The TSX Index was down 3.4% in the month of October 2023; down 2.6% YTD and down 2.8% over past  year. The Dow Jones Industrial average followed a similar pattern. In contrast, S&P 500 index  was up some 10% YTD and the NASDAQ composite index was up over 20% YTD. Canadian GDP contracted 0.2% annually  in the second quarter; Consumer prices in Canada were up 3.7% annually in September, in line with August. The BOC is widely expected to leave their policy rate unchanged at 5% later this week (unchanged since July 2023). Global uncertainty has been exacerbated by the wars  in Israel and Ukraine and by the shenanigans in the US House  of Representatives. Additionally, the direction of the Chinese economy is still not clear: its GDP was up 4.9% annually due to a pickup in household consumption. With this background, the following Table indicates the top and bottom stock performers in October 2023.

STELLA JONES INC (SJ)

The top performer for the month was Stella Jones Inc (SJ) whose stock was up 11.21% for the month, 49.71%YTD and 77.04% over the past year. The stock price has moved up more often than down this year from a low in early October of $63.38 it rose to close at $77.04.

SJ is North America’s leading producer of pressure-treated wood products. It supplies the continent’s major electrical utilities and telecommunication companies with wood utility poles and North America’s Class 1, short line and commercial railroad operators with railway ties and timbers. It also provides industrial products,  manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications. It operates 43 wood treating plants and a coal tar distillery in facilities located across Canada and the U.S. complemented by an extensive distribution network. As at June 30, 2023, the Company’s workforce numbered approximately 2,835 employees.

Results for the 2^nd quarter ended June 30, 2023 (published August 3,2023) continued on their strong trajectory: Sales at $972 million were up 7% over the corresponding prior year period; EBITDA at $175 million was up 14% and EBITDA margin was 18% compared to 17% last year; Net income at $100 million or $1.72 per share was up 14%.

For the first six months of 2023, sales amounted to $1,682 million, up 8% over the corresponding period last year, driven by the 13% organic sales growth of the Company’s infrastructure-related businesses. Long Term Debt was up $198 million in order to finance growth in accounts receivable of $116 million (in line with seasonal trends) and inventories of $97 million (to prepare for higher pole sales). At June 30, 2023 SJ had $292 million available. Net debt to EBITDA was 2.6%

Stella-Jones’ strategy is to solidify its leadership position in its core product categories and in key markets, through organic growth, network efficiencies, innovation and accretive acquisitions. Its outlook calls for a 6% CAGR in sales going forward and 9% CAGR in EBITDA. It also calls for the return  of $500 million to shareholders through dividends and share buybacks.

ENGHOUSE  SYSTEMS LTD (ENGH)

The second best performer was Enghouse Systems (ENGH) whose stock was up 8.61% in the month, down 9.48% YTD and up 7.49% over the past year. The stock price has bounced around over the last year: it reached a yearly high of $43.40 in late February 2023, fell to a low in August of $28.02 (it was the 2^nd worst performer in June 2023) and rose to close at $32.56.

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.

Results for the  third quarter ended July31, 2023 pleased management: Revenue ($111 million, up 8.7%); operating profit ($30.9 million, up 3.8%) and cash flow ($39.2 million, up 33.8%) all looked good. Also, recurring revenue at $72.3 million was up 13.8%. Additionally, Adjusted EBITDA at $33.4 million , was up 2.9% over the comparable last year period and cash on hand at period end rose to $249.7 million. However, net income at $17.6 million ($.32 per share) was down 2.8% due to increases in amortization of acquired software and other expenses. The acquisition of Lifesize Inc was completed subsequently for US$20.7 million and management sees further acquisitions in future. 

BADGER INFRASTRUCTURE SOLUTIONS LTD (BDGI)

The third best performer was Badger Infrastructure (BDGI) whose stock was up 5.88% in the month, 37.77%YTD and 36.73% over the past year. The stock has generally drifted up over the year: it was no 1 performer in July 2023; and has continued up to close of $36.73 and has  continued on to present of $39.30.

BDGI is the largest provider of non-destructive excavating and related services in North America. Its key technology is the Badger Hydrovac^TM, which is used primarily for safe excavation around critical infrastructure and in congested underground conditions. 

Management was pleased to report another record revenue for 3^rd quarter ended September 30, 2023: Revenues at $195.6 million were up19.6% over the corresponding prior year period;  Gross profit margin increased to 32.1%  (from 27.4%); adjusted EBITDA at $52.7 million was up 49.3%; net earnings were $23.3 million and earnings per share at $0.68 were up 62%; consolidated revenue per truck per month was $49,079, up 5%. Management is planning to produce between 200 and 230 units and retire 75 to 85 units.

BDGI continues to focus on increasing revenues through its sales and national accounts to capture pricing opportunities and asset utilization throughout its branch network, particularly in the major urban centers in North America that are seeing strong end market demand growth.

ATS CORPORATION (ATS)

The 3^rd worst performer was ATS Corp (ATS) whose stock was down 19.34% on the month, up 10.95% YTD and up 8.35% over the past year.  The stock started at the end of 2022 at a low of $42.09, rose above $50 quickly and bounced above that number until  mid September when it dropped precipitously to close at $46.7%.

ATS is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, to address the sophisticated manufacturing automation systems and service needs of multinational customers.

Results for the first quarter of fiscal 2024 ending July 2, 2023 (reported August 9^th) were fairly strong: Revenues increased 25% to $753.6 million; net income at $47.7 million was up 21% and adjusted basic earnings per share at 69 cents were up 21%. Order bookings however at $690 million were down 6.3%. General Motors mentioned an issue with “automation” in its EV product ramp, which caused speculation around ATS. Notably ATS completed an issue of 6.9 million shares on May 30, 2023 for proceeds of $379.8 million. The reason for the sharp decline in the month is unclear although GM’S concerns may have drawn a wider audience.

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REAL MATTERS (REAL)

The second worst performer was Real Matters (REAL)whose stock price dropped 21.13 % on the month; but was up 16.99% YTD and up 5.84% over the past year. It provides residential real estate appraisal and title services to mortgage lenders in the United States and Canada as well as insurance inspection services in Canada.

On a consolidated basis, Net Revenue for the quarter ended Jun 30, 2023 (announced on August 21^st) declined 41.6% on lower revenues generated across all three segments: U.S. Appraisal Net Revenue declined due to lower addressable mortgage origination volumes; the decline in U.S. Title Net Revenue was due primarily to lower refinance mortgage origination market volumes; Canadian segment Net Revenue declined due to lower market volumes for appraisal services. REAL continues to execute well on what’s within its control, but it appears the market backdrop has become more challenging.

DYE & DURHAM Limited (DND)

The worst performer was Dye & Durham (DND) whose stock price was down 39.13% for the month; down 50.7% YTD and down 46.32% over the past year. The stock had an early low last year in mid December 2022, rose to $22.10 at end of January (it was no 3 performer in January 2023), dropped from high of $20.31 in  mid August from which it fell to the close. (it was 2^nd worst performer in September 2023).

DND is a leading provider of cloud-based legal software and payments technology solutions designed to improve efficiency and increase productivity for legal and business professionals. DND has approximately 1,400 employees and more than 60,000 customers around the world, with operations in Canada, the United Kingdom, Ireland and Australia, and more recently, South Africa.  Management anticipates that by growing its business organically and through M&A over the long term, it will be successful in building the company to a billion dollars of adjusted EBITDA.

Results for the quarter ended September 30, 2023 confirmed the drop in stock price: Revenues were essentially flat at $120.1 million; net loss was $13.5 million, 17.5% worse than corresponding period one year ago. A substantial increase in financing costs appears to have contributed heavily to this outcome. Adjusted EBITDA at $68.7 million was up 7%

On October 20^th DND announced a number actions to reduce overall convertible debt by $10 million by an offer to repurchase and retire $95 million of 3.75% denominated convertible debt and issuing $85 million of convertible debt carrying 6.5% interest rate. DND also announced the commencement of an NCIB to acquire 2.9 million shares (10%) and a business improvement plan to lift free cash flow by $70 million annually through product price optimization and reductions in capital and other expenditures. The debt/equity ratio was 2.49 at September 30, 2023.

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