Earnings continue to pour in on Premium featured companies and for the most part this email will continue to cover them in-depth.
It was a very interesting week on the markets, as we had BCE report relatively poor earnings and a murky outlook, while Canadian Foundational Stock Telus reported a strong quarter and a relatively strong outlook.
In addition to this, we have a couple Dividend Bull List stocks that are making all-time highs despite some headwinds with the businesses.
Lets jump right in.
Of note, we’re attempting to add a bit more visuals to the newsletter in regards to charts. This will mostly be in relation to a company’s Key Performance Indicators, which is exclusive data you have access to on your membership dashboard.
Moves this week
Now that my portfolio is posted on the website, I’ve also been posting my moves inside my portfolio. I plan to make this a regular addition to the newsletter, as I’m continually purchasing on a weekly basis.
I made a few moves this week, a couple being simple routine adds of Park Lawn Corporation (TSE:PLC) and Alphabet (GOOG) in my cash accounts.
As I’ve stated quite a few times, I view both of these companies as bargains at these prices. Google, despite not having as much growth as Microsoft, is trading at nearly half the valuations and I currently view it as the most attractive big tech company valuation wise.
For Park Lawn, interest rates are still an issue, but we should see a significant improvement in earnings once they come down. I’ve been adding to Park Lawn fairly aggressively over the last 2-3 months, as I view it to be very cheap at these levels. The company hasn’t announced when it reports earnings yet, but we’ll get our report updated as soon as they do.
And finally, I swapped my Bitcoin position from BTCC.B, which has a MER of 1.45%, to IBIT, which has a MER of 0.10%. These new US Bitcoin ETFs are certainly going to put a lot of pressure on Canadian funds to reduce fees, or they could face some pretty heavy outflows.
Earnings
Telus (TSE:T)
TELUS reported a strong close to Fiscal 2023. Revenue of $5.19B was in line with estimates, and earnings of $0.24 topped expectations of $0.229. However, the key focus on many telecoms right now is not earnings and revenue; it’s cash flow.
The company exceeded its free cash flow targets set out at the start of the year and closed the year out with $1.8B in FCF. This still isn’t enough to cover the company’s dividend payment, but with free cash flows expected to be north of $2.3B in Fiscal 2024, it’s looking like dividend coverage is going to improve this year.
This is in stark contrast to BCE, which reported a relatively weak quarter in which it downgraded its free cash flow guidance for 2024, leaving the company with a 20%~ shortfall at the top end of its guidance regarding the dividend.
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TELUS reported its strongest fourth quarter on record when it came to customer growth, and the company surpassed 10 million mobile phone subscribers overall. Revenue grew by 9.4%, adjusted EBITDA by 9.4%, and net income by 17%.
As mentioned above, the company issued free cash flow guidance of approximately $2.3B in 2024, which would mark a 28% increase from Fiscal 2023. We can expect dividends paid to come in anywhere from $2.1B-$2.2B on the year.
Although this dividend payout ratio is certainly tight and leaves little room for error, we expect capital expenditures to continue trending downward, resulting in increased cash flows, better coverage ratios and thus better dividend growth.
In addition, the company’s faster-growing business segments, like TELUS Health, TELUS International, and TELUS Agriculture, should allow the company to grow revenue and earnings faster than the other major telecoms.
This is reflected in the company’s guidance, in which it expects these segments of the business to drive operating revenue growth of 2-4% and adjusted EBITDA growth of 5.5%-7.5%.
This is again in stark contrast to a company like BCE, which is having to go through arguably the largest restructuring in decades because of unprofitable assets, resulting in shutting down particular operations and sizable layoffs.
We have stated time and time again that we like TELUS’s operating segments much more, as they focus on higher-growth verticals over slower-growing, lower-margin media and news assets.
Overall, the company is shaping up for a strong rebound year in 2024. We still view it as the best in class telecom in the country.
Pepsi (PEP)
PepsiCo reported mixed results as it closed out Fiscal 2024. Core earnings of $1.78 per share beat by $0.06, while revenue declined by 0.5% to $27.85 billion, missing analysts’ expectations of $28.37 billion.
On the year, sales grew by ~6% but it was mostly entirely driven by pricing. Beverage and snack volumes fell by 1% and 2%, respectively. Organic growth is slowing, primarily because of consumers tightening up.
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PepsiCo’s North American businesses, particularly the Frito-Lay snack business and Quaker Foods, saw volume declines in the quarter. So did the beverage category, as volumes dropped by 6% year-over-year. In fact, the quarter saw volume declines in every category YoY, a reflection of lower consumer demand combined with rising prices.
It is worth noting that the company’s 10% drop in revenue in the Quaker segment was due in large part to a significant recall. It is expected to impact the company through the first half of the year, as per management:
“we had a food safety incident in our Quaker supply chain in the U.S., which has impacted us in November, December, and it will continue to impact us, I think for the — at least for the first-half of the year until we recover our supply chain to normality”
The company also released Fiscal Year 2024 outlook, which calls for the following:
- Core EPS to be at least $8.15 (+7%)
- At least 8% increase on core constant currency EPS
- At least 4% increase in revenue
- A core annual effective tax rate of 20%
- Total cash returned to shareholders of $8.2B ($7.2B in dividends and $1.0B in share repurchases)
Additionally, PepsiCo announced a 7% increase in its annual dividend to $5.42 per share. With the raise, PepsiCo will have effectively extended its dividend growth streak to 52 years, an impressive feat.
All in all, the markets were a little cautious based on outlook that came in slightly below estimates, even though the numbers look pretty strong.
It is clear that consumer demand is weakening and that management will need to find a balance between further price increases. However, this isn’t unique to Pepsi, so we’re not overly concerned.
TMX Group (TSE:X)
TMX closed out Fiscal 2023 with strong results and is now trading at all-time highs.
Revenue of $301.5M and earnings per share of $0.37 came right in line with expectations. So, why the mention of a strong quarter if they just matched expectations?
We have to consider the harsh macro environment we’re currently in with TMX Group. Look at this chart of listing revenue, which is what the company would get paid for IPO listings:
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On a year-over-year (YoY) basis, listing fee revenue has dropped by 53.7%, and income from equity and fixed-income transactions is down 9.2%. BOX revenue, the company’s order matching services exchange, was down 6.2%.
However, it is not all doom and gloom. The company’s Trayport revenue, which is a company it acquired in 2017 focusing on providing trading software and services to the global energy sector, has grown by 31% YoY, and its Datalinx segment, which provides Canadian-related market data, grew 9%.
With the energy sector taking a bit of a hit, we could see a slowdown in Trayport revenue in the future. However, if we get a decline in policy rates and a revitalization of interest in the markets from Canadians, we’ll likely see growth within its other segments as well, which should set TMX Group up nicely.
On a full-year basis, despite the tough conditions, the company grew earnings by 11.4%, revenue by 18.6%, and EBITDA by 21.5%.
You can view our full report on TMX Group here
Brookfield Asset Management (TSE:BAM)
Brookfield Asset Management, our “Value Call” from back in November of 2023, has performed exceptionally well thus far.
In the third quarter, distributable earnings of $0.36 (+1%) topped estimates by a penny, and revenue of $1.13B was in line with expectations.
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Fee-related earnings (FRE) only increased by 1% year-over-year, while fee-bearing capital (FBC, in the chart above) jumped by 9%, reaching $457B (+4% QoQ).
While FRE may not have jumped as much, it was negatively impacted by higher operating expenditures as it opted to prioritize and fund growth initiatives.
In Q4, the company raised another $27B in capital, raising over $140B in capital in Fiscal 2023, meeting its $100B target. This includes closing the AEL acquisition, which is expected to add $50B of insurance fee-bearing capital.
As it was year-end, the company also provided plenty of commentary on the year ahead. The company expects to raise $75 from non-flagship funds or $90-100B, including the flagship funds. It also expects 2024 to be an inflection point, supporting its commentary from last quarter.
Management expects to achieve FRE growth above their stated five-year guidance of 15-20% annual growth in Fiscal 2024. As per their quarterly call, they: “have over $100 billion of dry powder available for deployment in what (they) expect should be a very attractive environment for investing.”
Overall, Fiscal 2023 was about investing in the future. Now that most of that is done, they: “expect (their) expense growth to moderate in 2024, resulting in a sizable improvement to (their) margins across the business.”
You can view our full report on Brookfield Asset Management here
Lightspeed Commerce (TSE:LSPD)
In terms of analyst estimates, Lightspeed topped expectations on all fronts. However, it was a rough quarter for the company share price-wise, as it issued a tempered outlook, warned of tightening consumer demand, and reported relatively weak gross transaction volume and subscription revenue, highlighted by the chart below.
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Revenue came in at $239M, and earnings per share came in at $0.08, beating expectations for $236M and $0.0275. The company’s path to profitability is laid out quite nicely, and it’s making significant steps in this regard. However, the company issued this statement on the quarter:
“The Company remains cautious on near term prospects due to a still uncertain macroeconomic environment and the pace of Unified Payments adoption in international markets. In addition, the fiscal fourth quarter is historically the Company’s weakest quarter for GTV performance.”
Considering gross transaction volume grew only 3% on a year-over-year (YoY) basis, it is safe to say they expect even weaker growth in the next quarter. This has been a company that has historically grown GTV in the high double digits.
This points to weaker consumer demand, which isn’t all that surprising, and, in reality, there is nothing Lightspeed can do about it. This economic cycle is not favourable to a company that, although attempting to diversify away from small to medium businesses, still relies a ton on them to generate revenue.
On a YoY basis, revenue grew by 27% and is ahead of the company’s guidance for the quarter that was issued. In addition to this, adjusted EBITDA is nearly double the company’s expected numbers and overall, on the surface, it was a fairly strong quarter and the company is maintaining some solid momentum thus far.
As always, though, the markets are forward-looking. The fogginess related to guidance and the large slowdown in transaction volume has caused the stock to slide in a big way post-earnings.
The company is still showing promise. However, it may need an economic turnaround before the market becomes bullish on it again.
Both Mat and I continue to hold and have no intentions of selling their positions.
You can read our full report on Lightspeed Commerce (TSE:LSPD) here
