The TSX index enjoyed a good month in November being up 5.3 %, bringing YTD performance to minus 3.6%. In comparison, both the Dow Jones and S&P indices were up 5.1% on the month and down 4.9% and 14.1% YTD respectively. This result came about as inflation eased a little leading to the hope that central bankers would follow suit, which the Fed Chairmen in late November hinted he would. GNP grew well over 2% in the 3rd quarter in both Canada and the USA; employment was strong as were wages and retail sales were up in Canada. Wage rate growth continued, but lagged inflation and savings rates declined. The Canadian dollar gained just over 1% on the US. Canadian earnings prospects seem to be holding up as commodity prices remain strong. It should be noted that a severe inversion exists between the yields on 2- and 10-year treasuries; the housing sector is taking a beating; consumer sentiment seems to be slipping; China’s economic difficulties seem to be mounting as they try to maintain their zero covid policy and the war in Ukraine carries on. With this background, the following table presents the top and bottom performers for the month of December 2nd.
The number one performer was Enthusiastic Gaming Holdings Inc (EGLX) whose stock was up 48.1% in November, while down 68.55% YTD. This stock has had a wild ride this year: it was the best performer in May, the worst in August, and 2nd worst in September and November. The stock price reached a high in early February of $4.67 and a low in October of $0.80 rising to 1.13 on December 2nd.
EGLX is building the largest media platform for video game and esports fans to connect and engage with its approximately 300 million gaming enthusiasts worldwide. Central to its ability to create valuable advertising space (referred to as “Inventory”) is the ability to both develop content-rich digital media and foster the interaction and contributions of its users to its digital media properties. To this end, it maintains a network of full and part-time content developers.
Results posted November 14, 2022, for the 3rd quarter ended September 30th were a record: Revenue at $50.6 million was up 17% over the comparable prior period; Gross profit at $16.6 million was up 64%; Operating expenses at $26.6 million were up 24.3%. However, the net loss was $37.9 million (after taking a $31.3 million non-cash loss on impairment of goodwill) compared to a loss of $12.4 million in the prior period. Long-term debt increased YTD by $8.2 million and cash on hand closed at $15.8 million, down $6.8 million. These results appear to have given the stock price a nudge, but the announcement on December 1st that EGLX had entered into a content partnership account with Google seems to have provided the principal lift. They plan to launch and support the Geeked:Toon live-stream weekly shows which will further connect brand partners with Gen Z audiences who are the main users of the EGLX platform.
The second-best performer was Shopify (SHOP) whose stock was up 32.4% in November, but down 67.06% YTD. It too has jumped around this year, having been worst in April, best in July, and 2nd best in September.
SHOP 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. Black Friday sales were a record: 52 million customers (up 12%) bought more than $3.5 million per minute at 12:01 PM EST on November 25. Management expects revenue growth to continue with Merchant Solutions revenue growing at 2 times that of Subscription Solutions revenue. While the growth in Operating expenses is expected to decelerate in the 4Th quarter, an operating loss at a similar level to the 3rd quarter is predicted.
The third best performer was Acuity Ads Holdings Inc (AT) whose stock was up 25.49% in the month but down 46.22% YTD. Its stock price rose precipitously to more than $32 in February 2021 and had fallen to over $4 at the beginning of 2022 and by November 4th it had got to $2.04. The results for the 3rd quarter appear to have been the proximate cause of the subsequent lift.
AT is a technology company that enables marketers to connect intelligently, via a one-stop solution, with audiences across video, mobile, social, and online display advertising campaigns. Its technology enables programmatic advertising, which is the automated buying and selling of advertising inventory electronically. Its Programmatic Marketing Platform allows advertisers to manage their purchasing of online display advertising in real time. Its journey automation platform, illumin™, offers planning, buying, and omnichannel intelligence from a single platform, allowing advertisers to map their consumer journey playbooks across screens and execute in real time.
The third worst performer was Telus International (Cda) Inc (TIXT) whose stock was down 5.59% for the month and 32.58% YTD. The stock traded in the high $30’s at the beginning of 2022 and crested in mid-August at $40.15. It fell precipitously in late October and continued to $26.69 in early November from which it moved to close the period at $28.18. Telus owns 73.3% of the outstanding multiple (10 for 1) voting shares and Baring Private Equity owns the rest, giving them 96.8% of the total voting power. Several financial organizations own 38% of the 66.2 million outstanding subordinate voting shares.
TIXT is a leading digital customer experience (CX) innovator that designs, builds, and delivers next-generation solutions, including AI and content moderation, for global and disruptive brands. Its services support the full lifecycle of clients’ digital transformation journeys and enable them to embrace next-generation digital technologies to deliver better business outcomes more quickly. It works with clients to shape their digital vision and strategies, design scalable processes and identify opportunities for innovation and growth.
The second worst performer was ATS Corporation (ATS) (formerly ATS Automotive Tooling Systems Inc) whose stock was down 6.04% on the month and 13.04% YTD. The stock has bounced around this year from a high of over $50 in early February to a low of $31 in mid-May, rising to $46 in August and gyrating since to end at $43.69.
ATS is an industry-leading automation solutions provider to many of the world's most successful companies. It uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products, and value-added services to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, food & beverage, transportation, consumer products, and energy. Founded in 1978, ATS employs over 6,000 people at more than 50 manufacturing facilities and over 75 offices in North America, Europe, Southeast Asia, and China.
Results for the 2nd quarter ended October 2, 2022, were not spectacular. While revenues at $588.9 million were up 12.8 % over the comparable prior year period, net earnings at $29.5 million were basically flat due largely to higher finance costs ($6.2 million, to finance the acquisition of SP) and income taxes ($3.1 million). Adjusted EBITDA at $88.8 million was up 6.6%. Cash at the end of the quarter amounted to $95.2 million after utilizing $44.7 million during the period primarily due to changes in non-cash working capital. The debt-equity ratio is 1.26. With a large backlog ($1.8 billion), established operations and markets as well as experienced management ATS should find opportunities ahead.
The worst performer was Absolute Software Corporation (ABST) whose stock was down 9.17% on the month and up 11.64% YTD. It was ranked 2nd best in both August and September. The stock drifted along under $12 through 2022 to August when it moved up to about $16 which held to the start of November when it fell to its month-end close of $13.24.
ABST is a leading provider of self-healing endpoint and secure access solutions. This involves the only undeletable defense platform embedded in more than 600,000 devices, which helps some 18,000 customers protect against the escalating threat of ransomware and malicious attacks. It enjoys a relationship with over 1,100 partners, including several global carriers and unique integrations with 28 leading PC OEMs (including Dell and HP). For the first fiscal quarter ended September 30, 2022 revenue was $53.6 million, up 23% over the comparable prior year period, (adjusted revenue at $54.2 million grew a like percent) but the net loss was $9.5 million, 25% worse than the prior period. This was attributed to an increase in salaries related to employee headcount in support of projected growth. Management confirmed the fiscal year (ending June 30, 2023) outlook for adjusted revenue to grow 14.8% minimum and adjusted EBITDA 21%.
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Take Care,
Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.
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