It was quite the week on the markets. While all major North American indexes closed the week down more than 2%, there was a large and somewhat abnormal recovery in the markets and a lot of stocks in particular on Friday.
The most prominent one here at Premium was Lightspeed Commerce, which gained nearly 32% on Friday. We’ll have some commentary as to why this could be, and what we could potentially expect from Lightspeed when it reports earnings on May 19th.
But, the majority of this e-mail will be the continuation of earnings season and the updating of our reports. This earnings season is special in particular because we completely revamped our reporting system and now have more in-depth, PDF based reports. It’s just another way we’re continually looking to build upon the platform and make it the best investment resource in North America.
Disney (DIS)
Starting with the Foundational stocks, Disney (DIS) delivered a mixed quarter as it missed on the top and bottom lines. Earnings of $1.08 missed by $0.11 and revenue of $19.24B missed by $800M. While the headlines disappointed, the markets focused on Disney+ subscribers. After Netflix guided downwards, Disney+ showed its strength as it added 3.3M more subscribers than expected. There was however, a caveat – costs are increasing as content spend rises. Overall though, it was viewed as a net positive for the company.
Granite REIT (GRT.UN)
Granite REIT (GRT.UN) also delivered mixed results as revenue of $108.6M missed expectations for $110M. On the bright side, FFO was up by 12.9% year-over-year. In the quarter, it closed on ~200M worth of acquisitions and AFFO adjusted payout ratio dropped a percentage point to 77%. Worth noting, forex headwinds had a $0.02 per share impact on FFO this past quarter. Outside of that, business as usual for Granite.
Manulife Financial (MFC)
Switching focus to our Dividend Bull List, Manulife Financial (MFC) disappointed investors as earnings of $0.77 missed by $0.05. In the quarter, New Business Value (NBV) dropped by 28% as pandemic restrictions in Asia continue to be a headwind for the company. It is impacting growth and has been a drag on results. The company also talked about some changes to IFRS standards which will impact core earnings by approximately 10%. This is not an operational issue, but a change to regulatory accounting practices. Outside of the Asian segment, it is still performing quite well. Our latest Manulife summary will be available as soon as possible, watch for it on your Stocktrades Premium dashboard.
Algonquin Power (AQN)
For its part, Algonquin Power (AQN) delivered a decent quarter. Earnings of $0.21 met expectations while revenue of $735.7M beat by $26.09M. Adjusted EBITDA was also strong, jumping by 17% YoY. The company also re-iterated its capital plan to spend $12.4B over the next five years. Importantly, the company announced a 6% raise to the dividend. While this is lower than AQN’s double-digit historical averages, we knew a slowdown was coming. Six percent is still a healthy growth rate for a maturing utility. Watch for our updated summary for Algonquin Power on the Premium dashboard soon.
Goeasy (GSY)
Goeasy (GSY) reported results that came in shy of expectations. Earnings of $2.72 missed by $0.13 and revenue of $232M missed by $3M. While the headline misses were disappointing, the company is delivering. It had record organic loan origination growth in Q1 and loan growth grew by 307% YoY. The company’s business model is once again proving resilient considering the net charge off rate was 8.5% – inline with its targeted range of 8.5-10.5% on an annualized basis. Allowance for future credit losses also dipped by 9 basis points to 7.78%. Again, keep an eye on the Premium dashboard for this updated summary soon.
Intact Financial (IFC)
Finally, Intact Financial (IFC) delivered mix results. Earnings of $2.70 beat by $0.35 while revenue of $4.89B just missed expectations for $4.94B. Earnings jumped by a healthy 13% YoY and it kept a solid combined ratio of 91.7%. While this was higher than last year, it is still one of the best in the industry. As of end of quarter, the company’s book value per share came in at $82.20, a 32% increase from Q1 of Fiscal 2021. We will have this summary and others uploaded to the Premium dashboard as soon as possible.
Dialogue Health (CARE)
There were also several growth stocks which reported earnings including Dialogue Health (CARE) which kicked off the week with lower than expected results. Revenue of $20.7M missed by $3.31M and adjusted EBITDA of -5.7M was $1.4M worse than expected. Despite this, CARE still delivered strong growth as Annual Recurring Revenue jumped by 38% to $90.3M. It also saw low customer churn (0.24%) which is a strong sign that its products are delivering. While quarterly results will likely be choppy on this one, we still like where it is trending in terms of growth. Updates to summaries for Bull List growth stocks are in the works and will be uploaded soon.
WELL Health (WELL)
Sticking with the health sector, WELL Health also released quarterly results. Revenue of $126.5M beat by $6.73M and earnings of $0.04 were inline with expectations. The company also re-iterated that it will be profitable in Fiscal 2022 and revised revenue guidance upwards from $500M to $550M. There was some criticism with respect to the share-based compensation and the share offering at $3.70 per share, but there is no question that this company is executing operationally. While the share price is disappointing, we remain confident in the long-term prospects of the company. Keep an eye on the Premium dashboard for this summary soon.
Acuity Ads (AT)
Acutity Ads (AT) was arguably the most disappointing of the week. Revenue of $23.82M missed expectations by $1.72M and the net loss of $0.003 per share beat by a penny. This shouldn’t have come as a surprise since it had warned last quarter. This one also dealt with some poorly time share-based compensation and profitability was impacted as a result. There are two silver linings here. One, Illumin continues to be a bright spot and is the future of the company. Two, it is still dealing with lower ad spend. When automakers and those in the travel industry start to ramp up their marketing, Acuity Ads will benefit. It is just taking longer than expected. We will have this updated summary on the Premium dashboard as soon as possible.
Equitable Bank (EQB)
Equitable Bank (EQB) continues to be one of the most under-appreciated stocks on the TSX. Earnings of $2.62 beat by $0.60 and revenue of $187M beat by $27M. While there are concerns about credit deterioration and bad loans due to their high exposure to mortgages, it has proven capable at every turn. We believe fears are overblown, much like they were during the onset of the pandemic. The company also announced it has re-instated the company DRIP (2% discount) and raised the dividend by 4%. It remains one of the more attractive value plays on the index. Check out our updated summary here for Equitable Bank.
Park Lawn Corp (PLC)
We now turn our attention to Park Lawn Corp (PLC) which continues to quietly do its thing. Earnings of $0.42 beat by $0.05 and revenue of $108M topped by $5.3M. While margins dipped slightly due to inflationary pressures, it is still putting up double-digit growth across the board. Park Lawn made several tuck-in acquisitions, which seems to be its strategy over the past couple of years. It hasn’t made any significant purchases as of late which has also helped with dilution. Overall, it was a solid quarter yet again. Click here to see our updated summary for Park Lawn Corp.
Boyd Group Services (BYD)
Finally, Boyd Group Services (BYD) beat across the board. Earnings of $0.13 beat by $0.01 and revenue of $707M beat by $47M. Demand remains strong across all segments, but since it is still having issues with labour shortages and parts supply chain, it is outstripping capacity. While strong demand is a good thing, it could be doing much better if it was operating at capacity. While they have seen some improvement in Q2, it looks like these headwinds are going to persist for a while yet. We will be adding these updated summaries including Boyd Group Services to the Premium dashboard as soon as possible.
Lightspeed price movement
The technology drawdown, particularly in payment processing and e-commerce companies, has been possibly the most severe drawdown in decades. It isn’t only a mid-cap company like Lightspeed shedding a significant amount of share price. Companies like Shopify, Nuvei, Block, and even a large enterprise such as Paypal have witnessed drawdowns. In some cases companies have seen drawdowns exceed 70%.
As shareholders, there is no question that this is an extremely frustrating event. Our confidence begins to wane and we start to second guess whether we’ll ever recover our initial investment. During the complete euphoria in 2021, Lightspeed and many other payment processors saw a significant jump in price. Lightspeed, for example, gained nearly 50% in less than 60 days.
This amplifies the current drawdown as those prices were most certainly short lived. Both Mat and I (Dan) own this company, and have not sold any shares. In fact, I (Dan) have added shares in the $60 range, the $40 range, and was close to adding at market close on Thursday.
In the short term, this would have looked like a genius move, as the company gained a whopping 31% to close out the week on Friday, and we’ve been getting many questions as to why. So, lets dig into that a bit.
First, Lightspeed is reporting earnings on May 19th. Although we typically do not place much emphasis on a single quarter, there is no doubt a lot of eyes will be on this one, and we could possibly expect some swings in price like we saw Friday heading into earnings, or after earnings.
One key catalyst for the company heading into earnings is the strong earnings reported by Sysco (SYY). If you are unaware, Sysco is a food-service distributor both here in Canada and in the United States. 66% of its revenue comes from supplying products to restaurants.
Earlier in the week, Sysco reported earnings that not only topped estimates on all fronts, but it also raised its full year guidance due to a surge in activity at restaurants.
Why does this impact Lightspeed? Payment processing at restaurants is one of the core ways Lightspeed generates revenue. So, it is likely that if Sysco benefited from a rise in popularity, so will Lightspeed.
That report wasn’t enough to move Lightspeed however. We believe that it was when Toast (TOST), a company similar to Lightspeed in the fact it processes payments on over 57,000 restaurants in the United States, posted strong earnings.
The company came in well ahead of analyst expectations and added a record number of new locations on the quarter. It is seeing some large scale growth, and most importantly made some significant upgrades to its EBITDA guidance, giving a better picture of its path to profitability.
It is not a guarantee that this is what sent Lightspeed up by 30%+ on Friday, but we cannot imagine it would have been any other event. The market will now have the expectations that Lightspeed is going to post earnings beats due to some strong reports from companies inside of the same industry.
Does this mean strong earnings are a guarantee from Lightspeed?
No, it doesn’t. But, it does place some high expectations on Lightspeed to deliver this quarter. As such, it’s going to be extremely volatile heading into earnings.
A strong quarter from the company on the 19th could be enough to stop the current drawdown and instate some confidence from the markets. As mentioned, Mat and I still own Lightspeed shares, and have no intentions of selling them unless something fundamentally changes within the company.
