MTY Q1 Update

MTY had a good Q1 results. Revenue is up, EBITDA is up, margins are slightly up, but net income is down (large amortization charge). Their cash flow from operation doubled to $8,7m from $4m, fueled by recent acquisitions. The free cash flow is also increasing. That to me is one of the most important metric. That means more cash for acquisitions and the shareholders. Stanley Ma is doing a great job compounding that growth. MTY used part of their cash, $12 million, to pay down a line of credit and some debt. Also I didn’t know if you knew but they augmented their dividend last quarter The only downside was the net gain of one store (40-39). That’s terrible organic growth. Following the trend of most restaurants and retail store right now, their Same-Store-Sales growth -1.7%, blase largely on the weather. They get a pass this quarter because of the terrible weather, but they eventually need to stop the negative trend. Hopefully a strong beautiful summer will get people in stores. I’m also noticing more and more of their products on the shelves of grocery stores. I still haven’t tried them but they do look good (but not healthy). Other than that everything is on par. Patience is the key here.

Here is an interview with the CFO in the WSJ last month (paywall)

Here are both documents from the SEDAR filing:
MTY – Financials Q1 2014

MTY – MD&A Q1 2014

Original investment research: MTY Food Group Inc. – A Restaurant Stock For The Wallet

Highlights of the first quarter of 2014:

  • EBITDA grows by 8% to reach $9.5 million fueled by the results of the newly acquired concepts, of which the positive impact was partially offset by non-recurring master franchise fees earned in 2013 as well as by higher charges related to store closures incurred in the first quarter of 2014
  • Cash flows from operations more than double as a result of lower income tax burden
  • Revenues increase 13%, with most of the growth coming from recurring revenue streams
  • Operating expenses grow 17%, as the company adjusts its structure for future growth and suffers from higher charges related to store closures
  • Same store sales growth declines by 1.7% during the first quarter, impacted by adverse weather in some regions of Canada, sluggish economies mainly in Quebec and Ontario and intense competitive pressures
  • System sales increase by 24% to reach $200.6 million during the quarter
  • The number of units at quarter end sits at 2,591, a net gain of 1 unit generated by 40 new store openings and 39 store closings

This Investor Seeks To Buy A Dollar For Fifty Cents

Reposted from The Globe and Mail
By Larry Macdonald

Brian Langis, 29


Investment manager and consultant

The portfolio

Positions in American International Group Inc., Bank of America Corp., Citigroup Inc., SNC-Lavalin Group Inc. and other companies.

The investor

Brian Langis manages a private investment company and serves as a consultant for a frontier (or “pre-emerging”) market fund. He is a candidate for the Chartered Business Valuators membership exam in 2014.

How he invests

Mr. Langis uses his business valuation skills to estimate how much a company is worth. If the amount is greater than the company’s stock-market capitalization, Mr. Langis may be interested in buying its shares (after factoring in a margin of safety).

“The one particular metric I really put emphasis on is free cash-flow generation,” he adds. “With excess cash, they can pay me a dividend, reinvest in the company, pay some debt, or acquire a company. In general, if a company can increase their excess cash capabilities, that can translate into higher stock prices.”

At the moment, his portfolio is mostly concentrated in U.S. financial stocks – one of the “few sectors that remains undervalued.” As for SNC-Lavalin, the “ethics scandal is keeping the company down, but underneath there’s a going-concern company with great assets.”

“As you can see, I have a penchant for companies that make it on the most-hated list,” sums up Mr. Langis. “To find value, you sometimes have to look where others are not, and usually you end up in undesired places.”

Best move

Mr. Langis recently “hit a home-run” with World Wrestling Entertainment Inc., registering a 100-per-cent return over a seven-month holding period. He had read the company’s filings and “knew that if somebody wanted to buy the company” they would have to pay a lot more than the market capitalization. Also, there was no debt, and a stable 5-per-cent dividend yield.

Worst move

“With the bull market over the last couple years… [it was] not pulling the trigger at certain opportunities that I found undervalued.”


“Focus on the value of a company and its relation to share price.”

CFL Expansion

I asked Mark Cohon, the Commissioner of the CFL, for an expansion team for Eastern Canada. Atlantic Canada, with the right infrastructure, can support the 10th team. The CFL is a great league and it needs more teams. A new CFL team is a value added to the league and to the existing franchises. Let’s have a real Pan-Canadian League.

Well he didn’t say no. With Ottawa Redblacks settled, it’s time to look out East for the future of the league.

CFL Response

TARP Warrants

The Trouble Asset Relief Program (TARP) bank warrants is an interesting way to play some of the US banks and financials. Although more complicated and sophisticated than owning a common share, you have to approach them like a really long-term call option. Basically, you have the option to purchase one share at the strike price for each warrant held. Warrants are risky investments because if the share price doesn’t climb above the strike price before the expiration date, the warrant expires worthless. A simple Google search will lead you to a lot of really smart people that have broken down the math and the different probabilities. I highly suggest you really do your research because there are a lot of variables and inputs that influence the movement of these warrants.

The warrants that I am following at the moment are Bank of America Warrant Class A, Class B and AIG. BAC Class A is more conservative and less risky with a strike price of $13.30 and an expiration date of January 16th 2019. If you are extremely bullish on BAC, the Class B is certainly more risky with a strike price of $30.79 and expires on October 28th 2018. What’s also very interesting, that you don’t find in other warrants, is that the strike price is adjusted downward when dividends are raised after a certain threshold. That’s pretty sweet considering the banks are starting to raise their dividends.

If you really want to get legal, I will refer you to the pleasure reading section:

BAC Class A Warrant Prospectus
BAC Class B Warrant Prospectus

The banks issued warrants to the U.S. Treasury in exchange for bailout money. Then the Treasury sold the warrants to the public in an auction process.

Depending on the website, I always have trouble with the symbol. The sticker varies from site to site.
Yahoo: BAC-WTA
Bloomberg: BAC/WS/A:US

Below is a table summarizing the warrants.


Marois, Bloomberg and Quebec Bonds

Quebec’s bonds have been rallying since Quebec Premier Pauline Marois is downplaying the idea of a potential referendum. Bloomberg has a good article covering the topic: Pimco Says Marois ‘Mess’ Gives Quebec Opportunity.

This is good news because at the beginning of the election the combination of a Parti Quebecois majority with an open door on another referendum on Quebec’s future has increased the cost of borrowing in the province. Now, with the backtracking on a potential referendum and a change in the poll has cool down the yield on the bonds.

At the moment Quebec has a lower credit rating than Ontario and Alberta (obviously). DBRS rates Quebec A-high with a stable trend. According to data compiled by Bloomberg, Quebec has C$24 billion in debt that matures this year and carries approximately C$210 billion in debt. Already a creditor province, you certainly don’t want a spike in the borrowing cost.

Reported in the paper Le Soleil, PM Marois brushed off the potential higher borrowing cost as a joke. She referred it as an “old trick” to scare people. This attitude is the one that making her sink in the polls. The attitude of not tackling the real problems to deviate toward other topics. Not addressing the loss of jobs, the higher debt, and a deterioration of the public finance is catching up to her. It’s these hard issues that needs to be focus on to make the province stronger. Dancing around the identity card with La Charte des Valeurs and a referendum is a way to mask the real problems. If you just loss your job, like many Quebecois did, you don’t want your leader talking about the way people should dress and their religious beliefs. That’s not going to fix your problem and it’s not providing a solution to your next mortgage payment.

Why it’s important: Quebec needs to borrow on the open market to finance its deficit. It raise money by issuing bonds. The cost of borrowing is associated to its credit risk and your credit rating provides is an indicator. The lower your credit rating, the higher the cost of borrowing, and the higher the interest debt service. The higher the service on the debt as part of the budget is less money for important things like health care, education, infrastructure, and social programs. This game can work as long as the capital market likes you. Down the road, the creditor might become anxious on the direction of the province and the state of its public finance. What you don’t want is creditors forcing the government to make really bold action such as cutting funding to certain programs and raising taxes. Instead of being in control, the creditors are. And the creditors will do what’s best in their interest to make sure they get paid back, because remember you took money from them. An example of situation is Greece, where foreign creditors (e.g. IMF, Germany) are dictating the public finance. Quebec is not Greece and we are miles away from such a scenario. However, you need to address the problem now and not wait for the problem to address you.

Lawrence Solomon: Canada needs Quebec

It’s revitalizing the National Post have a positive article about Quebec. In the past the National Post never hesitated to take a couple punch at the province and I am sure they will take a couple more shots in the future. But it’s nice to see a change of tune on in a while. I think the article is pretty reasonable. My favorite part of the article is this:

Quebec has all the ingredients needed to be a prosperous country: a talented workforce, top-ranked universities, advanced industries, abundant natural resources — everything but the good governance required to bring it to Swiss or Swedish levels of economic competence. One day it will acquire that governance and assert its desire for independence.

It’s nice to hear that statement from somebody else because I have said the above argument many times. It’s mind boggling to me that Quebec is behind the other provinces in terms of prosperity. We have all the ingredients to be successful. We have the solution to our problems and we hold the key to our success. The people of Quebec to raise up and live up to its potential.

Here is the full article:

Reposted from The Financial Post
By Lawrence Solomon

Those who think Quebec is dependent on Canada have it backwards; Quebec keeps Canada united

Canada is a camel of a country, an ungainly, confounding confederation of disparate regions that somehow combined to form one of the most successful countries on earth. It is a blessed oddity, “an historic accident” in the appreciative words of former Prime Minister Pierre Elliot Trudeau, who also characterized Canada as “a country built against any common, geographic, historic or cultural sense.”

Unlike Canada, Quebec is coherent: geographically, historically and culturally. Although many in English Canada deride Quebec for its dependence on Canada — the equalization payments it receives, its proposal to keep the Canadian dollar following independence — in truth Canada needs Quebec far more than Quebec needs Canada.

Imagine that Quebec voted for independence in a referendum that all agreed was clearly decided. The Canadian dollar would fall, investments would be put on hold, and chaos and confusion would immediately reign. But this immediate fallout would be as nothing once the long- term implications sunk in.

Canadian governments preemptively made concessions to Quebec to stave off its leaving
The post-referendum negotiations that would ensue would not be limited to the terms of Quebec’s departure from Canada — all the regions and provinces of Canada would examine their own role in the Canada that remained, and jockey for advantage. In the century and a half since Confederation, the provinces have never agreed to so much as free trade among themselves. The odds are slim that they would each put aside their long-standing grievances to happily come together in a lasting new partnership.

Take Newfoundland, which joined Canada only in 1949 and then only narrowly, after two bitter referenda, and on the expectation of being on the receiving end of pensions, family allowances and other federal government benefits. Newfoundland— like Quebec a distinct society and every bit a nation — is today a have province that subsidizes the rest of Canada. If Quebec leaves Canada, Newfoundlanders would almost surely agitate for a referendum of their own to revisit their decision to join Canada. Also like Quebec, Newfoundland’s is an export economy that sells mainly to the U.S. — trade with Canada’s other provinces takes a back seat in importance.

Albertans, who write by far the biggest equalization cheques to other Canadians, would also balk at signing on to a renewed Confederation that resembles the status quo — too many remember how the rest of Canada plundered them through the National Energy Program in the 1980s, and too many now resent the way they are being demonized for their tar sands. At a minimum, Albertans would want a new deal that didn’t make them subject to extortion from the very people they were supporting; more likely, they would question the prudence of joining a new untested union of uncertain future when, as an oil and gas exporting economy whose earnings come in U.S. dollars, their future on their own would be far more predictable.

British Columbia, too, that paradise on the Pacific, rich in natural resources, perfectly positioned to capitalize on the fast-growing Asian trade and closer in temperament to Washington State to the south than to Alberta to the east, could also pause at the prospect of re-Confederating.

A wild card in all this would be the U.S. In 1948, despite opposition from both Canada and the U.K., numerous members of Congress were open to Newfoundland joining the U.S. — with 100,000 American servicemen stationed on U.S. military bases in Newfoundland during World War II, the two had become close. Today, the U.S. would be leery of accepting a Canadian province into the union, for fear of upsetting the Republican-Democratic balance in Congress, but the U.S. could decide to make a simultaneous play for right-wing Alberta and left-wing BC — this was the formula that was acceptable to Republicans and Democrats in 1959, when Alaska (then Democrat leaning) and Hawaii (then Republican) joined the union.

The spectre of upheavals, even when viewed as a distant possibility, suffices to scare Canadian governments whenever Quebec separation becomes remotely plausible — they don’t want to come anywhere near these scenarios. For this reason, Canadian governments have consistently, preemptively made concessions to Quebec, to stave off any serious discussion of its leaving.

Trudeau himself anticipated these concessions would be necessary. “The reason we have a united country, the reason why it will stay united, is because the Canadian people everywhere are prepared to pay the price of that in money terms, in tax terms,” he stated in 1968.

Yet money from the rest of Canada may not be enough at some point in the future— when Quebec itself becomes a have province, as Newfoundland and Saskatchewan did in the last decade. Quebec has all the ingredients needed to be a prosperous country: a talented workforce, top-ranked universities, advanced industries, abundant natural resources — everything but the good governance required to bring it to Swiss or Swedish levels of economic competence. One day it will acquire that governance and assert its desire for independence.

The end game for Canada at that point, ironically, could be precisely the kind of EU-style sovereignty-association that Quebec has been arguing for. The alternative — the prospect of a breakup of Canada, with all the unknowns that would engender — would be sufficient to make us all grateful to keep Quebec in the fold, however loosely.

Lawrence Solomon is executive director of Urban Renaissance Institute.

2014 MLB Team Payroll

“After my fourth season I asked for $43,000 and General Manager Ed Barrow told me, ‘Young man, do you realize Lou Gehrig, a 16-year-man, is playing for only $44,000?’ I said, Mr. Barrow, there is only one answer to that – Mr. Gehrig is terribly underpaid.” – Yankees outfielder Joe DiMaggio

Last year the league broke the $3 billion line for the first time. No surprise here, the estimated 2014 league payroll is up approximately 4%. For the 2nd year in a row, the LA Dodgers lead the league with the highest payroll with $216 million (slightly down from last year). This year the Miami Marlins have the lowest payroll with $42 million. They took the title away from the Houston Astros who almost doubled their payroll this year, exploding from $25 million a year to a shocking $48 million. Regarding teams with a winning record, the Oakland A’s and the Tampa Rays are the teams that are able to scrap together the cheapest win (cost per win).

MLB 2014 Team Payroll