Higher Profits for Loblaws and Slowing Growth for Air Canada

[00:00:00] Welcome back to this special episode of the Canadian Investor podcast.

[00:00:19] Like we mentioned on yesterday's release, there's just so much going on in the investing

[00:00:23] world right now in terms of news and earnings.

[00:00:26] So Dan and I just decided to do an extra episode with mostly earnings, a little bit of news

[00:00:32] sprinkled in there, but mostly earnings, a lot of Canadian focus earnings.

[00:00:37] So definitely fits well for the Canadian Investor podcast.

[00:00:42] So Dan, how's it going?

[00:00:44] Are you reeling a little bit from last night from a not great finish from your oilers?

[00:00:50] Yeah, that was terrible.

[00:00:52] It was 4-1 and my wife went to bed.

[00:00:55] And then when I come to bed, I'm like, oh, they lost.

[00:00:58] She's like, what?

[00:00:59] They lost?

[00:01:00] That was a terrible, terrible game for the oilers.

[00:01:03] But I don't know if it can get much worse than that.

[00:01:05] But yeah, lots of good debt.

[00:01:08] It can.

[00:01:09] You could be a Maple Leafs fan.

[00:01:10] That is true.

[00:01:11] Yeah, that is true.

[00:01:12] I'm probably going to get a lot of hate from a Maple Leafs fan.

[00:01:16] Definitely.

[00:01:17] Actually, before we get started, I did a fun poll because obviously I'm a Habs

[00:01:21] fan and I think the Habs will actually like next year, probably like, I don't know, they

[00:01:25] may be in the mix for a playoff spot.

[00:01:28] But I think the expectation is that they make it great if not, as long as they're

[00:01:32] still competing.

[00:01:34] And I did a poll asking whether people thought that in the next five years who

[00:01:38] was most likely to, I think it was when the cup between the Habs and the Leafs

[00:01:44] and it was actually closer than I thought.

[00:01:46] But I said like, emotions aside, who do you think has a better shot?

[00:01:51] And it ended up being 60-40 Leafs.

[00:01:54] But just kind of shows that maybe their competing window is closing a little bit.

[00:01:59] There's probably a lot of kind of defeated Maple Leafs fans who clicked Habs on there

[00:02:04] too just because of the, I mean, just because of how upset they are.

[00:02:09] Yeah, it's interesting.

[00:02:11] The oilers got to pick it up or it'll be a quick end for them.

[00:02:16] Yeah, I mean, look, for me, I just want interesting hockey at this point.

[00:02:21] So and oilers, I mean, usually you get some pretty exciting hockey.

[00:02:25] That was definitely not interesting.

[00:02:29] Unless you're a Canucks fan, then you probably found it very, the complete

[00:02:33] meltdown, very interesting.

[00:02:35] Hey, it's okay.

[00:02:36] Yeah, I know you live, you learn as long as they learn from it for next

[00:02:39] game. But enough about hockey.

[00:02:41] There's tons of good hockey podcasts out there.

[00:02:44] So we'll get started here.

[00:02:46] The first thing on the dock is BEP, so Brookfield Renewable Partners.

[00:02:51] Their earnings, I won't go into too much detail about the earnings, but there

[00:02:54] was also a big announcement about Microsoft and a partnership with them.

[00:02:59] So the news, I think really overshadowed, to be honest, the earnings

[00:03:03] release was a few days earlier.

[00:03:05] And essentially BEP signed a landmark agreement with Microsoft to deliver

[00:03:11] over 10.5 gigawatts of additional renewable energy capacity.

[00:03:15] And of course, this is to further support the growth of Microsoft's

[00:03:19] AI powered cloud services.

[00:03:21] Now they expect this capacity to come from North America and Europe

[00:03:25] and to come online between 2026 and 2030.

[00:03:29] They also expect to bring gigawatts of new capacity annually through

[00:03:34] the end of the decades as interest rates have stabilized.

[00:03:37] They mentioned also that the market is getting better for renewable energy

[00:03:41] assets, which should help them in their asset recycling program.

[00:03:46] And the asset recycling program is pretty simple.

[00:03:49] I mean, at its core, it just means that Brookfield in general, they

[00:03:54] have this philosophy where they'll buy assets that they perceive as being

[00:03:58] undervalued. They will fix them.

[00:04:01] They will make it more efficient and then they'll sell them and then kind

[00:04:05] of repeat this process.

[00:04:07] Although there are some assets that they will keep for the long run, but

[00:04:11] some assets they do buy and then it's kind of buy low and sell high type

[00:04:16] of deal. Now their FFO, so their funds from operation was 296

[00:04:21] million. That was 8% higher than the same period last year.

[00:04:25] Overall assets perform well, although their revenues are shifting

[00:04:29] more and more. They repurchase over 4 million units in the last

[00:04:34] night months. So clearly they think that the stock was undervalued.

[00:04:38] So, you know, overall, I think a pretty decent quarter here by BEP,

[00:04:42] but definitely the news of this landmark agreement with Microsoft

[00:04:46] was what really overshadowed and took the forefront.

[00:04:49] Yeah, it's I think there's a lot of incentive for it.

[00:04:52] First off, like just the AI, you know, in terms of power generation,

[00:04:56] things like that. And it's like a lot of these companies are looking to be

[00:04:58] net zero. They're probably going to look towards, you know, even if

[00:05:01] it's a bit more expensive to develop it, the renewable end of things.

[00:05:05] 10.5 gigawatts is like I would say that's probably in terms of

[00:05:09] Canadian renewable players like Brookfield's pretty much the only one

[00:05:13] that could handle something like that.

[00:05:15] I was looking up Northland Power, which is another big renewable

[00:05:20] player, Canadian renewable player, and they only have around

[00:05:23] three gigawatts of capacity.

[00:05:26] So like you're looking at this deal over a 10 year period is more than

[00:05:29] triple what the total capacity of something like Northland would be.

[00:05:33] So, I mean, it's a pretty big deal.

[00:05:36] I imagine it's probably not the first.

[00:05:38] And I believe that they typically target 10 to 15 percent

[00:05:42] FFO growth annually.

[00:05:43] So 8 percent is a bit lower.

[00:05:45] But considering, you know, the environment right now for utilities

[00:05:49] in general, it's really not all that bad.

[00:05:50] This is one that I own Brookfield

[00:05:54] renewables, a pretty decent size position on my portfolio, too.

[00:05:58] I've owned it for quite a bit.

[00:06:00] Yeah. And look, I think it's to me, obviously, I'm biased here

[00:06:03] and I think you're probably as well a little bit.

[00:06:06] I think it's a great company to own.

[00:06:08] But again, I think I've I've owned it since 2017.

[00:06:13] That's when I started my positions in BP.

[00:06:15] And I think unfortunately, a lot of people probably started around

[00:06:18] 2021 or during the pandemic.

[00:06:21] And you're looking at a loss, obviously, if you started during that time,

[00:06:24] because there was a big run up for renewable energy stocks.

[00:06:28] Let's be honest, there was a big run up in the market overall

[00:06:30] during that period of time.

[00:06:32] But clearly, I think they were beaten down in the last year, year and a half.

[00:06:37] The culprit, I think you alluded to like higher interest rates, right?

[00:06:40] Just makes these companies a bit more difficult to operate

[00:06:43] when they're so reliant on debt and higher rates.

[00:06:46] It makes it a bit harder to grow and obviously put, say,

[00:06:50] downward pressure on earnings or funds from operation,

[00:06:53] which are just a variance, which are typically it's a non gap metric,

[00:06:58] but it's typically used by utilities.

[00:07:01] They'll have some sort of similar calculation of fund from operations.

[00:07:07] But it'll be interesting where it goes.

[00:07:09] The last thing I'll say is the the stock has really been on a bit of a terror,

[00:07:15] right? Since this has been announced, has been about like,

[00:07:18] what, a week and a half, 10 days.

[00:07:20] And you can see that the stock was before the announcement trading around $29.

[00:07:26] I'm talking here about the limited partner units.

[00:07:30] There's also the C Corp units.

[00:07:32] So it was trading about $29 Canadian and now it's up to $37.

[00:07:37] So quite the run up since then.

[00:07:39] And for me, I mean, I'm definitely a long term holder.

[00:07:42] So, you know, it's nice to see the run up, but doesn't really impact

[00:07:46] what I'm going to do at Brookfield.

[00:07:48] Yeah, and it's not it's not going to have like a massive impact on results.

[00:07:53] Like immediately, like you said, I believe this is like a roll out over a decade.

[00:07:57] So, I mean, it's not like it's, you know, 10 and a half gigawatts

[00:08:00] of capacity, like going online next year.

[00:08:03] It's a really slow roll out, but it's still like,

[00:08:06] I think it's more of a positive sign for the industry overall,

[00:08:09] because there's a lot of negative sentiment towards renewables right now

[00:08:13] and just how they might not really be, you know, all they've been cut out to be.

[00:08:18] But this is a big deal.

[00:08:20] And I would imagine it's probably the first of of many.

[00:08:23] Yeah, yeah, exactly.

[00:08:24] So I think we've talked enough about Brookfield and I forgot to mention

[00:08:28] we broke our streak here of episodes where neither of us is sick.

[00:08:33] So unfortunately, I got a cold again, but that's OK.

[00:08:36] I'll leave it to you and catch my breath a little bit

[00:08:39] and probably blow my nose while you talk to us about TMX Group earnings.

[00:08:44] Yeah. So TMX Group, it's a pretty underrated company.

[00:08:48] It's one that we've covered over at StockTrade for quite a while.

[00:08:50] It's it's got a pretty wide moat simply due to the lack of competition

[00:08:54] in Canada for public exchanges.

[00:08:57] And as a result, it's posted some pretty strong results,

[00:09:00] despite a pretty tough equity market like I would say TMX's main competition

[00:09:04] would be like the NEO exchange, maybe.

[00:09:06] But it's they own the, you know, Toronto Stock Exchange,

[00:09:10] the Venture and the what's the one Canadian Securities?

[00:09:14] Montreal, Montreal Stock Exchange.

[00:09:17] Yeah, like they which is essentially derivatives.

[00:09:20] So for those who are not familiar with it, it used I can't remember

[00:09:24] when the acquisition, but it was definitely over a decade ago.

[00:09:27] And the Montreal, like when you buy options,

[00:09:30] like typically that'll be the Montreal exchange, any kind of derivatives.

[00:09:34] Yeah, it's similar to the CME.

[00:09:35] So the Chicago Mercantile Exchange in the U.S.

[00:09:38] Yeah. So when you think of just overall competition, like, yeah,

[00:09:42] the NEO is pretty much it, which has only emerged

[00:09:45] like the last few years here.

[00:09:46] But TMX is pretty interesting because, you know, a lot of the KPIs kind of give

[00:09:52] a pretty big indication of the overall health of the Canadian markets.

[00:09:56] So they'll they'll give you the inside scoop of, you know,

[00:09:59] new listing activity, trading activity, all that kind of stuff.

[00:10:01] So they topped expectations on both top and bottom lines.

[00:10:05] And the company actually hasn't missed

[00:10:07] earnings estimates for over two and a half years now.

[00:10:10] So you're talking about, you know, 10 plus quarters where this company

[00:10:14] has as exceeded results.

[00:10:16] So the company's trade port segment, which is a platform that focuses

[00:10:19] on European energy markets and they acquired it a few years ago,

[00:10:23] saw revenue grow by over 20 percent.

[00:10:25] This isn't really all that surprising.

[00:10:27] There's a lot of action and volatility in energy these days.

[00:10:29] It's data link segment, which would be like data streaming.

[00:10:33] I would imagine like streaming quotes, things like that.

[00:10:36] It grew by three point nine percent.

[00:10:37] This is the lowest growth rate in the segment for over two years.

[00:10:41] Listing fees declined by 16 percent year over year.

[00:10:44] So this may seem pretty bad, but if you look to listing fees

[00:10:49] from like peak covid to, you know, farther on into 2022, 2023,

[00:10:55] this company was reporting like 30 to 50 percent declines

[00:10:58] in year over year growth just just because of how popular.

[00:11:02] I mean, we've seen it the last few years, the IPOs.

[00:11:04] What did you say there was?

[00:11:05] I think you said mentioned in 2023, there was like one IPO.

[00:11:09] Yeah, or something like that was one.

[00:11:10] Yeah, one IPO.

[00:11:11] I think they had more.

[00:11:13] So that was on the TSX.

[00:11:14] I think they must have had more.

[00:11:15] I can't remember on the venture.

[00:11:17] But yeah, I would imagine it was more than sure.

[00:11:20] Yeah, there's it's not as profitable for them.

[00:11:23] Yeah. So I mean, you look at December 20, 21 listing fees of six point three.

[00:11:29] Yes, six point three.

[00:11:30] This would be million, I would imagine.

[00:11:32] And you're looking at, you know, two point one.

[00:11:34] So it's fallen by, you know, close to 70 percent off peaks.

[00:11:38] I mean, this really isn't all that surprising.

[00:11:41] Raising capital extremely difficult right now.

[00:11:43] Valuations. I mean, even from a valuation perspective, it's really not

[00:11:48] not that lucrative right now to go public because you're not going to get,

[00:11:53] you know, the crazy high valuations you would have got in, you know, 2021.

[00:11:57] When I mean, some of these IPOs, I remember, were coming out at like 20,

[00:12:01] 30 X sales and it was just crazy.

[00:12:04] But I mean, that's that's kind of dried up.

[00:12:07] I just think that, you know, companies are probably waiting for more

[00:12:10] opportunistic times to go public.

[00:12:13] Equity and fixed income trading revenue fell by seven point eight percent

[00:12:17] year over year. This just kind of shows you the state of the Canadian

[00:12:20] markets at this point in time.

[00:12:22] I mean, Canadian stocks are nowhere near as popular as the U.S.

[00:12:25] Canadian consumers are arguably in a much weaker spot than their U.S.

[00:12:30] counterparts. I mean, I remember this is probably a while back

[00:12:33] when I had mentioned that TD study.

[00:12:34] I don't know what the stats are now, but TD came up with a study that said

[00:12:39] 47 percent of Canadians who had investment accounts like didn't make a

[00:12:43] single contribution to them last year.

[00:12:45] So, I mean, it's pretty tough for them.

[00:12:49] And I mean, you think the results like this would no doubt be pushing

[00:12:52] the company lower, but it just continues to make new all time highs.

[00:12:56] I mean, I just maybe maybe think they appreciate the fact that despite

[00:13:00] how rough it is, like they're still performing quite well.

[00:13:04] Yeah. And I have here for a joint TCI listeners, so the initial listing fees.

[00:13:09] So, yeah, you get the per quarter.

[00:13:11] So it's literally for those are not seeing the visuals.

[00:13:14] It kind of goes.

[00:13:15] It's relatively low around two point four.

[00:13:18] I believe that's in millions.

[00:13:20] So it is four million.

[00:13:21] Yeah. Before the pandemic, then the pandemic hits and then slowly

[00:13:26] it just picks up, picks up and then pretty much triples from there at the peak.

[00:13:30] And now it's back to kind of pre pandemic levels, like even lower, like two point

[00:13:35] one million in terms of the latest quarters.

[00:13:38] I'm assuming this would include, you know, the venture because just

[00:13:42] I don't think there's that much happening on the actual, you know,

[00:13:45] parent exchange, if you want to call it.

[00:13:47] Yeah, they don't separate any data between, you know, their particular exchanges.

[00:13:51] So this would be just listing fees just overall.

[00:13:55] Yeah, I mean, it's it's interesting.

[00:13:57] I just don't like I think they I do agree with you.

[00:14:00] I think they have some kind of like a decent mouth here, but they really

[00:14:04] I just don't see where the growth is with TMX, right?

[00:14:08] Yeah, I mean, you need first off, you need trading activity to pick up to

[00:14:11] and you need more interest in the Canadian markets, which

[00:14:16] I mean, it's pretty tough right now.

[00:14:17] I mean, we saw a lot of a lot of companies.

[00:14:21] Yeah, it would have been in twenty twenty one or twenty twenty two.

[00:14:23] Like it's particularly like tech companies that, you know, they initially listed on

[00:14:28] the on the TSX and they they dual listed like they tried to get onto the US markets.

[00:14:33] We saw like back in the day, Lululemon just completely left

[00:14:36] the Canadian markets, went to the US markets.

[00:14:39] So yeah, it's it's pretty tough.

[00:14:42] They definitely need a probably a resurgence in activity on the Canadian markets, more,

[00:14:47] you know, popularity in terms of them and just a healthier consumer.

[00:14:52] Yeah, I think the reasoning of your business is if your investor base is really

[00:14:56] there's a big portion of your investor base that's domestic in Canada, then of course

[00:15:01] it would make sense because it's just easier to access, you know, the stock that way.

[00:15:06] If it's listed in Canadian dollar, you don't have to go through the whole exchange process.

[00:15:10] But I'm thinking a company like Lululemon, I feel like the investor base is more

[00:15:15] international US than Canada, whereas you have all these like big Canadian dividend payers

[00:15:22] we know how much Canadians love their dividend stocks.

[00:15:25] And I think you end up, you know, it ends up making a bit more sense to be dual listed.

[00:15:29] Yeah, they had well there was one it was Acuity Ads that's now a Lululemon,

[00:15:34] but they went on the Nasdaq and then they pulled it.

[00:15:37] They don't even trade on the Nasdaq anymore just because first off,

[00:15:40] the fees are much higher, I believe, to list on the US markets as well.

[00:15:44] So I mean, if you're not, if it's not very popular in terms of volume on the US markets,

[00:15:49] they pulled out.

[00:15:49] They didn't want to be involved in that anymore.

[00:15:51] But yeah, it's always a pretty good quarter.

[00:15:54] I mean, it just continues to rip to new all time highs.

[00:15:57] It's been one of the best performing Canadian stocks for quite some time now.

[00:16:01] But I think a lot of people, I mean, a lot of people don't really pay attention

[00:16:05] to it all that much.

[00:16:05] But it is a good it's a good overview of just the health of the Canadian markets in general.

[00:16:10] Yeah, yeah. Well said.

[00:16:13] Now we'll move on to Air Canada.

[00:16:16] I know that's always a pretty popular stock that people have on their list.

[00:16:21] So now for those following the name, you probably noticed that Air Canada stock was down

[00:16:27] 10% on the day of the earnings release.

[00:16:30] We'll have a look at what actually happened.

[00:16:32] I'll be looking at this on a year over year basis,

[00:16:34] mostly because airline revenues are very cyclical in terms of seasonality.

[00:16:39] And revenues were up 7% to 5.2 billion.

[00:16:43] Passenger revenues were up 9% to 4.4 billion.

[00:16:47] So definitely still encouraging, still some growth, but clearly slowing down here

[00:16:52] compared to the pent up demand that we saw in the previous years.

[00:16:55] Cargo was down 10% to 125 million.

[00:16:59] Same thing here.

[00:17:00] Cargo really picked up during the pandemic when people couldn't really travel all that much

[00:17:06] and were spending their money on a lot of goods.

[00:17:09] So that was a bright spot for them during the pandemic.

[00:17:12] But now they're seeing the slowdown here.

[00:17:15] Expenses were up 6%.

[00:17:17] The biggest increase was related to employee compensation, which was up 21%.

[00:17:21] Aircraft fuel cost was down 8.8%, which is a bit surprising,

[00:17:26] but I'm assuming this is because they have hedges in place.

[00:17:30] I would assume they have that to make sure that whatever price they purchase fuel at,

[00:17:36] it's hedge against too much volatility.

[00:17:40] And digging further into this, the fuel cost per liter was down 17.9%

[00:17:45] year over year, which could be a headwind going forward.

[00:17:48] They had a net loss of 22 cents per share compared to 3 cents per share last year.

[00:17:54] Freecast will increase 7% this quarter to a bit over a billion dollars.

[00:17:59] They said that they saw strong growth in their Asia-Pacific routes

[00:18:02] and increased the number of routes there to meet demand.

[00:18:05] They reaffirmed their guidance that they issued at the beginning of the year,

[00:18:08] but said that although growth is still strong,

[00:18:12] it is starting to slow as pent-up demand is slowing down from the pandemic.

[00:18:17] The combination of slowing growth and higher expenses I think

[00:18:20] is most likely what hit the stock when earnings were released.

[00:18:24] And they are seeing encouraging growth signs for corporate demand,

[00:18:28] although not as robust as their American peers.

[00:18:33] So overall, I mean, not overly surprising in my opinion.

[00:18:38] If you think logically expected in terms of the results,

[00:18:41] I've been saying this for a while is that I'd be interested in seeing how they would do

[00:18:45] because at some point that pent-up demand will slow down.

[00:18:50] And especially if the economy is slowing down as well,

[00:18:52] people have less money to spend.

[00:18:54] If you zero out the business part,

[00:18:56] at some point that's an easy expense to remove if you usually plan a yearly trip

[00:19:03] or multiple trips a year and then you have to save some money.

[00:19:08] Maybe you cut a trip or maybe you end up renting a cottage that's cheaper,

[00:19:13] whatever it is.

[00:19:13] So not surprising for me.

[00:19:15] Yeah, and I think one important thing to know too is these companies make a ton of money

[00:19:23] from business travel.

[00:19:27] I don't know why, I guess maybe they book more expensive seats,

[00:19:30] maybe they spend a little more on food, things like that.

[00:19:33] But I know Air Canada,

[00:19:35] typically a lot of their profits were based off business travel,

[00:19:39] which if you think of traditionally maybe they'd fly people to meetings,

[00:19:43] whereas now the popularity of say something like Zoom,

[00:19:47] you could have a meeting over the computer instead of flying employees

[00:19:50] to particular places.

[00:19:51] So I think business travel has a relatively big impact on these companies as well.

[00:19:56] I'd be curious as to how that's rebounded.

[00:19:59] While you were talking, I looked up Air Canada's debt levels

[00:20:02] and they've actually reduced them by a significant amount.

[00:20:06] It's pretty crazy.

[00:20:07] So at the peak of the pandemic, they had $17 billion in debt

[00:20:11] and they've reduced that down to $9 billion it looks like.

[00:20:15] So I mean a big, big reduction in debt

[00:20:18] and their interest expenses on a trailing 12-month basis

[00:20:23] have fallen like September 2022 peaks of $746 million to just $442 million.

[00:20:30] So I mean, I didn't think they'd be able to pay off all that debt that fast,

[00:20:35] but it's pretty impressive.

[00:20:38] Yeah, I mean, it helps when you don't have a dividend at all,

[00:20:43] you can actually focus and that's probably what's been helping them

[00:20:48] is they can actually allocate money to pay down that debt.

[00:20:51] And I have here the long-term debt for them

[00:20:54] and definitely it's been going down significantly like you said

[00:20:58] since the peaks had the pandemic

[00:21:00] and not to go back and harp on BCE again,

[00:21:04] but it kind of shows that dividends sometimes it can be a big problem

[00:21:09] because it doesn't allow you to pay down that debt

[00:21:12] when it probably is the right move to do.

[00:21:15] Yeah, like you're cutting interest expenses significantly

[00:21:18] which ultimately will just help you farther down the line.

[00:21:20] I remember during the pandemic,

[00:21:21] I'm pretty sure this company was like putting up like planes and airline parts

[00:21:26] for like collateral to get more financing just because of how badly they were hit,

[00:21:31] but they look to be getting back on track.

[00:21:35] Air Canada, I think it was like one of the best performing stocks in North America

[00:21:40] over like from, I can't remember what it was,

[00:21:42] maybe the last 15 years or 10 years leading up to the pandemic, but I mean.

[00:21:46] Yeah, at some point it was really undervalued

[00:21:48] and they still did well for operating metrics as well.

[00:21:51] So revenue passenger miles which is the number of passenger

[00:21:55] multiplied by the amount of miles traveled increased 10.5%.

[00:21:59] Available seat miles capacity was 11.1% which is simply the number of seat available

[00:22:06] by the number of amount of miles traveled that was up, sorry, 11.1%

[00:22:13] and cost per available seat miles, so CASM,

[00:22:17] which is the operating cost divided by the available seat miles was down 4.3%.

[00:22:23] Now the lower the better here since a lower number means that the airline is more efficient

[00:22:28] and then the passenger load which measures how many seats are sold to paying passenger

[00:22:33] was down 0.5% to 84.3% or 50 basis point is what I meant here.

[00:22:40] Of course, the higher is better here.

[00:22:42] Still not alarming or anything, but something to keep an eye on.

[00:22:46] If you are interested in investing in airlines,

[00:22:49] you definitely have to keep an eye on those metrics.

[00:22:51] Not only how Air Canada does, but compared to its peers,

[00:22:55] unfortunately, WestJet is no longer publicly traded so you can't really compare the two.

[00:23:00] So you'd have to definitely compare it most likely with one of the larger US airlines

[00:23:05] to be able to kind of get a sense whether Air Canada is doing well or not there.

[00:23:10] Yeah, I think Onyx bought WestJet, which I think during the pandemic kind of killed

[00:23:17] their ability to get funding. Whereas Air Canada kind of got a bit of government help

[00:23:22] because WestJet got bought by pretty much a private company.

[00:23:27] Well, publicly traded company, but they weren't like a full-blown airline.

[00:23:31] They were kind of more in the fold. They didn't end up getting,

[00:23:33] I don't think nearly as much, but yeah, it's...

[00:23:36] I mean, it's a fairly decent quarter from Air Canada. I mean, I expect we'll see declining

[00:23:43] numbers moving forward because it's getting really tough right now in terms of just overall

[00:23:48] money and this is one of the easiest things you can just cut out.

[00:23:52] Yeah, and airlines is a tough business. That's the reality of it. There's a reason why Buffett

[00:23:59] invested in airlines back in the day, said he would not again, invested again,

[00:24:03] and said he was done for good. So, you know, I mean, you can still make money. You just have to,

[00:24:09] I think timing is important. It's not the type of company that I would hold forever just because

[00:24:16] really the expense side that I think for me is the biggest thing preventing me,

[00:24:21] fuel costs, employee costs. And then you tack in the fact that there's also cyclicality,

[00:24:27] especially with the economy. It's not the kind of business I like, but

[00:24:30] I think enough about Air Canada. You want to go about talking to us about the most love

[00:24:38] company in the country? Yeah, exactly. Galem Weston. I always mess up his name.

[00:24:44] Right? Did I say it correctly? Yeah.

[00:24:47] Yeah. So Loblaw, pretty strong quarter, which I mean, if you're an investor,

[00:24:53] it's a good thing, but like if you're, you know, I don't even know...

[00:24:56] If you're in that Reddit group.

[00:24:57] You absolutely despise it, but the retail end of the business had same store sales growth of 3.4%.

[00:25:05] Shoppers Drug Mart grew by 4%, but they take Shoppers Drug Mart like as a whole because they

[00:25:11] do sell, you know, food and all that type of stuff. Well, I don't even necessarily think

[00:25:15] food, but like drinks and all that kind of stuff. So if you isolate the pharmacy and

[00:25:19] healthcare side of the business, they grew same store sales by 7.3%. So there's actually

[00:25:25] pretty strong growth in its pharmacy area, health and pharmacy area. So an interesting element here

[00:25:31] as well as a company continues to see quite a bit of growth in e-commerce. So I mean,

[00:25:36] I think it's just more of like a permanent shift out of the pandemic for people who prefer

[00:25:40] to just order online over visiting physical stores. I personally haven't done this myself.

[00:25:45] I think we did it once during COVID, but I don't know. I'd rather really go into the store,

[00:25:50] but you can just go online, order groceries and they'll just box it up for you and

[00:25:56] you come pick it up. Yeah. And then you, yeah, exactly. We did it a little bit during the

[00:26:00] pandemic for sure, but yeah, we've noticed that oftentimes if you bought produce,

[00:26:05] it was not always like the nicest one or sometimes they like would,

[00:26:10] you would ask for something, they put a substitute in and you didn't really want it.

[00:26:15] I mean, there's still people that do it. There's one not far from my place and there's

[00:26:19] parking spots reserved for that and there's still cars there. Like every time I see cars there,

[00:26:24] I'm like, oh yeah, I guess there's still people doing that. Do they bring it right out to your

[00:26:27] car? Or do you have to go in and get it now? No, you can, I think they would still bring it

[00:26:33] right out to your car. Yeah. Yeah. I remember we only did it once during the pandemic.

[00:26:36] And like you said, we got like the produce was bad. So we're like, yeah, we're not,

[00:26:40] we're not doing this again, but that grew by 16% year over year, I think so.

[00:26:46] And I mean, this is probably compared to some pretty high like pandemic type comparable. So

[00:26:52] I mean, it continues to grow a lot of focus. So as on the, on the grocery margins right now,

[00:26:59] so they reported gross margin of 31.6%, which is a 30 basis point increase from last year.

[00:27:05] Now the company doesn't like separate out margins by segment. So you pretty much have

[00:27:11] to rely on what they're saying. They say that the bump in margins was not due to food,

[00:27:15] but it was due to the company's pharmacy segment, but they don't actually lay out the numbers. So

[00:27:21] there's going to be some, a bit of fogginess there, whether or not you believe them is another

[00:27:25] thing. Again, it's going to depend on, you know, what side of the fence you are on this.

[00:27:30] But the other hot topic that is probably going to drive those people crazy is the excess

[00:27:34] profits are bringing in. So the company, the company bumped the dividend by 15%

[00:27:39] and spent over $470 million on buybacks. Again, beneficial to shareholders, no doubt, but it

[00:27:45] kind of amplifies the current political issues, bad PR about rising food prices and excess profits.

[00:27:52] They're dumping a bunch of money back into the dividend, buying back shares,

[00:27:56] but Loblaws has historically always been aggressive in terms of dividend bumps and

[00:28:01] share buybacks. I think it's raised its dividend for 13 or 14 straight years now,

[00:28:05] and it's usually in the double digits. Buybacks again, it does that, but it just doesn't really

[00:28:11] look all that good from the boycott end and the price gouging end. Another interesting-

[00:28:17] Yeah.

[00:28:17] Go ahead.

[00:28:18] Well, what I was going to say, like for those watching, you'll see like it's basically

[00:28:22] a straight line down even if you're looking by quarter to quarter for the total shares

[00:28:26] outstanding. So it's yeah, they've been pretty aggressive. And then if you do a yearly look,

[00:28:33] they're reducing shares at a compound annual growth rate of minus 3% since 2015.

[00:28:40] Yeah, that's pretty high.

[00:28:42] It's pretty massive. Yeah. If you're a shareholder, it's good. If you want to,

[00:28:49] it's probably not creating a whole lot of value in the economy. And sometimes you wonder,

[00:28:55] I do wonder why they wouldn't try to invest more in efficiencies so they can say at least,

[00:29:01] look, we're investing in the business to lower our costs so that there's maybe food prices rise

[00:29:10] less quickly and we still maintain our profits. I think that would be a way to maybe give the

[00:29:18] perception that they're trying a bit harder, but I don't know.

[00:29:23] What was it? They, 1.8 billion or actually 2.1 billion towards capital expenditures to improve

[00:29:31] efficiency. So they're dumping a lot of money into that as well. So I mean, this company just

[00:29:36] generates a lot of cashflow. And I mean, it's mostly like, it's mostly a volume thing with

[00:29:43] these grocers, like low profit margins, just a ton of volume selling groceries.

[00:29:48] But another interesting thing is on the financing end and we've talked

[00:29:51] a ton about different companies like Canadian Tire. I think we talked about Amex, but

[00:29:56] the company saw a double digit increase in profits on their financing end, which would be like,

[00:30:00] it would be like a president's choice, like credit cards, things like that.

[00:30:04] And I mean, I think it more so- PC banking.

[00:30:05] Yeah. Yeah, exactly. It more so speaks to the health of the Canadian consumer,

[00:30:10] credit cards, balances rising, delinquencies rising, things like that. And they reiterated

[00:30:16] their guidance of high single digit earnings growth and a significant return of cashflow back

[00:30:22] to shareholders yet again, they don't grow revenue very fast. It's, you know,

[00:30:27] they're not going to grow revenue as fast as that earnings growth, which just means,

[00:30:31] you know, it's going to come through the buybacks through, you know, improved margins,

[00:30:35] things like that. And again, the main headline in the news right now is the

[00:30:38] Loblaw boycott that is going on. I actually saw some interviews this morning. They were doing

[00:30:42] on global news with some consumers at a Loblaw and a few of them mentioned that the stores were just,

[00:30:48] it was still absolutely packed. Like they didn't really notice anything different.

[00:30:53] And then they interviewed another guy that said, you know, the prices are low enough here that

[00:30:57] he just doesn't really feel like he has any need to swap grocers. So I mean, I think

[00:31:03] they're taking a lot of heat right now due to the fact it's like, it's the biggest name.

[00:31:07] It's the one that grabs the spotlight. But the thing is-

[00:31:10] And those commercials, like, I honestly think that's one of the big reasons, right?

[00:31:16] He was doing these like PC commercial, these President Choice, his face is out there.

[00:31:21] If you ask people, you know, who are the CEOs of the big grocers in Canada?

[00:31:28] Yeah, Metro or Sobeys or Empire. I mean, most people would probably be able to recognize

[00:31:35] Weston where the other two, they would have no idea.

[00:31:38] Yeah, exactly.

[00:31:39] He kind of created that unfortunately for him.

[00:31:44] Yeah, he put himself in the spotlight and now it's yeah, they just, the thing about it is,

[00:31:49] is Metro reported as well. And I didn't get time to dig into the quarter too much,

[00:31:54] but they reported a decline in earnings, which I mean, so you're sitting here,

[00:31:58] Loblaw is reporting double digit boosts in earnings per share while Metro is declining.

[00:32:03] Empire has yet to report. So I mean, if they report a bad quarter, I mean,

[00:32:08] it just makes Loblaw look even worse. I mean, from a share, again, this is all from like

[00:32:14] a shareholder perspective and a consumer's perspective. From a shareholder perspective,

[00:32:18] you're super happy about this. From a consumer perspective, you know,

[00:32:22] the boycott makes a little more sense if these other two grocers are struggling.

[00:32:27] I mean, I think the thing is that the other two are struggling, I think mostly because

[00:32:32] just Loblaw's discount factor, many consumers swapping.

[00:32:36] I don't think this is like a price gouging element. I think it's just like, I haven't,

[00:32:40] I used to shop at Sobeys like exclusively. I haven't been there in over a year because the

[00:32:45] prices are just ridiculous. So I've swapped to pretty much Costco and No Frills. So

[00:32:51] it would be nice if Loblaw had kind of some data on that particular end. Like

[00:32:56] if they kind of segmented, you know, these are the stores that are operating better. But I

[00:33:00] mean, if I were to guess, you would see, you know, the No Frills, the super stores,

[00:33:04] they're seeing huge increases in volume, which is probably an element from people swapping from,

[00:33:10] you know, Metro or Empire. And that's what's increasing the overall profits,

[00:33:17] whereas the others are struggling. I mean, I don't expect the boycott to do very much

[00:33:22] just because of the same thing I said, like in Western Canada, No Frills and Super Store

[00:33:27] are pretty much the cheapest grocery stores you can go to. I just don't think Canadians,

[00:33:32] when times are this tough, are just going to go to higher price, pay more for their groceries

[00:33:37] just to kind of stick it to Loblaws for 30 days. But I don't know.

[00:33:40] Or travel more or like, you know, time is money as well, right?

[00:33:44] Exactly.

[00:33:44] I'm not going to go to a grocery store that's like five, 10 kilometers further away when

[00:33:50] there's Loblaw's branded one or Super Store, whatever, you know, pretty close to my house.

[00:33:55] Right. So that's kind of the way I see it because yeah, you might be paying slightly

[00:34:00] less, but you know, the extra time you're paying a bit more gas if you're driving,

[00:34:04] like at the end of the day, are you saving that much money?

[00:34:06] Yeah, exactly.

[00:34:07] I think that's debatable. Yeah, but I'm doing the same thing as you kind of Costco,

[00:34:11] try to go every three to four weeks, get most of our meat there. It's much cheaper.

[00:34:16] A lot of stuff like toilet paper or stuff like that where, you know, it doesn't go bad.

[00:34:20] You just buy it then in Ball Kirkland brand and we've been saving a lot of money doing

[00:34:26] that and then kind of Super Store, Metro, depending on what we're buying.

[00:34:31] So I kind of, you know, now I'm more aware, I would say I'm keeping a better eye on,

[00:34:35] like I kind of know where certain items are cheaper at like Metro versus Super Store

[00:34:41] versus well, Sobe's yeah, they're not really cheap. So I never go there.

[00:34:45] Yeah. Yeah. We like Sobe's is like pre pandemic. It was more expensive,

[00:34:50] but like the Sobe's by we're at like where we live is so much nicer than the No Frills.

[00:34:57] Like it's kind of tough to go through the No Frills where we're at,

[00:34:59] but now we do just because like the prices are just absurdly cheaper.

[00:35:05] But yeah, I don't know. I like Costco is a bit different too.

[00:35:08] Like you're paying more, but you're also getting more volume.

[00:35:11] So I mean, it's a higher like out of pocket expense at that time,

[00:35:15] but like over time on particular items, it saves you a ton of money.

[00:35:19] And I think this trend is probably why Loblaws is reporting better earnings,

[00:35:26] but you know it's going to be politicized to the point where it's focusing on

[00:35:32] that price gouging element of it and all that type of stuff.

[00:35:36] Yeah. Yeah, definitely. So we'll move on to something a bit different here.

[00:35:40] So we'll talk about Allied Property Read. It is one that I own.

[00:35:43] So, you know, take that into consideration.

[00:35:46] It's one I've owned for some time and I'll be honest,

[00:35:50] I'm not sure whether I'll be owning for, you know, super long.

[00:35:54] I'm kind of keeping an eye on it quarter to quarter.

[00:35:57] It is primarily, well, it is an office REIT. They have high quality office.

[00:36:02] So typically office, you'll have type A real estate.

[00:36:05] You also have B and C. Type A is just, you know,

[00:36:09] there are these newer amenities, newer office building or older ones that have been renovated.

[00:36:14] So they have all kind of amenities that are really enticing for employees to actually come

[00:36:19] in the office. So Allied has been doing relatively well compared to peers in the space.

[00:36:25] Rent growth on renewal was strong at 4.7% year over year.

[00:36:29] Management said during the call that many of these renewals are from previous agreements

[00:36:33] that were done at the heights of the market in 2008-2019.

[00:36:37] So it is encouraging that they're able to actually increase those before,

[00:36:40] you know, comparing to when, you know, pre-pandemic.

[00:36:44] Average price per square foot, which is another key metric was up 3.2% year over year.

[00:36:49] However, it was flat versus a previous quarter.

[00:36:52] The interest coverage ratio was down from 2.9x to 2.8x versus the previous quarter.

[00:37:00] So something, you know, to keep an eye on.

[00:37:03] Total indebtedness was up 120 basis point to 35.9%,

[00:37:08] which compares the total debt to total assets.

[00:37:11] And funds from operations per unit, so FFO was down 5.9% while AFFO per unit was down 4.5%.

[00:37:23] And this is on a sequential basis, so versus the previous quarter.

[00:37:27] The reason why I wanted to say versus the previous quarter is because year over

[00:37:31] year is a bit misleading here since they sold their urban data center assets in Q3 of last

[00:37:37] year. So yeah, just like I'm trying to compare apples to apples.

[00:37:41] So I want to be, you know, as transparent as possible.

[00:37:45] And another point that wasn't great is the payout ratio.

[00:37:48] So it's up to 77.8% on a FFO basis and 83.3% on a AFFO basis.

[00:37:56] Definitely on the higher end for both here.

[00:37:58] And management said their goal longer term was to get it back down to the low 70s

[00:38:03] funds from operations, but they are committed to keeping the dividend at the current level.

[00:38:08] They will be disposing 200 million worth of assets this year.

[00:38:12] A big part of that is because they have had some unsolicited offers come in

[00:38:17] that were very attractive on their non-core assets.

[00:38:21] And these are typically kind of smaller buildings.

[00:38:23] So it's interesting that they are actually getting some offers for that.

[00:38:28] Leased area was 30 basis point lower than the previous quarter at 87%.

[00:38:33] Occupied areas was also slightly down to 85.9%.

[00:38:38] The difference between the two is you can lease a building,

[00:38:41] but you also can have it like, you know, you lease it,

[00:38:43] but you're not actually occupying it, which we saw was pretty prevalent during the pandemic.

[00:38:49] Now, not as much.

[00:38:51] This means they have a vacancy rate of 13%,

[00:38:54] which compares favorably to the 16.17% average for downtown class A,

[00:38:59] according to the CBRE market research for Q1 2024.

[00:39:04] The bifurcation between class A downtown and class B and C,

[00:39:08] like I was referring earlier is quite massive now.

[00:39:11] Vacancy rates for class B and C are 770 basis point higher than class A.

[00:39:18] So a big difference.

[00:39:20] This is more prevalent downtown in the suburbs.

[00:39:23] The kind of bifurcation is not as significant.

[00:39:27] It's actually quite close, but yeah, it's interesting that,

[00:39:30] you know, there is a big change and it makes sense, right?

[00:39:33] If you're an employer, you want to attract people back into the office.

[00:39:37] If you have a crappy office space,

[00:39:39] you're definitely going to have a harder time attracting them.

[00:39:43] Yeah. And I wonder if it's an element of like,

[00:39:46] probably like the higher class office spaces,

[00:39:48] maybe rented by bigger companies who, you know,

[00:39:51] can probably are a bit more steady on the leasing activity.

[00:39:54] Whereas, you know, the cheaper spaces, maybe smaller companies, things like that.

[00:39:58] The one thing I was very curious about with allied,

[00:40:03] and we actually cover this company quite a bit too.

[00:40:05] It's like it's at the point where it's yielding so much

[00:40:08] that even though the dividend is well, the distribution is well covered.

[00:40:13] I mean, could you cut it and still give people like a 7% yield

[00:40:18] and then, you know, put that money down towards debt?

[00:40:21] Like it's yielding almost 11% now I think so.

[00:40:24] Yeah. Like it's not-

[00:40:26] Probably could.

[00:40:26] It's not like on the surface they need to cut it.

[00:40:29] Like 83% for a REIT is a relatively reasonable payout ratio.

[00:40:34] Like it looks like, you know, it could be easily maintained,

[00:40:38] but at this point do you cut it and, you know, yield 7%

[00:40:43] and instead, you know, dump a bunch of that money into reducing debt levels?

[00:40:47] But obviously not.

[00:40:47] They said they're committed to keeping it the same, so-

[00:40:51] Yeah, which is a bit, you know, similar to BC, right?

[00:40:54] Companies are very scared at cutting it.

[00:40:56] Clearly, you know, to their defense allied, like you said,

[00:40:59] I mean, I think they still have some leeway,

[00:41:01] but probably something they should be looking at

[00:41:04] if the payout ratio keeps creeping up, creeping up,

[00:41:07] it may be a decision that they have to do.

[00:41:09] Like I said, it is something I'm keeping an eye on just because

[00:41:13] management has been a bit wishy-washy, I would say, overall,

[00:41:18] which, you know, it's fine.

[00:41:19] Like I know there's a lot of uncertainty in this space,

[00:41:22] but it is, you know, something I would like to see improve overall.

[00:41:26] Like as a result, the reality is overall,

[00:41:28] I've been kind of trending down for the last couple of years.

[00:41:31] It's been a slow trickle for them,

[00:41:33] but, you know, it's not going up.

[00:41:35] It was a value play for me.

[00:41:37] I still, you know, still think it could be a value play,

[00:41:43] but if it doesn't start turning around the next few quarters,

[00:41:46] I may just cut my losses.

[00:41:47] So, you know, you win some, you lose some.

[00:41:50] That's how I see it.

[00:41:52] I'll try to be patient.

[00:41:53] I've owned it for about a year and a half now.

[00:41:56] And one thing I wanted to mention from that CBRE report

[00:41:59] is that active construction for office real estate

[00:42:02] has dropped to the lowest level since 2011.

[00:42:05] And that was one of the things that made me bullish

[00:42:10] for Allied Property Reef,

[00:42:11] because if you get to the point

[00:42:12] that there's almost no new inventory coming in onto the market,

[00:42:16] even if office real estate,

[00:42:19] there's not as much demand as there used to be.

[00:42:21] At some point, you know,

[00:42:23] the demand is going to catch up to the lack of supply, right?

[00:42:28] So that was, you know, that was my thesis as well.

[00:42:32] We'll have to see.

[00:42:33] So far, you know, I'm down probably 25% on that purchase,

[00:42:37] but that's why you don't put your whole portfolio into one name.

[00:42:41] It's a relatively small position,

[00:42:42] so we'll have to see where it goes forward.

[00:42:44] But that's pretty much it for Allied.

[00:42:46] Yeah, we'll move on to Telus.

[00:42:49] So I figured it would be pretty good.

[00:42:51] We went over BC last week.

[00:42:52] May as well go over Telus this week.

[00:42:54] So much like BC,

[00:42:56] they continue to see record levels of customer growth,

[00:43:00] especially on the mobile side of things.

[00:43:03] The key difference between the two is Telus

[00:43:04] has been able to put up a little stronger underlying numbers

[00:43:07] in terms of revenue earnings and EBITDA.

[00:43:11] So the company's primary growth is coming from its T-Tech segment.

[00:43:15] They kind of separate that away,

[00:43:16] which would basically be mobile networks, equipment sales,

[00:43:20] data services, health, agriculture.

[00:43:23] I even think they include their security services in there,

[00:43:26] but I'm not 100% sure on that.

[00:43:28] Just the EBITDA grew by 4.1%

[00:43:31] and they expanded their margins in the segment.

[00:43:33] They sit at 39.4%.

[00:43:36] So the one confusing thing here is,

[00:43:39] if you just quickly glance at the report,

[00:43:40] it may look like they raised the dividend by 7%,

[00:43:43] but it was actually only 3.5%.

[00:43:47] They raised the dividend semi-annually.

[00:43:48] They've done this forever.

[00:43:50] But when it speaks on dividend growth,

[00:43:52] it primarily mentions the year over year growth.

[00:43:54] So headline numbers,

[00:43:56] we've raised our dividend by 7%,

[00:43:58] but they mean over the last 12 months.

[00:44:01] So they raised it by 3.5%.

[00:44:04] I know there was a lot of people mentioning 7%

[00:44:06] seems like a really big raise at this point in time,

[00:44:10] especially when they just raised it a few quarters ago.

[00:44:12] But this is a semi-annual bump of 3.5%,

[00:44:16] year over year of 7%.

[00:44:19] So operating revenue was relatively flat year over year.

[00:44:23] Free cash flow declined by 26% to sit at 396 million.

[00:44:27] So I mean, it's the exact same story from Telus as it is BCE.

[00:44:30] Reduction in cash flow on a year over year basis

[00:44:33] is primarily due to the restructuring cost-cutting initiatives,

[00:44:35] which don't just instantly get absorbed

[00:44:40] and prove to be beneficial.

[00:44:41] It does take time.

[00:44:43] And they did reiterate their financial targets.

[00:44:46] So they expect T-Tech operating revenues to grow by 2% to 4%

[00:44:50] and adjusted EBITDA by 5.5% to 7.5%.

[00:44:54] It also reiterated cash flow guidance,

[00:44:56] which that's a metric that a ton of investors

[00:44:59] are gonna focus on right now.

[00:45:00] So it expects free cash flow generation

[00:45:03] of 2.3 billion in 2024.

[00:45:05] And if we looked at common share dividends only

[00:45:09] with the raise the company is expected to pay

[00:45:13] pretty much bang on 2.3 billion in dividends.

[00:45:15] So when we account for preferred shares,

[00:45:17] there's gonna be a bit of a lack of coverage here,

[00:45:21] but not to the extent of BCE.

[00:45:24] They're going to cover the common dividend

[00:45:26] with free cash flow, but it's really tight.

[00:45:30] And in terms of Telus,

[00:45:33] I thought I'd talk on Telus International a bit

[00:45:36] because they own a big chunk of the company.

[00:45:38] It accounts for a double digit percentage of Telus's EBITDA.

[00:45:42] It was a spin-off, I think it was 2021.

[00:45:44] They spun it off.

[00:45:45] It was the largest tech IPO in Canadian history, I believe.

[00:45:49] And it's really, really struggling.

[00:45:53] I mean, at Telus International,

[00:45:54] they reported revenue declines of 4%.

[00:45:56] Despite net income increasing

[00:45:58] due to the increase in share count,

[00:46:00] earnings were flat at five cents a share.

[00:46:03] One of the main focus points

[00:46:05] for Telus International is its debt.

[00:46:07] So back in 2022, they acquired Willow Tree.

[00:46:10] They paid more than it was September 2022.

[00:46:12] So right when, not peak rates, I don't think back then,

[00:46:16] but policy rates were still being ramped up.

[00:46:19] And they just went out and spent $1.25 billion on the company.

[00:46:24] I mean, it was viewed as pretty untimely.

[00:46:27] They had just reduced debt levels from...

[00:46:29] They acquired Lionbridge's AI segment,

[00:46:32] I believe it was a few years prior.

[00:46:33] They spent multiple years paying down the debt

[00:46:36] and then they just kind of purchased Willow Tree

[00:46:39] at a time when a lot of people

[00:46:41] didn't really like the acquisition

[00:46:43] just because of the environment they were in.

[00:46:47] They're taking a big hit in terms of...

[00:46:48] Their debt is higher, their leverage ratios are higher,

[00:46:51] all that type of stuff.

[00:46:52] So they reiterated their guidance

[00:46:54] for revenue growth of 3% to 5%.

[00:46:57] And I think this is...

[00:46:59] They usually isolate it and talk about

[00:47:01] how much they expect to grow with Willow Tree

[00:47:04] and how much they expect to grow organically.

[00:47:07] They didn't mention this unless I completely missed it,

[00:47:09] but they expect to grow revenue by 3% to 5%

[00:47:12] and earnings to grow by 7% to 13%.

[00:47:15] I would imagine this is including the Willow Tree acquisition.

[00:47:19] But prior to the rate bumps

[00:47:23] and the slowdown in activity for TELUS International,

[00:47:25] this is a company that was growing...

[00:47:27] They were growing earnings, I believe, by 25%, 30% a year.

[00:47:30] Revenue was growing at 20% plus a year.

[00:47:33] And it's just been a really rough time for TELUS,

[00:47:38] TELUS International post IPO.

[00:47:40] I think they IPO'd at something like...

[00:47:44] It was about $40 and they're currently trading at $882.

[00:47:49] It's been pretty rough.

[00:47:51] And like I said, TELUS...

[00:47:52] This impacts TELUS because TELUS,

[00:47:54] they're a big shareholder controlling interest.

[00:47:58] And this was a big part of their growth engine.

[00:48:03] What is Willow Tree?

[00:48:05] I'm kind of looking at it.

[00:48:10] Let me see here.

[00:48:13] They have a ton of huge customers.

[00:48:15] I'd have to look it up.

[00:48:16] I don't know why it's right off the top of my head.

[00:48:18] I know because we cover TELUS, but they do...

[00:48:21] Here, I'll look it up here.

[00:48:23] Okay. Yeah, I'm looking at it.

[00:48:25] Willow Tree apps, right?

[00:48:26] So it's a way to, I guess...

[00:48:29] Like build websites.

[00:48:30] Help with digital marketing?

[00:48:32] And stuff like that?

[00:48:33] They do a whole ton of stuff and they work with a lot of Fortune 500 companies, I believe,

[00:48:37] on pretty much development.

[00:48:41] Website development, application development.

[00:48:43] I don't know too much about marketing, but maybe.

[00:48:47] Did you mention digital marketing?

[00:48:48] I'm not sure.

[00:48:49] Yeah, I think I mentioned that.

[00:48:51] No, it's funny because I Googled it.

[00:48:52] I wasn't familiar and then this is what came up,

[00:48:58] which I was like, why would they buy this thing for over a billion dollars?

[00:49:03] So it's willowtreeapps.com, not willowtree.com, which is, I guess,

[00:49:09] figurines by Susan something.

[00:49:13] So a little different when I Google Willow Tree, that's what it was.

[00:49:16] Oh yeah, I was going to say that.

[00:49:19] But why did they buy an ornament company?

[00:49:22] Yeah, I know.

[00:49:22] I was just like...

[00:49:24] I was a little confused, but okay, that makes...

[00:49:26] Kind of shows that I don't follow Telus all that closely.

[00:49:29] Yeah, software development too, I think.

[00:49:31] No, I was just curious.

[00:49:32] Yeah.

[00:49:33] No, that's interesting.

[00:49:35] I don't have too much to add.

[00:49:36] Obviously, like I said, I don't follow Telus that closely.

[00:49:39] I think for the most part for me, I think it's something...

[00:49:42] For any shareholders, you want to look at those interest payments,

[00:49:45] that debt is going to be the same story for all the telecoms.

[00:49:48] You want to make sure that that debt is manageable and interest payments,

[00:49:51] because at the end of the day, they're just highly levered entities.

[00:49:55] Telus is a bit more of those higher growth verticals,

[00:49:58] it's kind of supporting it right now because they're low single digit right now,

[00:50:03] maybe a little bit declining revenues.

[00:50:06] Whereas like we said in the BCE situation,

[00:50:09] they have a lot more legacy style assets.

[00:50:11] They're selling off radio stations.

[00:50:13] They're...

[00:50:14] The whole business is kind of struggling where Telus kind of has a bit of stability in that market.

[00:50:19] But I mean, I own Telus, it's like a 3% position of my portfolio.

[00:50:25] So I'm not super, super bullish.

[00:50:27] I've owned it for quite a while, but regardless, it hasn't been good

[00:50:31] for telecoms for quite some time now.

[00:50:34] A few years at least.

[00:50:35] You're a dividend investor.

[00:50:37] That's...

[00:50:38] The patty.

[00:50:38] It's all about the dividend.

[00:50:39] Yeah, the patty.

[00:50:40] All about the patty.

[00:50:41] Yeah, and I think we'll leave it at this for today.

[00:50:43] I had CargoJet, but I think we'll keep that for next week just because

[00:50:48] I'm feeling pretty medsium right now.

[00:50:51] My cold, I'm definitely...

[00:50:52] The meds are starting to wear off.

[00:50:53] So I think I'll keep that for next week.

[00:50:55] So for those who are interested in that, tune in next Thursday.

[00:50:59] Thank you for everyone for listening.

[00:51:00] I do...

[00:51:01] We would appreciate feedback.

[00:51:03] We did that extra episode that will be released essentially back-to-back days for earnings.

[00:51:08] So if you like that kind of stuff,

[00:51:10] to have an additional episode every once in a while when there's a lot of news and earnings,

[00:51:14] let us know because obviously it took a bit more time

[00:51:17] to research and so on.

[00:51:18] But if you like it, just let us know.

[00:51:21] If you don't, let us know as well because we do this for our listeners.

[00:51:25] Anything else you want to add?

[00:51:26] No, that's it.

[00:51:27] Thanks for listening everybody.

[00:51:29] The Canadian Investor podcast should not be construed as investment or financial advice.

[00:51:35] The host and guest featured may own securities or assets discussed on this podcast.

[00:51:41] Always do your own due diligence or consult with a financial professional

[00:51:45] before making any financial or investment decisions.