and to Adjusted EBITDA is $0.07 million.

In the future management (on June 30^th) sees two headwinds. Firstly, the purchasing by competitors in the pump and sprayer market has created an oversupply that will depress sales by 6% for the next few quarters, and secondly, higher interest rates and a possible recession will undermine healthcare equipment sales that represent 9% of total revenues.

Dye and Durham Limited (DND)

The worst performer in the month was Dye and Durham Limited (DND) whose stock was down 15.26% on the month and 58.93% year-to-date. DND was the third worst performer in March and the decline continues. It is a leading provider of cloud-based software and technology solutions to improve efficiency and productivity for legal and business professionals. It has operations in Canada, Australia, the United Kingdom, and Ireland and serves a large customer base of over 50,000 legal firms, financial service institutions, and government organizations. This provides a long runway of opportunity that DND is rushing onto. It wants to become a billion-dollar adjusted EBITDA company. Strong results for the quarter ended March 31^st were announced on May 12^th. Revenues at $122.9 million were up $54 million or 78%; adjusted EBITDA at $66.8 million was up 29.2 million, or 78%: net loss was reduced by $3.6 million to $7 million. Over the last nine months, DND chewed through some $210 million leaving $218.4 million on hand.

In mid-May, the CMA review (UK) of the TMGroup transaction was negative as they suggested that it be sold to avoid reducing competition. In July the acquisition price for the Link Group in Australia was finally settled. This is a company with a great concept that has yet to realize its full potential and the market is taking a ‘wait-and-see’ attitude after its initial enthusiasm.

These are just some of the more than 60 Canadian companies we cover at 5i Research. To view their recent reports you can search for their tickers in the Reports section. If you are not a member and would like to gain access to these reports as well as the Q&A service where you can ask and search questions on these companies, you can fill in your information below to sign up for a free trial.

Take Care,

Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.