A stark message on August 26^th from the Chairman of the Fed, Jerome Powell, setting out their determination to fight inflation with more sharp interest rate hikes, knocked down stock markets around the world: the TSE index was down 5.1% in the last 5 sessions of August and down 1.8% for the month, led by the Technology sector. The pressure on interest rates was reinforced on Wednesday when Canada’s central bank raised its base rate by 0.75%. Inflation remains a significant risk in Canada; China’s difficulties with covid continue to impact global supply and demand; the war in Ukraine carries on. Canada’s economic performance has been excellent with GNP in the second quarter growing 3.3% (compared to minus 0.6% in the US). Final domestic demand remained strong and business investment grew, offset by declines in the residential sector and government spending. With this background, the following table shows the top and bottom performers for the month.

Boyd Group Services Inc (BYD)

The top performer for the month was Boyd Group Services Inc (BYD) whose stock was up 11.26% on the month and down 9.63% for the YTD. BYD is one of the largest operators of non-franchised collision repair centers in North America. It has some 860 locations of which 724 are Gerber glass.  Its stock fell from a high at the beginning of the year to a low on August 9^th from which it sprang on the back of strong results posted on the 10^th: Sales at $613 million, up 37.8% for the quarter ended June 30^th, 2022; same-store sale up  22.3%; adjusted EBITDA at $72 million, up 24.2%; adjusted net earnings up 19.2%; diluted earnings per share at $0.62, up 26.5%. Management noted that demand is exceeding capacity in all US markets and indicating a recovery in Canadian markets; labour shortages continue and further price increases and an easing of supply chain pressure are required going forward. Management feels confident and reissued its aim to double the size of the business from 2021 to 2025.

Absolute Software Corp (ABST)

The second best performer was Absolute Software Corp (ABST) whose stock was up 11.14% on the month and 19.48% YTD. ABST is a leading provider of self-healing endpoint and secure access solutions. This involves the only undeletable defense platform embedded in more than half a billion devices, which helps 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). ABST has some 700 employees, 170 global patents and 17,000 customers.

The stock hit a bottom of $9.04 in early July 2022, rising to a high of $15.86 the day after the fiscal year 2022 results were announced: Revenue for the quarter ended June 30, 2022, at US$52.5 million (97% recurring) was up 65% compared to the same period one year ago,  or $20.7 million, of which 79% was attributed to the NetMotion acquisition in July 2021; adjusted EBITDA at $15.4 million was up 93%; net loss was $5.3 million ($0.10 per share)primarily due to $5.1 million of extra interest expense on long term debt taken on to support the NetMotion acquisition. Cash on hand on June 30^th, 2022 was $64 million, reflecting a reduction of $76.5 million for the year following the acquisition expense of $342 million, offset by an increase in long-term debt of $269.5 million.

The increasing volume and velocity of data breaches and cyber threats have accelerated the demand for resilient security platforms. For the full fiscal year 2023 (ended June 30), management is projecting EBITDA growth of 21 to 24%.

Leon’s Furniture Limited (LNF)

The third best performer was Leon’s Furniture Limited (LNF) whose stock was up 10.72% on the month, but down 27.16% YTD. LNF is the largest network of home furniture, appliances, electronics, and mattress stores in Canada and the country’s largest commercial retailer of appliances to builders, developers, hotels and property management companies. Additionally, the Company operates five e-commerce sites and its repair service division, Trans Global Services (“TGS”), provides household furniture, electronics and appliance repair services to its customers. It also provides credit insurance through 2 subsidiaries.

The stock hit a low of $15.03 on July 15^th and a high of $19 on August 11^th, the day the record results for the 2^nd quarter ending June 30, 2022, were announced: Revenue at $647 million was up $58.5 million, or 9.9% compared to the same period one year ago, with strong performance in all key product categories; net income at $50.1 million was up 8.9%. In the first half of 2022, long-term debt was increased by $150 million to help support a $240 million share buyback, resulting in $81.4 million cash on hand at period end.  Adjusted diluted earnings per share at $0.70 per share were up 20.7%, reflecting the substantial share buyback exercise. Management is cautiously optimistic that sales and profitability will increase. It remains focused on effectively managing costs and continuing to invest in digital innovation.

Dye & Durham Ltd (DND)

The third worst performer was Dye & Durham Ltd (DND) whose stock was down 26.2% on the month and 69.63% YTD. DND was the third worst performer in March and July 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 (“U.K.”) and Ireland and serves a large customer base of over 50,000 legal firms, financial service institutions, and government organizations.

There have been no earnings announcements since May 12^th and so the movement in the share price in August is due to the collective views of the shareholders. The reduction by Mawer Investments of some 1.9 million shares during the month may have had some influence. DND has an interesting concept with a long runway and a desire to become a $1 billion adjusted EBITDA company. It had over $200 million in cash as of the last report but historically has chewed it up at a fairly high rate. We need to await evidence that management has got its expenses under better control before the stock price will get on a rising trajectory.

CAE Inc (CAE)

The second worst performer was CAE Inc (CAE) whose stock declined 32.07% on the month and 26.32% YTD. It is a technology company which digitalizes the physical world by deploying simulation training and critical operations support solutions. It is managed through three segments: Civil Aviation, which provides comprehensive training solutions for flight and other personnel; Defense and Security, which provides global training to ensure mission readiness; Healthcare, which provides virtual education and training solutions.

The stock price bounced around in 2022 until the announcement of the results for the quarter ending June 30^th in early August when it plunged some 23%. Revenues at $933.3 million were up 24%, but operating income at $39.4 million was down 54% and net income at $3.7 million was down 92%. The Defense segment contributed most of this decline with a charge of some $28.9 million related to US defense contract profit adjustments. On the positive side, the order backlog increased 26% to $10.026 billion. Consequently, Management revised its annual growth rate projection to mid-20 % (from mid-30 %) for adjusted segment operating income to reflect the more acute, sector-wide headwinds such as supply chain pressures, labour shortages, and a slower defense contracting environment. This is a solid long-established global operation which should deliver results in future to support a higher stock price.

Enthusiastic Gaming Holdings Inc (EGLX)

The worst performer was Enthusiastic Gaming Holdings Inc (EGLX) whose shares were down 35.2% on the month and 56.45% YTD. It reached a high in mid-February and it was the number one performer in May. The entire August loss has been since the announcement of the 2^nd quarter results on August 15^th. 

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. Its products and services fall into three principal pillars, which consist of Media and Content, Esports and Entertainment, and Subscription. Media and Content whose revenue stream is comprised of over 100 websites that are wholly owned or exclusively monetized by the company is the most significant producing 89% of total revenue. 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 for the quarter ended June 30, 2022, were disappointing: while revenues at $51.1 million were up 37.9%, and gross profit was up $7.3 million, operating expenses were up $9.6 million and the net loss for the period was $ 1 million worse at minus $13.8 million (negative $0.12 per share). For the six months ended June 30, 2022, EGLX had a net decrease in cash of $7.7 million after repaying $1 million of debt, leaving $14.9 million on hand.

EGLX has a complementary organic and acquisition strategy. While acquisitions will continue as an important growth lever, it believes it has a clear path to further monetize the viewership base through multiple organic growth initiatives and the launch of additional products in the near future. 

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.

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