BCE Sells a Prime Asset and FedEx’s Bearish Guidance

[00:00:01] This is the Canadian Investor, where you take control of your own portfolio and gain the confidence

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[00:00:10] Hosted by Braden Dennis and see Mobileogey.

[00:00:15] Welcome back to the Canadian Investor podcast.

[00:00:17] I'm Simo Belanger, I'm here with Dan Ken, back for our regular Thursday news and earnings

[00:00:22] episode.

[00:00:23] Uh, earnings are a little bit slow, Dan, but it's okay.

[00:00:27] We do have a decent amount of news to cover in a couple of earnings on top of that.

[00:00:32] So how are things before we get started?

[00:00:34] Pretty good.

[00:00:35] It's uh, crazy weather here right now.

[00:00:37] I was like 1 degree a few days ago and I was going to be 29 today.

[00:00:41] Oh, okay.

[00:00:42] Yeah, that's sad.

[00:00:43] Like it's hard to handle.

[00:00:45] But yeah, that's Canada for you.

[00:00:48] Alberta, September.

[00:00:49] Yeah, we've been lucky in Ottawa, be honest.

[00:00:52] Like I think probably most bigger part of Ontario, Montreal too.

[00:00:56] Um, no, definitely some nice weather.

[00:00:57] So I've been enjoying that before it gets, uh, we have to go into our cocoon during the winter

[00:01:03] and then start enjoying.

[00:01:05] I guess the good thing is hockey is starting soon.

[00:01:08] So for home, the hockey fans, I think a couple weeks right regular season.

[00:01:12] Yeah, it's coming out quickly.

[00:01:13] But we have a lot on this late.

[00:01:15] So we will shift back to the investing parts.

[00:01:18] So the first big piece of news last week is that, uh, B.C. and Rogers announced that B.C.

[00:01:26] would be selling its M.L.C.

[00:01:28] stake to Rogers communications.

[00:01:30] So the news came out last week that B.C.

[00:01:33] was selling its 37.5% stake in M.L.C.

[00:01:37] to Rogers.

[00:01:38] Uh, this will bring the Rogers stake at 75% with the remaining 20% being owned by Larry

[00:01:46] Cannonball.

[00:01:47] VIA is holding company called Kilmer Sports and the remaining 5% is actually owned by

[00:01:53] Omers, so the Ontario Municipal Pension Plan.

[00:01:57] It's own VIA Kilmer Sports as well.

[00:02:00] So some big news there.

[00:02:02] And for those are not sure in terms of, you know, what is M.L.C.

[00:02:05] So if you're not into sports, like all that, you know, you may be wondering a little bit

[00:02:10] about M.L.C. is and for joint TCI viewers and subscribers, you'll see on my screen

[00:02:15] and just showing, uh, just kind of an image that's on an M.L.C. side.

[00:02:20] So it's the Toronto Maple leaves, the Raptors, the M.L.S. franchise, so Toronto FC, there's

[00:02:26] the Argonauts, the Marlies, the Raptors 905.

[00:02:30] What is that?

[00:02:31] I don't know.

[00:02:32] Yeah, so there's a few I'm not super, yeah, familiar with, but regardless, I mean, it's definitely,

[00:02:39] I think there might be maybe the miners for the Raptors, I'm not a, like, quite sure.

[00:02:44] Yeah, they're affiliated with the Raptors.

[00:02:46] Yeah, that's it.

[00:02:47] I mean, the big three I would say is the Toronto Maple leaves the Raptors and I think

[00:02:51] Toronto FC is starting to get pretty big to the M.L.S. in Canada.

[00:02:56] These are very valuable franchises, so it is something to take note.

[00:03:02] The reason that B.C. said it would sell, well, the stake is that it would use the proceeds

[00:03:08] to reduce debt levels, which in itself I think is not necessarily a bad thing because

[00:03:14] a bell has a whole lot of debt.

[00:03:17] B.C. has a whole lot of that.

[00:03:18] It was close.

[00:03:19] I think it's net debt is around 39 billion, but it's debt without factoring the cash

[00:03:25] is closing in on 40 billion.

[00:03:27] So those are the big headlines before I get going then you want to, you know, chime in a

[00:03:31] little bit.

[00:03:32] Yeah, I was actually I'm trying to dig up just the revenues of most of these franchises.

[00:03:36] As we talk about it, I'll look up some more and see.

[00:03:39] But yeah, I mean, it's their huge, huge franchises.

[00:03:43] I mean, the Maple Leafs are the most valuable franchise in hockey.

[00:03:46] I think they're close to the the Rangers.

[00:03:50] I believe in the Canadians are up there too, but these franchises tend to just go up

[00:03:56] and value.

[00:03:57] I mean, they don't produce a whole ton of cash flows as we'll mention, but they do

[00:04:02] tend to just go up and value.

[00:04:04] And I think this is one of B.C.'s best non-core assets that they ultimately had to

[00:04:13] just sell off because of some mismanagement in my opinion.

[00:04:17] There's a lot of differing opinions on this.

[00:04:19] Yeah, a lot of people don't like it because, you know, Rogers is already in a ton of

[00:04:24] debt.

[00:04:25] I believe Rogers because of the Shaw acquisition is in like the worst debt situation out of

[00:04:30] any of the major telecoms.

[00:04:31] So I don't think a lot of people don't like the fact that they, you know, when I would

[00:04:36] spend this type of money.

[00:04:37] But yeah, there's a lot of mixed opinions on it for sure.

[00:04:40] Yeah, and Rogers did say a one as effected leverage ratios.

[00:04:44] So we'll have to see they said it will include some private investors.

[00:04:48] So not quite sure how it will make that work.

[00:04:51] There might be some more details coming out.

[00:04:53] My view is that this is not a great move by B.C. management.

[00:04:57] And all elaborate a little bit on that.

[00:04:59] So first of all, I think these are great assets.

[00:05:01] Whether you, you know, you like sports or not.

[00:05:05] The reality is that there's a very limited number of sports franchises.

[00:05:11] Especially when you're talking about the big four in North America, so the NHL and they'll

[00:05:15] be NFL and NBA.

[00:05:18] And then obviously if you include like, you know, internationally, obviously there's

[00:05:22] some very extremely valuable, you know, soccer or, you know, European football franchises,

[00:05:29] probably actually probably they get NHL franchises or dwarf by those in terms of,

[00:05:35] yeah, because they're, they're kind of a global plan.

[00:05:37] But having said that just to give people an idea here is that there tends to not be big

[00:05:42] increases in the amount of teams.

[00:05:44] These are essentially not, I would say, all the golf police, but they're definitely

[00:05:49] like limited right the NHL controls how many teams there will be.

[00:05:53] So just to give people an idea, and there were 30 NHL teams in 2000 or now 32.

[00:05:59] And there were 29 NBA teams in 2000.

[00:06:02] There are now 30.

[00:06:04] And if you factor into, like you said, the Maple Leafs are extremely valuable when you're

[00:06:09] looking at an NHL franchise.

[00:06:11] And like, you know, when you think about NHL franchises, especially in Canada, I think there

[00:06:16] is the Maple Leaf in Canadians that kind of stand apart because they end up having massive

[00:06:21] amounts of fans throughout Canada, right?

[00:06:24] Like they'll visit and even in the US, they'll visit different cities.

[00:06:27] And you'll typically see tons of jerseys for the Canadians or Maple East.

[00:06:32] But the Maple Leafs are likely a bit more valuable also because just a GTA, right?

[00:06:36] It's just such a massive population compared to, you know, the Montreal Canadians a bit smaller.

[00:06:42] But I think those two stand aside.

[00:06:43] And then if you look at the NBA, the Raptors, I mean, it's a lone Canadian team.

[00:06:48] I know I've seen talks, I think in the past year there might be another team coming

[00:06:52] back to Vancouver and who knows in the future if there would be one in Montreal, who knows.

[00:06:58] But I think that would kind of be limited.

[00:07:00] Like, I think realistically those are probably just the two other cities that could

[00:07:05] have enough population to support an NBA team.

[00:07:08] And the economic behind it.

[00:07:10] But until then, I mean, they are Canada's team, whether people like that or not, whether

[00:07:15] they want to get on board or not.

[00:07:17] So that's where I have a bit of an issue.

[00:07:19] And then obviously you need to have financial capabilities to be able to purchase, like

[00:07:25] sports team, especially the big four North America.

[00:07:28] But when I looked at sub, there's over 1,000 billionaires in North America alone and then

[00:07:33] when you factor in corporation, you factor in pension plans, institutions.

[00:07:37] You know, the number of potential buyers is much greater than the supply granted.

[00:07:43] Obviously not all of them would be interested in these type of franchises, but just goes

[00:07:48] to show you that there is definitely some scarcity when it comes to that.

[00:07:53] And barring I would say kind of a great depression type of environment.

[00:07:59] I think these franchises will probably add the very least keep the value but likely

[00:08:03] go up in value over time.

[00:08:04] And where I have some issues with it too is that, you know, bell could have reduced its

[00:08:12] leverage.

[00:08:13] It's debt in the last couple of years by simply reducing its dividend by cutting the dividend.

[00:08:18] I mean, they're paying currently 3.7 billion in common in preferred share dividends per year,

[00:08:23] which is more than the free cash will they are generating.

[00:08:26] They could have cut that by 2 billion still pay a dividend that would yield around current

[00:08:31] prices around 4% which is not bad at all.

[00:08:35] So they could have done that and used essentially 2 billion a year and reduced the debt.

[00:08:40] Obviously would take some time, but you know, just with this sell if it goes through

[00:08:45] because it still has to go through regular regulatory approval, which is no guarantee

[00:08:50] because Rogers also controls the blue jays and sports nets and all of that around it.

[00:08:57] So it's no guarantee, but even with that, I think I calculated roughly that they'll just

[00:09:02] say save like a couple of 100 million a year in terms of interest expense because I think

[00:09:09] they're they're current and I'm just going on memory here.

[00:09:12] I think their average interest rate on their debt is about 4 and a half percent currently.

[00:09:18] So I think that's the average interest.

[00:09:20] So rough man, I think they're going to save about 150 to 100 million.

[00:09:24] So that's probably means that they'll still be paying around 1.4 billion 1.3

[00:09:29] 1.4 billion in interest payments every year and that's based on their current run rate

[00:09:35] with their latest quarter, which puts them at about 1.6 billion per year in terms of interest

[00:09:40] payment.

[00:09:41] So I mean, it does reduce the debt.

[00:09:44] They have been downgraded by two credit rating agencies in the last month and I think one

[00:09:50] of the reasons was that they're extremely leverage, the growth it's slowing for BC and

[00:09:56] they haven't seen concrete actions.

[00:09:57] So it's possible management just decided to do this to show that they're doing something

[00:10:01] concrete.

[00:10:02] But to me at some point, if you want to do this, you should also think about reducing or

[00:10:07] cutting, well reducing or cutting your dividend.

[00:10:10] I think it's a no-brainer.

[00:10:11] This management team, I've been very critical, but I think they're just too focus on the short

[00:10:16] term.

[00:10:16] I'm assuming their incentives are aligned with keeping the dividend pretty high.

[00:10:20] I'm sure they have a fair amount of shares that are getting some extra income with that.

[00:10:24] By the end of the day, if you had a long-term vision, that's what you do.

[00:10:28] I know I had some pushback on Twitter with my thoughts, but it's funny that most people

[00:10:34] that are pushing back on it clearly have no idea of how bad the financial situation is for

[00:10:41] BC.

[00:10:41] I don't think they understand the financials.

[00:10:44] How many interests are paying?

[00:10:46] How much that the dividend is not being covered by freecastle?

[00:10:49] Just buy the comments because it sends to be, well, you know, I bought it at this

[00:10:53] pride and it was paying like a $8.5-9% dividend.

[00:10:57] Okay, good.

[00:10:59] I guess that's good if they don't cut the debt.

[00:11:01] Exactly.

[00:11:02] Yeah, so I just think they could have taken other measures to avoid that, but now they've

[00:11:06] made it too long to reduce their debt.

[00:11:09] And it was probably in their view, one of the only assets that they could sell that would

[00:11:13] gather quite a nice profit and, you know, it looks like it will.

[00:11:17] Yeah, I think that was it.

[00:11:19] Like, I guess he can't really blame them for doing it, but that doesn't necessarily make

[00:11:23] it the right decision.

[00:11:24] They're pretty much being forced to do it because they mismanaged the balance sheet for

[00:11:29] like two plus years.

[00:11:30] God into a complete mess and now they have to dump what I would feel is a pretty good

[00:11:35] asset.

[00:11:36] Like, if we look to, I just looked at, like, say the maple leafs are the easiest team

[00:11:40] to find data on, but I mean, you look at the top four revenue generators in the NHL.

[00:11:46] You have the Edmonton Oilers to Toronto Maple Leafs, the Kings and the Canadians with

[00:11:50] the Oilers and Leafs being the top.

[00:11:53] Then you look at operating income.

[00:11:54] I mean, the maple leaves have a 6% compound annual growth rate on operating income since

[00:12:01] 2004.

[00:12:02] So you're looking at a 6% compound growth rate over the course of 20 years.

[00:12:07] And then you think the value of the franchise as well, that is the just a brand value

[00:12:13] you can't, it's never really going to decrease.

[00:12:16] I mean, a lot of people say, you know, tickets are getting too expensive, which is true.

[00:12:21] Like many, you know, normal, normal middle class people can't even afford to go to hockey

[00:12:26] game anymore.

[00:12:27] But the maple leaves do have some of the highest corporate ownership in the league,

[00:12:32] and those corporations will pay whatever to get, you know, the season stick.

[00:12:37] It's you could raise them 20% 30% they just cough over the money to get into the building.

[00:12:42] So I mean, like, I was looking at, because there was a lot of things, you know, like

[00:12:45] recessionary wise.

[00:12:46] And I look back at the maple leafs attendance.

[00:12:48] I mean, you look at the dot com bubble, the 2008 financial crisis, like any case that building

[00:12:54] was fully sold out, not barely an open seat the whole time.

[00:12:58] So I mean, I just think like they're being forced to sell one of their best assets just

[00:13:04] to, you know, kind of make up for some multiple years of mismanagement when they could

[00:13:08] have just if you think about it as an investor, would you rather own this asset and they

[00:13:12] cut the dividend or just be paid that dividend and they cut this.

[00:13:15] Like it just seems like such a, I would rather own something like this.

[00:13:19] I mean, you're looking, they bought it for, I think, was 1.5 billion or 1.4 billion

[00:13:24] in 2010 or 2011.

[00:13:25] I mean, they've tripled their money on it over the last 14 years or so.

[00:13:30] Who's to say that it doesn't, you know, grow that much in the next 14 years?

[00:13:34] Yeah.

[00:13:34] And to be able to defend to BC and obviously use both interchangeably.

[00:13:39] But so to be seized, defend, they did secure kind of the broadcasting rights for, you

[00:13:45] have some long-term agreements, yeah, in place with, I think, I guess, MLSC Rogers as part

[00:13:51] of that sales.

[00:13:52] So that is good because they still own, like, you know, for example, TSN, right?

[00:13:56] So they still own that.

[00:13:57] So I think that's good from that standpoint.

[00:13:59] But they're leverage ratio from a net debt to EBITDA ratio.

[00:14:04] So EBITDA for newer listeners, it's essentially just earnings before interest taxes, depreciation

[00:14:11] and amortization.

[00:14:12] I think it's a fair profitability metric for a company that would have a lot of depreciation

[00:14:17] like Bells.

[00:14:17] So you kind of zero that out because it's a non-cache item.

[00:14:21] And even with the sell, that ratio will be going from 4.2 to 3.7 and for context,

[00:14:28] that only brings it back to 22 levels and hasn't been under three since before the pandemic.

[00:14:34] So they're not out of the woods here.

[00:14:37] And, you know, a dividend cut is still a very real possibility in my opinion in the next couple

[00:14:43] years.

[00:14:43] I think it's probably delayed that because without this, one of my bold predictions,

[00:14:48] and maybe I'll still do it for 2025, is that Bell will cut its dividend.

[00:14:52] But now I think it's less likely of happening in the near term.

[00:14:55] But I think there's still decent odds that happens in X2, 3 years, for example.

[00:14:59] Because the business is stagnating a little bit.

[00:15:02] And obviously with the federal government kind of tightening immigration as well,

[00:15:07] you don't have as many new potential customers or so some pretty aggressive pricing

[00:15:12] from like a freedom mobile video throw as well that are, you know, they bought that brand.

[00:15:17] And so it'll be interesting how it goes, but there's still some pretty aggressive pricing

[00:15:22] going on.

[00:15:24] So we'll have to see, I mean, I do urge people if you do own BC and you don't agree with

[00:15:29] us that's fine, but please understand their financials because it's very, very important.

[00:15:35] Understand the financials because what management is saying, I found in those calls,

[00:15:39] it doesn't really line up with what the financials are actually saying.

[00:15:43] No, I mean they've held like BC is held a 3X leverage ratio like the debt to be

[00:15:50] bit that for a very long time or actually it was 2.5x and then like when they couldn't hit

[00:15:55] the target so they just bumped them up.

[00:15:57] They kind of realized they can't hit their debt targets so they just bumped it.

[00:16:00] I think we talked about this and then the other target I can't remember what the target

[00:16:04] was, but it was a debt target that they couldn't achieve so they just cut it out of

[00:16:08] their guidance.

[00:16:08] They just said they weren't going to issue it anymore.

[00:16:10] So I mean they're they're struggling right now.

[00:16:13] This I would say that this sale does probably save the dividend even though like debt

[00:16:19] repayment like they've issued, I think I looked it was $6 billion in debt this year alone.

[00:16:24] So like the sale doesn't even cover the debt issuances this year and they've been talking

[00:16:29] about like kind of showing up to balance sheet and you know reducing those debt levels

[00:16:33] for like 18 months now.

[00:16:35] I mean this this sale doesn't even get them back to you know 20, 23 levels of debt.

[00:16:40] So I mean it's yeah I don't think it's a good thing but who knows maybe Rogers buys

[00:16:45] it and you know it's stagnant for the next decade.

[00:16:48] You never know.

[00:16:49] I mean it could be a bad deal for Rogers as well.

[00:16:51] It's kind of up in the air right now.

[00:16:52] I personally right now think Rogers will come out of this ahead.

[00:16:57] Yeah that's what I would have to bet too but Rogers is not without their issues so don't

[00:17:02] take with what I'm saying and I think what you're saying that you know Rogers is a great

[00:17:07] business per se like that's not where we're saying.

[00:17:09] I think some people on Twitter thought I was employing that no I would not touch Roger

[00:17:13] with a 10 foot goal either but that's beside the point.

[00:17:19] So now we'll move on with the big macro here, the US Fed rate cut.

[00:17:23] So the much anticipated Fed pivot has arrived.

[00:17:26] I mean it was pretty much well telegraphed.

[00:17:28] It cut by zero point while 50 basis points.

[00:17:31] So now the Fed's fund rate is between 475 and 5%.

[00:17:36] I think a lot of people who were thinking 25 basis point but it was funny.

[00:17:41] I don't know if you read it or you saw some people coming on it but so the way it works

[00:17:45] there's like a blackout period for all FOMC members.

[00:17:48] So those are the people that will decide and Jerome Powell is the chair that will decide

[00:17:53] what the policy rate will be.

[00:17:55] And usually I think it's about 10 days there's a blackout where they can't talk to the media.

[00:17:59] And I guess before the blackout or this course was more like okay more like you know

[00:18:06] most people were thinking 25 basis point.

[00:18:08] I think the odds that CME Fed watch tool was around like 2 thirds of a chance for 25 versus

[00:18:14] a third for 50 and I guess the Fed doesn't like to take the markets by surprise.

[00:18:18] So a few days before the ref Fed announced me Nick Timmer Aios and I'm probably blotering

[00:18:25] his name a little bit but he's a writer for the Wall Street Journal and he's also known

[00:18:29] as the Fed whisperer.

[00:18:30] He came out with this article basically saying that the Fed you know was likely considering

[00:18:36] a 50 basis points as well and it's very obvious that there was some information leaked

[00:18:42] and you kind of you know told them like you know can you write basically an article just

[00:18:47] prepare the markets it's been out there quite a bit but I wanted to mention that because that was

[00:18:51] pretty interesting.

[00:18:53] Yeah if you have you ever heard of him I've heard him if you podcast and I've tried to read

[00:18:58] most of his articles just because I know he's so well connected.

[00:19:01] I mean it makes complete sense if you don't want to surprise the markets that you have

[00:19:05] somebody who's you know able to relay some.

[00:19:09] Yeah exactly yeah it's so funny though how that works but regardless so the key word here

[00:19:16] was kind of recalibration so that was kind of the buzzword he was using during used at multiple

[00:19:20] time.

[00:19:21] They said Powell said that inflation is easily significantly I mean he's not wrong.

[00:19:26] He had line CPI in August was 2.5% versus 9% in the mid 2000.

[00:19:32] They did mention that the labor market as cool with job gains slowing there was also that

[00:19:37] big revision that happened I'm sure they took that into account.

[00:19:41] The unemployment rate this rise a little bit in the past few months as well in the US

[00:19:46] he emphasized that the labor market is still in solid condition and they want to keep it

[00:19:50] there so they were really pushing kind of the soft landing narrative meaning that they're

[00:19:55] trying to you know cool down inflation but make sure that the economy doesn't go into

[00:20:00] recession or you know does it slow down too much.

[00:20:04] One of the things he said the GDP is growing at an annual rise rate 2.2% the first half of

[00:20:09] the year and expected to be around 2% for the rest of the year so at decent growth they're saying

[00:20:16] that it's moving towards a more neutral policy stance reflecting the reduced inflation risk and

[00:20:21] balance outlook for employment.

[00:20:23] Ensure the Fed has two mandates it's maximum employment it's also controlling inflation.

[00:20:29] So what they were saying now is saying that well they're trying to they're looking at both things

[00:20:34] whereas prior to that they were more focused on getting inflation down.

[00:20:38] It was a very interesting press conference. I've seen some suggests that a 50 basis point

[00:20:43] show that the Fed is panicking and they are afraid of a severe economic downturn and they would

[00:20:49] point out I believe it was the dot com bubble they did a 50 basis point first cut I think it was also

[00:20:56] the financial crisis they had that and then obviously 2020 with COVID but Powell did mention that

[00:21:03] if they had the job data for July a few days earlier so they're last meeting which is a

[00:21:08] few day before the July employment data was released that they would have likely considered a

[00:21:14] 25 basis point. Then meaning that maybe they would have you know only done 25 at this meeting if

[00:21:21] they had already cut so I don't know which answer it is maybe they are panicking and there is

[00:21:26] an issue that they're seeing. I mean history just showed that you know the Fed and central banks

[00:21:31] tend to be reactive they say their data driven but at the end of the day a lot of the data they

[00:21:37] look at is lagging the employment data that comes out it's done through surveys and notoriously

[00:21:43] gets revised and it's been revised downwards pretty much for quite some time now so it is something

[00:21:50] that you know worth noting that the revisions are not upwards they're actually downward so it'll

[00:21:56] be interesting where it goes but clearly that's something the markets was really hanging on to

[00:22:01] with the press conference now and what he said I think the market will be paying very close

[00:22:07] attention to all the employment numbers that are released between now and their next meeting

[00:22:12] which is right after the election. Yeah I mean all good points the one thing that I have noticed a

[00:22:19] lot and you kind of mentioned it like the how they're you know they're panicking things like that like

[00:22:24] the amount of you know kind of click driven content that's coming out as of late just because like

[00:22:30] of what has happened when the Fed has cut rates by 50 basis points like there's been if you

[00:22:37] take out the COVID pandemic which went from like you know they didn't I was there a time when they

[00:22:42] cut 50 basis points during COVID or did they just go like right down to I think they cut the first

[00:22:47] it was 50 and then they did others but I'm just going on memory yeah I can't remember there yeah

[00:22:52] she went down fast but I mean I kind of like isolated that one out I didn't really count it

[00:22:57] but it's not a one yeah it was it was kind of an isolated scenario but if you look to like the last

[00:23:04] two times since you know in the last 30 some years that they've cut 50 basis points

[00:23:10] so they dropped it by 50 basis points in December of 2000 the next two years the S&P 500 lost 30

[00:23:16] percent they dropped rates by 50 basis points in August of 2007 the next two years the S&P 500

[00:23:23] would pretty much lose 30 percent lost 29 percent so I mean a lot of people are kind of you know

[00:23:28] like pointing oh well look what happened the last time the Fed dropped 50 basis points things like that

[00:23:33] I mean two events are not even remotely close to a sample size where you could ever come to any

[00:23:40] sort of conclusion and I mean there was a lot of different you know the 2008 financial crisis is

[00:23:46] a lot different of a scenario than we're in right now so I mean you're gonna see a lot of this type

[00:23:52] of stuff about you know how the cuts are you know the market usually tanks after the cuts which I

[00:23:57] mean it could there's no predicting what could happen I mean it could it could not I think you know

[00:24:02] it all depends on you know the economy right now whether they achieve that soft landing or whether

[00:24:08] they are reactive right now and and the data gets worse and worse and worse but yeah and I

[00:24:14] I think that's why like I know we have kind of a bit different philosophies and you know you

[00:24:20] me and Braden when it comes to that my personal view as I'm hedging a little bit but I'm not selling

[00:24:25] everything I think you have to be careful you know I'm sure there's some people that will like

[00:24:29] kind of see this kind of stuff and they'll say okay I'm just gonna sell good oil put everything in

[00:24:35] cash and just wait until the market correction well I mean you know markets could go up another

[00:24:40] 1520% from there and then correct 30% but you you know who knows what will happen or it could go

[00:24:47] another up like 3040% then correct 20 like you still loss out on some gains so you have to you know

[00:24:55] I think you can rebalance a bit but you have to the way I see it as I just try to hedge my portfolio

[00:25:00] in a way that it should perform well in a variety of outcomes so that's how I approach things but

[00:25:06] if you're fully in equities that's fine but just be prepared that you know if there is a correction

[00:25:11] it could be you know I could be significant we haven't seen one for quite some time I mean was

[00:25:17] pretty much what like the last really real downturn was COVID and that last hit went like a month

[00:25:23] basically yeah I would say the 2020 22 like a little bit 2022 was was pretty bad and then there

[00:25:31] was another one in 2018 end of 2018 was pretty nasty and then yeah it's been it but again these are not

[00:25:39] like these are not like 40 50% elections either right which is not impossible but I think you know

[00:25:46] I like to think in probabilities and just plays that accordingly and I guess the last thing I'll

[00:25:51] see in me FedWatch dual anyone interested just Google it you'll be able to see the probabilities

[00:25:56] based on options it's the Chicago Mercantile Exchange so it's the options it's changed in the

[00:26:02] US and I guess it's almost a 50 50 chance at this point that they go 25 or another 50 basis

[00:26:08] point cut in the November meeting and then essentially it's closed like you're looking at the market

[00:26:18] as pricing in a 50% chance that they'll be down another like total 100 basis points by the end of

[00:26:24] the year so it's yeah I wouldn't know I'm really curious as to where Canada ends up I mean

[00:26:31] they go 50 50 I hope so I got to renew my mortgage in a year and a half here yeah I mean too

[00:26:36] like well not even so for me it's an ace I'm like well again it all depends right if you're

[00:26:41] looking at more variable rate you'll see the impacts of that so variable could become very attractive

[00:26:46] because it is you know depending on you know the overnight rate in Canada but if you're looking at

[00:26:53] the five-year fixed who knows it's not any guarantee when you're looking at fixed that longer

[00:26:59] duration bonds will go down accordingly that's based on the bond market and I think that's

[00:27:04] important because the five-year bond actually dropped quite a bit before the Bank of Canada actually

[00:27:10] started cutting so keep that in mind same thing for the US 10 year for example so the bond market is

[00:27:16] 10 tends to be about more proactive and we've talked about it on the last episode but if the

[00:27:21] market starts getting worried about inflation picking back up then you may you'll probably see

[00:27:26] those yields on the five and ten years start picking back up because they're anticipating

[00:27:32] the central banks to start raising the rates to tackle inflation yeah the you know drop and rates

[00:27:39] by no means guarantees lower fixed rate mortgages I mean variable rate obviously it helps but

[00:27:45] it seems to me right now like they're pricing like the price of variable rate mortgages

[00:27:49] like at least from what I've seen doesn't really offset you know most variables you're sitting

[00:27:54] at like high five percent range whereas you know there's some fixed rate mortgages for like 4.25

[00:28:00] right now so you need some pretty steep cuts to ever make that work but to make it work and pretty

[00:28:06] quickly too so in the calculation right as always are they gonna cut the variable fast enough

[00:28:13] and low enough to make up for the time that you're paying more than you would be on a fix so that's

[00:28:19] a calculation no one knows that's why fixed mortgages the main it like the biggest advantage is

[00:28:25] they give you certainty yes or if you want certainty you know you may not end up being you know

[00:28:31] that may not end up being the best move in terms of like you know the best return on your money

[00:28:36] at the end of the day but it gives you certainty it may end up being still the best move depending

[00:28:42] on what the bank does so the central bank but I think that's about it I think we've talked enough

[00:28:47] about the Fed so do you want to go let's do the A and W merger vote coming up and then we'll

[00:28:56] talk about Fed X because I feel like I let the first two segments and I need to blow my nose for a minute

[00:29:02] yeah yeah so this this merger actually happened like a few months ago but the the vote is coming

[00:29:09] up in a few weeks it's there's almost like zero question it's gonna pass this is going to be

[00:29:14] approved just because of you know there's a ton of insider ownership with a W and they have

[00:29:19] strongly you know back this deal but yeah I'm actually surprised we never chat about this because

[00:29:24] it is it's a pretty notable deal so I mean a and W is at this point in time like when you buy

[00:29:31] it's a publicly traded company on the TSX but it's actually a royalty company so it's a top

[00:29:36] line royalty company so what this means is you as a buyer you wouldn't have any exposure to the actual

[00:29:44] restaurant end of the business so if we take a company like restaurant brands international they own

[00:29:51] Tim Horton's Burger King all that type of stuff you have exposure to the operating expenses

[00:29:56] of the restaurants the profits of the restaurants all of that but with the A and W royalty what you

[00:30:06] want is to the restaurants who could then sell the uh the A and W they could use a and W trademark

[00:30:12] sell the food all that type of stuff and they would have to pay a 3% royalty back to a and W royalty

[00:30:18] and then from there a and W royalty would pay off all as expenses taxes all that kind of stuff

[00:30:24] and then the remainder would be distributed to shareholders so it's typically it was kind of

[00:30:29] looked at as a very risk a verse way for investors to get exposure to the restaurants without

[00:30:34] having to take on all the added risks of running the restaurants it was a high yielder monthly yield

[00:30:39] and you know in a way no matter how poor the bottom line the royalty only benefited from an increase

[00:30:46] in sales so this is all due to end in October the companies are looking to merge so actually what

[00:30:55] the royalty would you know they would license a trade marks to A and W food services which would

[00:31:01] actually operate the restaurants so they're going to combine those two and they're going to create

[00:31:06] a publicly traded stock that is similar to restaurant brands international so you're now

[00:31:10] going to have exposure to the entire operation uh and profits of the underlying restaurant so this is

[00:31:19] a stock I actually held as a royalty I was pretty happy about this I'm in the stock was trading

[00:31:22] at around 27 bucks per share and the deal for shareholders is 37 dollars in terms of cash or

[00:31:31] the shares in the new corporation and a lot of people might think there's a bit of an arbitrage

[00:31:35] opportunity here as the stock is only trading at 3450 but it's a bit complex right now I'm not even

[00:31:44] exactly sure you know how it's going to work but they only have a lot of a particular amount of cash

[00:31:51] set aside for this deal so if all the cash is taken up like if a lot of investors choose to

[00:31:58] opt in for cash you might be forced to take shares once all the cash is gone so I mean that

[00:32:04] and that might that might be why there's like a little gap in terms of why it's not trading at

[00:32:08] that 37 dollar range I wouldn't buy this at 3450 thinking you know because it's supposed to close

[00:32:15] in October so you know in theory you could buy it at 3450 today and maybe make $2.50

[00:32:20] cents a share by October but I don't think it's a guarantee so I think that's why it's trading

[00:32:25] at a bit of a discount and I do think that the new corporation is definitely going to be interesting

[00:32:30] I think it unlocks a lot more potential growth for those who want exposure to it I mean the royalty

[00:32:35] company was a very niche investment I mean you had to be somebody who really didn't want to take on

[00:32:41] very much risk primarily looking for income but now you know you get exposure to a and w and a and

[00:32:48] w a lot of people might not know this but a and w is pretty much the fastest growing burger chain in

[00:32:55] screwing at a faster rate than McDonald's Burger King Wendy's in Canada I don't know much about the

[00:33:00] US I know like a and w is generally a complete dead business in the US I know they do have restaurants

[00:33:07] but there are like nowhere near the popularity up here I don't know why it's it is a US founded

[00:33:13] business but for some reason it's just taken off massively here in Canada but in the US it's kind of a

[00:33:19] it's a no go for the most part it comes nowhere near close in terms of annual sales or store counts

[00:33:26] then you know like McDonald's Burger King Wendy's stuff like that but it has the fastest levels of

[00:33:31] store growth and it has the fastest levels of overall sales growth and I think that's like primarily

[00:33:36] you know the company's marketing strategy heavily towards Gen Z and Millennials with the things like

[00:33:43] you know the grass fed beef the no hormones no antibodies like all that type of stuff they kind of

[00:33:51] you know their restaurants are more like a sit down type thing which I guess like McDonald's and

[00:33:55] stuff are kind of going towards that you know they're kind of ramping up the insides of their restaurants but

[00:34:00] I mean A and W just kind of has a different feel to it in terms of all that type of stuff and whether or

[00:34:05] not you like believe in all that kind of like that style of marketing I mean they're marketing to

[00:34:11] Gen Z and Millennials who do make up the largest portion of the population at this point in time and continue to grow

[00:34:17] for the new corporation they expect 3 to 5% annual same store sales growth through 2027

[00:34:23] then they expect around 2 to 2.5% annual store openings over that timeframe which would be

[00:34:29] I mean if they hit the top end of guidance that would be a faster grow rate than restaurant brands in

[00:34:34] and if you isolate out the pandemic years so A and W kind of struggled during the pandemic but every

[00:34:40] single quick service restaurant did if we take COVID out of the picture they had posted 20 consecutive

[00:34:47] years of consecutive sales growth and restaurant growth and it's it's been a pretty impressive

[00:34:53] company and I'm pretty pretty interested to see how the new corporation operates I think this is a

[00:34:58] good move I think people will be much more interested in owning the entire business rather than the

[00:35:04] rather than the royalty yeah yeah probably switch from retirees to yeah yeah exactly so quick

[00:35:12] question for you what's your favorite meal what's your go to when you go there at A and W the

[00:35:17] Motsu burger mozzarella burger with onion rings yeah or that like Nashville the chicken sandwich they

[00:35:22] are very good but it is like it's they have to have very strong marketing because their prices

[00:35:29] are really good yeah they've gone up yeah I mean we were talking before he started recording like

[00:35:35] I don't go very often usually you know for I think it's only an Ontario but we have like the

[00:35:40] on roots I if you go on the kind of for for 16 401 on your way to Toronto so you're there's a few

[00:35:48] that have a and W's and my go to his usually onion rings which people who know me will find

[00:35:54] that funny because I'm not I really don't like onions typically but for whatever reason I

[00:35:59] like they're onion rings so that's usually they go to but yeah the prices I when we're saying

[00:36:04] they're definitely not cheap but I think you know their marketing is working pretty well I mean

[00:36:09] the impression I get for someone it doesn't go there very often it's like almost a slightly

[00:36:14] more upscale McDonald's is the way I would see it yeah I mean the quality is like when you

[00:36:20] look at the quality of A and W and McDonald's it's not even comparable I mean in my opinion the

[00:36:25] quality is much better out of place like A and W but the one thing as well as you had mentioned

[00:36:29] they don't have a lot of exposure in eastern Canada so I think they have like 1100 stores and I

[00:36:35] think over half of them are in western Canada so I mean you've got half your stores located in

[00:36:42] areas where there's not very much population so I mean any sort of expansion into eastern

[00:36:48] Canada I mean you're tapping in the you know Ontario connections like that I mean there's there's lots

[00:36:52] of potential for growth whereas you know like restaurant brands is more that blue chip play

[00:36:58] you know especially like on their burger element like Burger King does not do very well it

[00:37:02] hasn't done very well for a long time so I mean for somebody who's looking for something like this

[00:37:07] the new corporation should be uh should be pretty interesting for sure the one thing I'll say though

[00:37:13] there's probably gonna be a lot of people who this applies to is for some reason well simple trade

[00:37:18] is going to charge me fifty dollars to process the transaction regardless of what I choose

[00:37:25] which like I don't understand like I've known a few people who are with like RBC director

[00:37:31] or like TD they're not getting charged so but well simple for some reason regardless of

[00:37:37] whether I choose cash or the new corporation I'm getting charged fifty dollars which is kind of a it's

[00:37:44] kind of a angrily it's probably a way for them to get revenues right because they do what no

[00:37:49] feed trade yeah so they don't have to come in trouble yeah exactly so they probably have to find

[00:37:55] little ways to get additional revenues and they probably they must do they must have fees on options

[00:38:00] too on typically yeah yeah so yeah their their prices for options are ridiculously high

[00:38:08] yeah so it's probably just a way for them to get additional revenue at the end of the day right

[00:38:12] the other platforms you pay some you have some trading fees so they can probably afford to not do that

[00:38:19] and just kind of not charge that extra fee but no that's a good breakdown I mean I knew of them

[00:38:24] in terms of being a royalty fund but I think that was definitely a delightful for me because I never

[00:38:30] looked into them all that much because of that reason yeah it's a it's a great business I'm

[00:38:35] actually glad that they're not doing the the whole you know high income retiree royalty structure

[00:38:41] and well it'd be interesting to see how it grows I mean restaurant brands international is

[00:38:46] is killing it right now for sure so we'll see if a and w follow suit okay and now we'll move on to our next

[00:38:53] segment we had the us fund flows prepared for the ETFs but I don't think I think we'll run out of time

[00:38:59] so that's okay we'll keep it for next week as it is kind of slow for the earnings season so

[00:39:06] it's not bad to have some extra things to talk about so the last thing I'll talk about here is FedEx

[00:39:11] earnings now FedEx is a really interesting company because it is a bell weather stock gives you a

[00:39:16] good idea on how the economy is going because obviously of all the goods that are being shipped by FedEx

[00:39:21] so it was not a good court I think the stock was down like 15% on the day got completely yeah

[00:39:29] yeah it wasn't a good day they missed estimates by a mile like usually you know small

[00:39:36] misses here and there but they missed by a mile I'll raise you a lowering the guidance as well

[00:39:42] so yes the other reason so the revenues were down 0.5% to 21.6 billion for the quarter operating

[00:39:50] margins were also down 168 basis point net income was down 32% to 790 million now obviously

[00:39:58] the results like we just mentioned were not great they're now expecting revenues to grow in the

[00:40:03] low single digits for fiscal year 2025 there are fiscal years a bit it's not the calendar you

[00:40:09] obviously so this was Q1 2025 previously saying that it would be in the low to mid-single digits

[00:40:16] now it's going to be just low single digits so I wouldn't be surprised if we see revenues even being

[00:40:22] flat all though they did not guide for that but that all depends how the economy is trending going

[00:40:27] forward and if you know Jay Powell and his 50 basis point cut is any indication it could be

[00:40:34] not so good so we'll have to see with the the holiday quarter coming up as well they also

[00:40:39] reduced a top of top end of their earnings per share guidance and on the call they said that the

[00:40:44] demand was weaker than expected especially for you at the U.S. domestic market the weakness in

[00:40:51] industrial economic led to pressure for business to business volume so B to B particularly in the

[00:40:58] U.S. but also in Europe overall it's clear that the near-term challenges for FedEx are there

[00:41:03] but the management team said longer term there will be some improved profitability led by their

[00:41:09] current cost reduction initiatives so they seem really confident about the long term although you know

[00:41:15] it's hard to say at this point I think you know if you're interested in macro you listen to

[00:41:20] different economies different even like fun investment managers that would be managing their own

[00:41:26] funds I think the generally for the most part there's a lot of uncertainty I mean you can listen

[00:41:32] to 10 different economists for example and you'll probably get like 10 different outlooks 10 different

[00:41:39] variations so it is a bit hard right now just there's so many different things that are going on

[00:41:44] to see where the economy is going and what I'm sharing here for a joint TCI subscriber is it

[00:41:51] compares the U.S. revenue in international revenue and what's clear without looking at the

[00:41:56] number you can just see the bar charts but really in the last two years in the trailing 12 months

[00:42:01] you can see kind of the revenues for both the U.S. but also internationally that have essentially

[00:42:08] peaked and they've been going down a bit yeah so I think that's an indication obviously there was

[00:42:13] a big tell when with the pandemic but now I think it's an indication that things are slowing down

[00:42:19] and consumer but also like they said businesses are cutting down and they also mentioned that

[00:42:25] businesses are selecting cheaper options as well so they're selecting things that take a bit more

[00:42:31] time for lower cost versus kind of the express overnight type of option yeah this company like

[00:42:38] I would imagine it wouldn't be impacted like say like the business of business types stuff but I know

[00:42:43] I would be terrified of somebody like Amazon like in terms of like home package deliveries like

[00:42:50] I know I believe it was in 2021 or 2022 Amazon became the largest home delivery like package

[00:42:58] distributor in the United States and they've spent so much money like I'm pretty sure it's got to

[00:43:06] be in the hundreds of billions expanding like their infrastructure network and like I would just

[00:43:11] the competition there from from Amazon which it doesn't seem like anybody's going to be able

[00:43:16] to stop them would kind of make me worried if I was if I was FedEx from like a I guess you could say

[00:43:22] a retail side of things whereas Amazon really wouldn't have anything to do with like the business

[00:43:27] delivery or anything like that but yeah I'm kind of wondering if this is a combo of the slowdown

[00:43:33] but also of Amazon you know stealing market share yeah I mean that's a good point I mean

[00:43:39] we can also have a quick look on how UPS is doing because obviously UPS it's going to be a bit

[00:43:46] similar here and I'm just looking at their US and international so UPS I mean pretty much identical

[00:43:56] I mean you yeah if you I didn't show you the name I think you'd realize that it's almost the exact same

[00:44:02] kind of charts so same kind of thing kind of leveling off in 2021 2022 and then kind of stagnating or

[00:44:09] downward so it's just interesting that these two companies are kind of the same trajectory

[00:44:14] and probably the countering argument to Amazon is businesses that want to be outside of that Amazon

[00:44:21] ecosystem because you know Amazon takes a big cut and you know also comes out with their own product

[00:44:28] sometimes go against something that you might be selling it could be you know for these businesses

[00:44:33] they may want to not encourage Amazon and go with like a UPS or FedEx but I think that's a

[00:44:39] good point but it's interesting to see that yeah it's almost the exact same chart I mean if I

[00:44:44] didn't show you the name and I used the same colors you probably thought it was the same business

[00:44:50] yeah they're definitely I mean they're going to be cyclical to to an extent especially like

[00:44:54] during the pandemic like just the surge of you know online shopping things like that I mean

[00:44:59] if you look from you know 2019 to 2022 it was likely a very hard comparable to keep up with

[00:45:08] like if you look from you know let's say 2017 to 2019 on that chart it's kind of like steady growth

[00:45:14] and then you go from the pandemic years and it just skyrockets probably like unsustainable

[00:45:21] to a to a circumstance and a lot of it was probably fueled by you know lockdowns and just overall

[00:45:28] fears in the pandemic things like that but I would I would be worried in terms of in terms of

[00:45:33] their kind yeah it's certainly a worry they have I heard they're pretty big business yeah they

[00:45:40] have some financial resources yeah yeah like my so my dad lives in Arizona and he can get same

[00:45:49] day so he can order something in the morning and it's there in like three four hours that's how

[00:45:56] quick the delivery is it's insane yeah we're pretty I think we can get most of the most things

[00:46:03] at least where I live in Ottawa like pretty much one day yeah we're one of the same day just yeah

[00:46:09] but same day is yeah same day we'll we'll see one day yeah yeah okay well I think this was a great

[00:46:16] episode still despite it being kind of the low season for earnings you know BC and you know

[00:46:24] came to the rescue with Rogers so that was kind of good and obviously the the fed meeting I think

[00:46:30] we had to talk about it was probably the most anticipated fed meeting and I don't know how long so

[00:46:36] and obviously it has an impact whether you invest in Canadian stocks or U.S. or internationally

[00:46:41] you know let's be honest the Fed is the world central bank I think that's pretty much what it is right

[00:46:47] so yeah so it has a big impact on the whole world so I think it was a fun discussion and I

[00:46:53] we do appreciate all the support for everyone and all the nice reviews that we get the emails you know

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[00:47:22] again next week the Canadian investor podcast should not be construed as investment or financial advice

[00:47:28] the host and guest featured may own securities or assets discussed on this podcast

[00:47:34] always do your own due diligence or consult with a financial professional before making any financial

[00:47:41] or investment decisions