What a wild turn of events for the markets over the last month. At one point, my portfolio was down around 8%. Fast forward to today, and it’s 2% in the green. A small outperformance of the S&P 500, but one I’ll certainly take.
In an absolute dollar scenario, my portfolio is not quite at all-time highs, primarily off the back of a stronger Canadian dollar reducing the value of my USD holdings. However, it’s still been a profitable 2-3 years, and I’m glad to have guided thousands of investors, including yourself, through it.
This week’s newsletter will primarily go through some changes I made inside my portfolio and then continue to dive into Premium-highlighted companies that reported earnings.
Let’s get right into it.
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Portfolio moves
I sold Savaria (TSE:SIS) and bought Franco Nevada (TSE:FNV) with the proceeds
Savaria had been a long-term hold for me. If you’ve been a Premium member since the early days, you’ll know I first bought this company in 2019, with some pandemic additions when it had a bit of turbulence during lockdowns.
I’d like to reiterate here first that I still believe Savaria is a high-quality company. I just haven’t had any gold exposure in my portfolio since owning Agnico Eagle Mines (TSE:AEM), of which I sold shortly after the merger with Kirkland Lake.
Some will say I am late to the party on the gold front, but results from Foundational Stock Franco Nevada have really impressed me, enough to make me pull the trigger despite many pundits believing gold has peaked.
I will not speak on Franco Nevada much in this section. Instead, I’ll lay out its earnings results later on in this newsletter so you can get an idea as to why I added the company.
I made routine additions to Home Depot (HD), Amazon (AMZN), and Constellation Software (TSE:CSU)
These were regular dollar-cost averaging positions for my portfolio. One could argue Amazon isn’t really a dollar cost averaging situation, as I am more aggressively adding at these valuations over other options. The company is my most recent Value Call (you can read that newsletter release here), and I believe there is strong upside here at these price levels. So much so that I will increase my allocation in the company from the original 3.5% (now 4.4%) to 5.5-6%.
There isn’t much to talk about for Constellation Software and Home Depot. Nothing more than adding solid companies at routine intervals and reaping the long-term benefits. Home Depot has struggled over the last few years. However, a cycle of declining rates south of the border that we should get soon should be bullish for home improvement companies.
Earnings
Franco Nevada (TSE:FNV)
Franco Nevada continues to report record results due to not only a surging price in gold but also strong operational efficiencies. Keep in mind, these results were records despite generating $0 in revenue from the Cobre Panama mine. As mentioned, this quarter was so strong I decided to pull the trigger and add a position to the company.
Revenue grew by 43% year-over-year, Adjusted EBITDA grew by 49%, and earnings per share came in 51% higher.
The company’s margins per Gold Equivalent Ounce are now over $2,500, resulting in a substantial increase in operating cash flows. For those who are unaware, Gold Equivalent Ounce is simply a bundled pricing structure Franco does to give one price point for all of its assets. So, it’s silver, oil, natural gas, etc, are all bundled and adjusted to give a Gold Ounce Equivalent.
Rising gold prices have also helped its operating margins, which sit at an outstanding 68.87% (see below).
The company’s royalty segment drove a larger share of the growth versus its streaming assets. This is a good sign, as the royalty segment of the business is the higher-margin portion of the business and one that is also inflation-proof.
To give you some insight, the royalty segment would be where Franco gives capital to a mining company and, in return, that mining company gives them a royalty, or a percentage of gold sold.
The streaming portion, on the other hand, is one where Franco agrees to lend capital to a miner and, in return, that miner agrees to sell them gold at a discounted price in the future. Both segments are solid portions of the business, but the royalty portion is certainly the one we want to see growing faster.
The company sold 113,138 Gold Equivalent Ounces on the quarter, which is up 6% year-over-year, and overall, it is just an environment right now that has numerous tailwinds.
The company’s pristine balance sheet will likely be a tailwind moving forward as well. It holds no debt and over $2.1B in available capital to utilize for funding further projects. I’ve attached a chart of its Current Assets (assets the company holds that can be converted to cash in 12 months) versus its current liabilities (liabilities due in the next months) to give you a true picture of how solid its balance sheet is.
Now to the Cobre Panama situation. While still on care and maintenance, President Mulino’s administration has expressed openness to discussions regarding restarting the mine. Franco-Nevada remains in arbitration but is open to suspending the process if credible negotiations begin.
There is no firm timeline yet for resuming concentrate shipments, restarting the power plant, or full operations. If Franco can get this mine operating again, it will likely realize a strong boost to results. Remember, this mine was 20%~ of the company’s EBITDA. I’m not getting my hopes up, but I’m more optimistic now.
Telus (TSE:T)
TELUS is another previous Value Call here at Premium and one I do hold for the medium-term on valuation expansion expectations. The company reported a strong quarter, much stronger than its counterpart Bell, and my thesis is still well in tact.
The company continues to report record customer numbers, with a total of 218,000 new additions on the quarter. I’ve attached a chart below. There is certainly pressure over the last few quarters, however, and I’ll speak more on that below.
In addition to this, the company’s mobile churn rate, which would be the amount of people leaving their plans and going to other providers, improved by 6 basis points to sit at 0.84%.
There is still pressure on mobile ARPU (Average Revenue Per User), primarily due to stiff competition in the space. It declined by 3.7% YoY. So, effectively, what this is telling you is that TELUS is retaining mobile customers well, but has to offer more attractive pricing and packages to do so. I’ve attached a chart below to highlight the decrease.
The company is looking to eventually spin out TELUS Health. However, it won’t happen at this time, and I do believe the company realizes the IPO environment is not the best. In addition to this, the fact its TELUS International IPO was largely a failure is causing them to be patient with TELUS Health and get it right. However, it did start reporting the segment as a separate entity in earnings so that investors can get an idea of its growth.
TELUS Health revenue grew by 12% year-over-year, and EBITDA grew by 30%. The company continues to benefit from its LifeWorks acquisition, already realizing $376M in synergies. It is important to note that when they originally made the acquisition, they expected around $425M in total synergies in 2025. So, to be at this point midway through the year is a strong sign.
Back to TELUS’s overall results, revenue was up 3% year-over-year to sit at $5.06B, free cash flow came in at $488M, a 22% increase year-over-year, and overall capital expenditures fell by 19%. I’ve attached a chart of TELUS’s free cash flow below. You can see it is up and to the right, which is a pivotal element of my thesis.
These two metrics are important, as they’re the bulk of the thesis I have with TELUS right now. Reduced CAPEX with increasing free cash flow.
The company is prioritizing debt repayments and reduced capital expenditures, as its capital intensity fell to 11% on the year and it expects its leverage ratio to go from 3.9X currently to 3X by 2027. For capital intensity, this represents the amount of revenue the company is putting towards capital expenditures. An 11% ratio indicates that TELUS is spending 11 cents for every $1 generated in revenue on capital expenditures.
The company maintained its guidance, in which it expects:
- TTech revenue growth (including TELUS Health): 2–4%
- Adjusted EBITDA growth: 3–5%
- CapEx: ~$2.5B
- Free cash flow: $2.15B
Overall, the company is positioning itself for long-term free cash flow expansion here, and I’m quite happy with the quarter the company reported. I think it is only a matter of time before we see the market warm up to telecoms again, but with the dividend cut and poor operations BCE has gone through, we could see negative sentiment persist at this point.
WSP Global (TSE:WSP)
WSP reported a relatively inline quarter, but it was a strong one relating to a number of key performance indicators.
Overall, revenue was up 19.8% year-over-year, EBITDA was up 19.7%, and earnings per share grew by 14%. Once we start to put together all of the outstanding growth WSP achieves, we can now understand why this company commands such a high valuation and also why I believe the company is an industry leader.
Organic revenue growth came in at 5.5%, and the backlog now comes in at $16.6B (see chart below), an increase of 16.6% over last year, representing nearly an entire year’s worth of revenue.
Another key performance indicator for WSP is Days Sales Outstanding, which is effectively the amount of time it takes WSP to collect a payment for work performed. At this point in time, it sits at 70 days, which is down from 76 days last year.
Why is this important? Well, it keeps cash flows more predictable and consistent, and in addition to this, the quicker you can collect payment for work performed, the lower the chance there is some sort of difficulty with payment.
Canada continues to be the main driver of the business, with organic revenue growing by 7% and a near 20% EBITDA margin. In the United States, these sit at 5.7% and 19%, respectively. When we look to its international segments, they sit at 4.3% and 15.3%.
The one segment of the business that continues to struggle is its APAC (Asia Pacific) segment. As I’ve mentioned before, this is primarily due to a slower buildout of infrastructure there, and it is an area that also hasn’t benefited substantially from artificial intelligence buildouts. There are two reasons I’m not all that concerned with this. For one, it makes up a relatively small portion of the business. Secondly, I believe that eventually infrastructure spending and consulting in that region will pick up and should end up being a small tailwind for the business.
The company reported strong growth in nearly every aspect of the business. Transportation and infrastructure are still booming in Canada and the US, with the company winning some pretty key contracts like the Key Bridge in Baltimore. Property and Buildings benefited mainly from continued datacenter buildout, and the company inked a deal with the US Airforce to provide environmental consulting worth $1.5B.
Despite the relatively harsh economic backdrop, the company continues to put up outstanding results. When the economy inevitably recovers and infrastructure spending booms, WSP is in a position to take advantage of that boom and continue to get more deals going because the company is such an industry leader.
