The TSE Index was up 5.65% in the month of July, up 10.27% YTD and 12.04 % over the past year. Canadian GDP was up 0.4% in the third quarter of 2024 and 0.50% for the full year; in the USA the GDP was up 2.80% in the third quarter and 3.10% for the full year. The Canadian inflation rate was up 2.70% annually and the US inflation rate was 2.90% annually in July 2024. With this background, the following Table presents the highest and lowest performers for the month of July 2024.

Real Matters Inc. (REAL)

The top performer of July was Real Matters Inc. (REAL) whose stock price rose 21% on the month, 21% year-to-date, and 10% from the year prior. The strong month emphasizes the volatility that REAL’s shares have seen over the last year with a 52-week range of $4.43-$7.78.

REAL operates in the real estate appraisal and title service industry in North America, the company plays an essential role in the value chain of the real estate market by helping mortgage lenders reduce the risk of lending and meet regulatory requirements. In addition, REAL also provides insurance inspection services by ensuring all the historical and current owners of the property are taken into account during the due diligence process, maintaining transparency between buyers and sellers. REAL generates revenue by providing local knowledge and expert opinions on the fair market value of a residential property.

REAL’s business is highly sensitive to interest rates which closely impact housing market activity which is a key driver of the company’s demand. The Bank of Canada announced their second consecutive rate cut on July 24^th , reducing its key interest rate to 4.5% (cut 25bps). This was a large reason for REAL’s strong monthly performance. Additionally, a positive US CPI reported has signalled that the Fed will also begin cutting rates in September.

Unrelated to the July performance, REAL reported Q2 results on August 1^st, with EPS of 2c beating estimates of 1c. Net revenue matched estimates of $13 million and displayed growth of 8% year-over-year. The stock has pulled back since reporting results, but this is more likely due to broad market concerns on fears of recession in North America. It was a solid quarter for REAL as profitability grew along with higher volumes.

Leon’s Furniture Limited (LNF)

The second-best performer of July was Leon’s Furniture Limited (LNF) whose stock price was up 20% on the month, up 51% year-to-date, and 23% over the past year. LNF has been trending up over the last year, touching 52-week and all-time highs of $27.74 on the final day of July.

LNF is one of the largest Canadian commercial retailers in the home furniture category, LNF offers a variety of products such as home furniture, appliances, electronics, mattresses, etc. Its target customers include builders, developers, and renovators, as well as hotel and property management companies. The company operates under different brands including Leon’s, The Brick, Brick Outlet, The Brick Mattress Store etc.

There was no company specific news for LNF in the month corresponding to the big share price jump. While the stock is sensitive to the macroeconomy, the jump occurred on July 30^th so it is unlikely this was rate cut related.  

A&W Revenue Royalties Income Fund (AW.UN)

The third-best performer of July was A&W Revenue Royalties Income Fund (AW.UN) whose stock price was up 18% on the month, up 9% year-to-date, and down 1% over the past year.

The A&W Revenue Royalties Income Fund is a limited purpose trust established to invest in A&W Trademarks Inc, which indirectly owns the A&W trademarks used in the A&W quick service restaurant business in Canada. AW.UN is that is entitled to 3% royalties on the gross sales reported by A&W restaurants in the Royalty Pool. The 22nd annual adjustment to the Royalty Pool took place on January 5, 2024, at which time the number of restaurants in the Royalty Pool increased from 1,037 to 1,047.

On July 22nd, AW.UN announced a strategic merger with A&W Food Services where the two would now operate under a single publicly traded entity. AW.UN unitholders have the option to receive shares in the new entity or receive a cash payout of $37.00. This caused the shares to jump in July. The deal was somewhat complicated and had a few important caveats. We have discussed the transaction in detail here.

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Pason Systems Inc. (PSI)

The worst performer of the month was Pason Systems Inc.(PSI) whose stock price was down 11% on the month, up 1% year-to-date, and up 24% over the past year.

Pason Systems Inc.(PSI) is a leading global provider for data management systems for oil and gas drilling. PSI has a 40 plus year track record of offering end-to-end data management solutions enabling secure access to critical drilling operations information and decision making in real time. PSI’s wide variety of solution offerings enable collaboration between drilling rigs and offices. Additionally, PSI provides products and services for solar power and energy storage in North America.

There was no company specific news relating to the drop for PSI. It was likely more due to wider industry/sector moves.

Boyd Group Services Inc. (BYD)

The second worst performer of July was Boyd Group Services Inc. (BYD) whose stock price was down 10% on the month, down 17% year-to-date, and down 4% over the past year. BYD has traded in a wide 52-week range $218-$324, seeing plenty of volatility.

Boyd Group Services (BYD) is one of North America’s largest collision repair center operators in terms of both its scale of operations and revenues. The company has a few separate operating companies across Canada and the US and has a total of 942 locations across 33 US states and 5 Canadian provinces. The company operates in Canada under trade name Boyd Autobody and Glass and Assured Automotive, as well as in US under Gerber Collision and Glass. It is the only publicly traded company that is solely focused on auto collision and glass repair in North America, and it is known to be a consolidator in a highly-fragmented market and has strong ties with large insurance carriers across North America.

There was no company specific new related to the sell-off in July. We continue to like BYD and see it as one of the stronger names in the TSX. The stock does trade at a premium valuation with a three-year average forward price-to-earnings ratio of 44x which opens the door for multiple contraction.

Shopify Inc. (SHOP)

The third worst performer of July was Shopify Inc. (SHOP) whose stock price was down 6% on the month, down 18% year-to-date, and down 5% over the past year.

Shopify (SHOP) is a leading global commerce company that provides essential internet infrastructure for commerce, offering tools to start, scale, market, and run a business. SHOP has transformed since inception in 2004, initially as a platform to help small businesses set up online stores. SHOP now provides all types of merchants with an all-in-one solution spanning a multi-channel front end, a single integrated back end, and infrastructure for data-informed decisions.

SHOP had previously had a significant slide due to weak Q1 earnings which we have discussed frequently. The stock further declined in July as there were signs of general weakness in the broader technology sector and US economy. To start August, SHOP has erased all these concerns reporting a strong Q2 with positive guidance and will likely be in the top of next month’s edition of Market Movers.