For the monthly period that ended July 7, 2023, the TSX Composite Index was essentially flat (up 0.32%) and up 4.32% for the past year. Information technology and consumer discretionary sectors led the index while energy lagged YTD. The Canadian GDP rose 0.6% annually in the first quarter of 2023; the CPI rose 3.4% annually in May (compared to 4.4% in April). (In the US, inflation fell to 3% in May) The BOC raised their base rate 0.25%, to 4.75% on June 7, 2023, and followed up with a further increase of 0.25% on July 12 to 5%, arguing that inflation was not receding fast enough. Employment in Canada incased strongly in June, but the participation rate ticked up such that the unemployment rate dipped to 5.4%. With this background, the following table presents a list of high and low-performing stocks in the period.
Tecsys Inc
The No 1 performer for the monthly period was Tecsys Inc (TCS), an industry-leading supply chain management SaaS company, whose stock was up 19.93% for the period and 12.74% YTD, but down 8.65% for the past year. The stock peaked in early February 2023 at $31.41, drifted down to $24.64 on June 12th, and rose to $29.91 at the period close on the strength of results published on June 29th.
TCS is engaged in the development, marketing, and sale of enterprise-wide supply chain solutions to multiple complex distribution industries. It also supplies warehouse, distribution, and transportation management as well as supply management at the point of use. Revenues for the 3- and 12-month periods ended April 30, 2023, amounted to $41.2 million (up 20.1%) and $152.4 million (up 11.1%) respectively. 4th quarter Saas revenue (subscription based) at $11.1 million was up 44% and was a leading contributor to this result; recurring revenue grew 25% to $78.3 million. Operating expenses grew 22.8% in the quarter and 15.1% in the whole year as management continued to invest to drive organic growth. This led to a decline in net profit to $0.4 million for the quarter and $2,.1 million for the year. TCS has no long-term debt, is cash flow positive, and has $21.2 million cash on hand. It has raised its revenue guidance to plus 10-15% in 2024 and plus 8-9% in 2025.
NFI Group
The no 2 performer for the monthly period was NFI Group (NFI) whose stock was up 19.46%, but down 15.31% over the past year. NFI has been popping up and down like a yoyo: No 3 in April; 3rd worst in May and 2nd best in June. NFI is a bus manufacturer with an offering that includes zero-emission vehicles (ZMB), charging infrastructure installations, telematics, and full parts and service aftermarket support.
On May 10, 2023, NFI announced a comprehensive refinancing plan (PLAN) which called for a reduction in the credit facility of some $239 million to be replaced by $150 million of common stock (private placement) and a second-tier debt issue. An underwritten issue added $125 million of subscription receipts at $8.25 each (convertible to one common share) which was completed on June 6th. Additionally, the Government of Manitoba and Export Development Canada (“EDC”) agreed to extend their senior unsecured debt facilities.
On June 26th, NFI updated its PLAN and noted that they had received confirmation of approvals from its banking and government partners; raised some $225 million of equity commitments through a combination of a private placement transaction and a bought deal public offering; and significantly advanced a planned $175 million second lien debt financing. All of this should put the balance sheet in good order and undoubtedly underpin the stock performance. The demand for its products seems to be strong and the products seem to work. Revenue will need to grow, and expenses will need to be constrained in the future to restore this company’s status.
Dye & Durham Ltd
The No 3 performer for the monthly period Is Dye & Durham Ltd (DND) whose stock was up 14.48% while being down 15.06% over the past year. This stock has appeared on the monthly list frequently, most recently as 2nd worst in March 2023.
The news in the monthly period was of a substantial issuer bid which was oversubscribed and netted (on June 19, 2023) some 882,352 shares (1.59% of outstanding) at $17 for $15 million. No doubt this supported the share price throughout. Also, on July 10th DND announced the sale of TM Group (UK) Ltd a company it was forced to divest by British regulatory authorities for 50 million pounds on closing, plus up to 41 million pounds in potential earnout payments. The proceeds would be used to reduce debt.
Capital Power Corp
The 3rd worst performer in the monthly period was Capital Power Corp, an independent power producer with a strategic focus on sustainable energy, whose shares were down 10.57% and 6.27% over the past year. It was also the 3rd worst performer in December 2022. The stock was trading in the $45 level going into the monthly period but declined steadily through it. No particular press release supported this decline, and it is likely that the uncertain situation in the Alberta market was a factor. Uncertainty surrounding decarbonization and the slow development of its carbon capture program as well as what the Feds and Alberta might do by way of objectives and regulation are part of the issue.
Enghouse Systems
The 2nd worst performer for the monthly period was Enghouse Systems (ENGH) whose stock was down 12.99% for the period and up 5.44% over the past year. ENGH is a leading global telecommunications technology and IPTV SaaS platform solutions provider. It provides vertical enterprise software solutions focused on contact centers, video communications, healthcare, telecommunications networks, public safety, and the transit market. The stock price has bounced around over the past year and was the Number 1 performer in March 2023.
The decline over the monthly period appears to have followed the publication of results for the 3 months ended April 30, 2023: While revenues at $113.5 million were up 6.7%, operating expenses were up 19.29%, largely attributable to acquisitions, and net income at $12.5 million was down 29.9%. ENGH is continuing to digest its acquisitions while maintaining overall profitability. With $234.5 million cash on hand, no debt, a secure dividend of almost 3% and growing demand for its services, this is a strong company.
Well Health Technologies
The worst performer over the monthly period was Well Health Technologies Corp (WELL) whose stock price was down 19.93%, but up 34.77% over the past year. The price has been choppy and WELL was the best performer in February 2023. WELL is a practitioner-focused digital healthcare company and has the largest medical clinic network in Canada. It provides omnichannel healthcare services and virtual solutions (telehealth)targeting specialized markets such as the gastrointestinal market, women's health, primary care, and mental disorders. Additionally, it develops, integrates, and sells its own suite of technology software and solutions to medical clinics and healthcare practitioners.
The price of WELL shares has been slipping down since the publication of first quarter results on May 12th, 2023. Results were mixed: Revenues at $169.4 million were up 33.9%, but the net loss increased by $7.8 million to $10.6 million compared to the comparable prior year period; Adjusted EBITDA was up 13.6% and there was $41.6 million cash on hand. There were no apparent catalysts in the meantime although an NCIB of 2.5% of the outstanding stock was announced. Apparently, investor sentiment was leaking somewhat.
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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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