Braden hops on the mic for a solo episode discussing 30 Canadian Compounders that have had great returns over the last 10 years.
From garbage collection to real estate services, there have been some TSX listed stocks that have been favourable to shareholders. Braden goes through some stats and a hot take on each one moving forward.
See omnystudio.com/listener for privacy information.
[00:00:00] [SPEAKER_01]: This is the Canadian Investor where you take control of your own portfolio and gain the confidence you need to succeed in the markets.
[00:00:09] [SPEAKER_01]: Hosted by Braden Dennis and Simon Belanger
[00:00:14] [SPEAKER_02]: The Canadian Investor podcast, welcome into the show.
[00:00:20] [SPEAKER_02]: Now for the first time in this podcast history, the first time in my life I am doing a solo adventure episode here.
[00:00:29] [SPEAKER_02]: Simon's at his cottage taking some time off for the summer as he should, as he deserves.
[00:00:36] [SPEAKER_02]: And I'm just going to hop on the mic here and go through a ton of Canadian stocks.
[00:00:42] [SPEAKER_02]: Today is like Canadian stock rapid fire, but there's this very specific thread that weaves these companies together and topic that we're going to discuss.
[00:00:54] [SPEAKER_02]: Now the inspiration for today's show was a Twitter ex thread from our boy CJ Opel.
[00:01:04] [SPEAKER_02]: He's become pretty popular on Twitter for highlighting high quality Canadian companies.
[00:01:10] [SPEAKER_02]: He's been very early to some, what are now consensus compounders.
[00:01:18] [SPEAKER_02]: And so a full shout out to him and he basically just said, let's make a thread of all the Canadian quote unquote compounders.
[00:01:28] [SPEAKER_02]: And so I added to the discussion, lots of folks added to the discussion.
[00:01:33] [SPEAKER_02]: There's like over 60 comments, tons of different activity on the thread.
[00:01:39] [SPEAKER_02]: And I've gone through and looked at all of them and consolidated a list of 30 Canadian stocks that fit this profile and had some overlap of multiple people suggesting it should be in the list.
[00:01:55] [SPEAKER_02]: Of course, there are a lot more names that have done well, but this was the list widely agreed upon for reasons of performance, business quality and,
[00:02:08] [SPEAKER_02]: long term business success.
[00:02:11] [SPEAKER_02]: Some I agree with some I think could be included, which I may throw in his honorary mentions along the way here.
[00:02:18] [SPEAKER_02]: But the caveat here is don't shoot the messenger somewhat of an arbitrary definition.
[00:02:24] [SPEAKER_02]: But what is a compounder?
[00:02:27] [SPEAKER_02]: So to me, a compounder is a business of high quality, great management, a track record of good results and performance where shareholders have generally
[00:02:37] [SPEAKER_02]: been delighted to own the equity over long periods of time.
[00:02:42] [SPEAKER_02]: I think that that's really important too.
[00:02:44] [SPEAKER_02]: Owning quote unquote compounders is a long term fundamental investors nirvana.
[00:02:51] [SPEAKER_02]: It's what I look to achieve.
[00:02:54] [SPEAKER_02]: I look to own as many as I can for as long as I can.
[00:02:57] [SPEAKER_02]: The idea of being a compounder essentially means that that equity has compounded your capital over long periods of time.
[00:03:07] [SPEAKER_02]: Typically market beating returns.
[00:03:10] [SPEAKER_02]: An example would be like the plan of Canadian Western Bank being acquired by National Bank has the stock up 100% in the past couple weeks.
[00:03:20] [SPEAKER_02]: Recency bias go, oh, that's a great stock to own.
[00:03:22] [SPEAKER_02]: Over the last 10 years, the stock has been flat.
[00:03:25] [SPEAKER_02]: That is not a compounder.
[00:03:27] [SPEAKER_02]: Maybe the company acquiring them, National Bank might fit the list.
[00:03:32] [SPEAKER_02]: You'll have to stay tuned for the list here.
[00:03:35] [SPEAKER_02]: So I'm going to do a countdown of all 30 stocks today from number 30 to number one in order of performance of the share price on a 10 year compound annual growth rate.
[00:03:48] [SPEAKER_02]: I'm going to give a quick overview, not a deep dive and then give my hot take.
[00:03:54] [SPEAKER_02]: And so let's get right into the mix.
[00:03:57] [SPEAKER_02]: I used FinChat heavily for the purposes of recording and researching for this podcast.
[00:04:05] [SPEAKER_02]: I use the co-pilot feature to get up to speed on some names that I didn't know particularly well.
[00:04:11] [SPEAKER_02]: I love it for that because I can just be like, hey, what does this company do?
[00:04:16] [SPEAKER_02]: Like I've never heard of it before.
[00:04:18] [SPEAKER_02]: Give me the 101.
[00:04:20] [SPEAKER_02]: And then of course, I made a little dashboard with the performance, the dividend per share and the earnings per share growth over the last 10 years.
[00:04:29] [SPEAKER_02]: Without further delay, number 30 through number one based on 10 year compound annual growth performance on the share price, not total return.
[00:04:40] [SPEAKER_02]: CN Rail.
[00:04:41] [SPEAKER_02]: CN Rail is a well known blue chip.
[00:04:47] [SPEAKER_02]: Maybe the blue chip of all blue chip is the rail, the Canadian rail companies.
[00:04:52] [SPEAKER_02]: And founded in 1919, history goes way, way back operating a network of nearly 20,000 root miles spanning Canada and the US.
[00:05:04] [SPEAKER_02]: CN Rail has become a staple of our industrial world in North America.
[00:05:12] [SPEAKER_02]: Now, the stock has done a compound annual growth rate of 7.4%.
[00:05:19] [SPEAKER_02]: The dividend has grown 13.4% on average of the last 10 years.
[00:05:26] [SPEAKER_02]: And they've grown earnings per share at about 10%.
[00:05:30] [SPEAKER_02]: So you have this extremely lindy business infrastructure that's been in the ground for 100 years, probably going to be in the ground for another 100 years or more.
[00:05:41] [SPEAKER_02]: And really, you see it around that 10% mark on diluted earnings per share compound annual growth rate.
[00:05:48] [SPEAKER_02]: Somewhere between 8 and 10% is probably a pretty safe bet for quite a long run here as it is a play on macro.
[00:05:56] [SPEAKER_02]: Next up, Canadian natural resources.
[00:06:02] [SPEAKER_02]: Ticker CNQ.
[00:06:04] [SPEAKER_02]: The stock has done an average around 8% of the last 10 years before dividends.
[00:06:09] [SPEAKER_02]: So its total return has been quite fantastic.
[00:06:12] [SPEAKER_02]: Dividend per share has grown at nearly 18%.
[00:06:16] [SPEAKER_02]: And their earnings per share has grown around 9% during that time frame on average.
[00:06:22] [SPEAKER_02]: Wow, now 76 billion in market cap.
[00:06:26] [SPEAKER_02]: So a massive company.
[00:06:27] [SPEAKER_02]: Look, in my view, CNQ is one of the best run oil and gas energy stock names you can find.
[00:06:38] [SPEAKER_02]: Not only in Canada but in the world.
[00:06:41] [SPEAKER_02]: Now, I... by the way, I just listed that market cap.
[00:06:45] [SPEAKER_02]: That's in US dollars.
[00:06:46] [SPEAKER_02]: So it is actually over 100 billion in market cap in Canadian dollars, my mistake.
[00:06:53] [SPEAKER_02]: And it's sported like 4.5% dividend yield here.
[00:06:57] [SPEAKER_02]: Now exploration, development, production, marketing of crude oil, natural gas, natural gas liquids.
[00:07:04] [SPEAKER_02]: It's not the way I invest.
[00:07:07] [SPEAKER_02]: Owning energy stocks and commoditized stocks, commoditized products.
[00:07:11] [SPEAKER_02]: But this is probably the one I would own if I had to.
[00:07:17] [SPEAKER_02]: Alright, let's move on to National Bank.
[00:07:20] [SPEAKER_02]: Companial growth rate 9% in the last 10 years.
[00:07:23] [SPEAKER_02]: Dividend has grown by 8.74% and the exact same pretty much on earnings per share during that time.
[00:07:32] [SPEAKER_02]: National has been a sneaky, sneaky good stock to own over the long run.
[00:07:39] [SPEAKER_02]: They're doing something pretty interesting here by taking out Canadian Western Bank to have kind of that global footprint.
[00:07:47] [SPEAKER_02]: National has really, really strong market share in Quebec and the management team has been very, very successful.
[00:07:58] [SPEAKER_02]: I've seen them do some pretty interesting stuff as well in Latin America, them in Scotia.
[00:08:03] [SPEAKER_02]: I'm not sure how those bets are paying off, but overall I think they've been one of the best managed Canadian banks.
[00:08:13] [SPEAKER_02]: And just being a little bit smaller and a little bit more nimble, I suspect has been an advantage.
[00:08:18] [SPEAKER_02]: Alright, next up, Canadian Pacific now bundled in with Kansas City.
[00:08:25] [SPEAKER_02]: So CPKC, ticker CP on the TSX.
[00:08:31] [SPEAKER_02]: Stocks compounded around 9.5% and earnings per share growth at 12.
[00:08:37] [SPEAKER_02]: It's grown the dividend by over 10% a year.
[00:08:40] [SPEAKER_02]: Not much more to say beyond my assessment of CN Rail.
[00:08:45] [SPEAKER_02]: I think both companies are fantastic.
[00:08:48] [SPEAKER_02]: I'm not a shareholder in either of them, but I'd have no problem being a shareholder in either of them or both of them.
[00:08:55] [SPEAKER_02]: CP does have a pretty nice leg up.
[00:08:59] [SPEAKER_02]: The market cap is now higher than CN Rail, which is interesting.
[00:09:03] [SPEAKER_02]: It does have a nice leg up having that rail network all the way into Mexico.
[00:09:09] [SPEAKER_02]: I would say that is a pretty distinct advantage.
[00:09:12] [SPEAKER_02]: That's kind of like a once in a lifetime type acquisition.
[00:09:17] [SPEAKER_02]: And the fact that they pulled it off is pretty cool.
[00:09:21] [SPEAKER_02]: From here, I mean it does trade at a higher multiple.
[00:09:24] [SPEAKER_02]: I'd be happy to own either of them.
[00:09:26] [SPEAKER_02]: This is a Visa Mastercard situation with me.
[00:09:29] [SPEAKER_02]: It's like, you know, yes, they have that advantage now going through Mexico, but it is relatively very similar story.
[00:09:39] [SPEAKER_02]: Next up, ATS Corporation.
[00:09:42] [SPEAKER_02]: This is the automation business ticker ATS on the TSX, just a three and a half billion in market cap.
[00:09:50] [SPEAKER_02]: The stocks compounded around 10.5%.
[00:09:53] [SPEAKER_02]: They haven't paid dividend, but during that time the stock has grown significantly on earnings per share at 11%.
[00:10:02] [SPEAKER_02]: I'm trying to look now do they pay a dividend now?
[00:10:05] [SPEAKER_02]: No, they don't.
[00:10:06] [SPEAKER_02]: So, so there you go.
[00:10:08] [SPEAKER_02]: Now this company has been low key, very acquisitive.
[00:10:14] [SPEAKER_02]: And I think it deserves another look here.
[00:10:18] [SPEAKER_02]: I think the price is fairly good here.
[00:10:23] [SPEAKER_02]: So for those who do not know, it's the providing automation solutions worldwide design build commissioning of robots for manufacturing and assembly.
[00:10:34] [SPEAKER_02]: They have exploded in robotics in the life sciences space.
[00:10:40] [SPEAKER_02]: That's now their biggest segment and it's not one I understand well.
[00:10:46] [SPEAKER_02]: So I think it, I know manufacturing much better than automation and life sciences.
[00:10:51] [SPEAKER_02]: But I know people have done quite well with this name, held it for a long time.
[00:10:55] [SPEAKER_02]: And it's been around for a long time.
[00:10:57] [SPEAKER_02]: I think the stock was companies founded in the late 70s.
[00:11:00] [SPEAKER_02]: All right. Moving on another name here, another Canadian name Stella Jones, ticker SJ.
[00:11:10] [SPEAKER_02]: The stock has done quite well, compounding over 11%.
[00:11:15] [SPEAKER_02]: The dividend has grown by nearly 16% during that time on a company annual growth rate and same with earnings.
[00:11:24] [SPEAKER_02]: Side comment, I like seeing, I'm not a dividend guy.
[00:11:29] [SPEAKER_02]: A lot of these Canadian stocks are dividend payers.
[00:11:32] [SPEAKER_02]: Like I would say a majority of them.
[00:11:35] [SPEAKER_02]: I'm not a big dividend investor myself, but I do like seeing the earnings per share and dividend growth being relatively aligned.
[00:11:47] [SPEAKER_02]: So they've maintained their payout ratio to a conservative amount as they continue to grow and scale.
[00:11:53] [SPEAKER_02]: Reward shareholders, but not increase it much, much faster than earnings per share.
[00:12:00] [SPEAKER_02]: Because I believe these companies should take retained earnings and keep investing in the business,
[00:12:05] [SPEAKER_02]: especially if it's, you know, sub five billion in market cap here.
[00:12:10] [SPEAKER_02]: So Stella Jones has been a very successful play here on pressure treated wood.
[00:12:18] [SPEAKER_02]: I believe their bread and butter is in two categories of rail, like railroad operators being their customer in terms of wood and utility poles.
[00:12:31] [SPEAKER_02]: Like those, you know, electrical pole, electrical poles you'll see.
[00:12:36] [SPEAKER_02]: I believe those are their two bread and butter products for their pressure treated wood.
[00:12:41] [SPEAKER_02]: It was started in 1992 and Cheryl, I've done quite well.
[00:12:45] [SPEAKER_02]: Again, not my type of business just, you know, because input costs are so random and variable and pricing power is tricky.
[00:12:54] [SPEAKER_02]: But they've done incredibly well.
[00:12:57] [SPEAKER_02]: EQ Bank.
[00:12:59] [SPEAKER_02]: EQ Bank.
[00:13:01] [SPEAKER_02]: Long time sponsor the show on this list.
[00:13:04] [SPEAKER_02]: You know, there's got to be some correlation there sponsoring the podcast.
[00:13:09] [SPEAKER_02]: Now, EQ Bank has had such a successful story with their EQ Bank product.
[00:13:17] [SPEAKER_02]: The stock's grown, compounding a growth rate over the last 10 years at 11.3%, including a massive drawdown.
[00:13:24] [SPEAKER_02]: I think it got thrown out with home capitals issues that it had in 2018.
[00:13:29] [SPEAKER_02]: That's when I became a shareholder in 2018.
[00:13:32] [SPEAKER_02]: I've held on to the stock ever since.
[00:13:35] [SPEAKER_02]: Now, EQ Bank, they obviously are a lender and a bank providing services to retail and commercial customers in Canada through their, the hold code being equitable group.
[00:13:51] [SPEAKER_02]: And then equitable bank providing those services.
[00:13:53] [SPEAKER_02]: But also their new digital EQ Bank product has been very, very successful.
[00:14:00] [SPEAKER_02]: And I think it just comes down to, it's a good product and counter positioned against the Canadian banks is a pretty good place to live.
[00:14:11] [SPEAKER_02]: I mean, a lot of people have really poor experiences with them counter positioned to it offer a great product.
[00:14:16] [SPEAKER_02]: And I'm not just saying this because they sponsor the podcast, but I'm pumped for their business banking as like I use a big Canadian bank for my business bank.
[00:14:26] [SPEAKER_02]: And dude, it sucks.
[00:14:29] [SPEAKER_02]: Like sometimes it's just down with no explanation.
[00:14:33] [SPEAKER_02]: Like how is this 150 billion in market cap bank?
[00:14:38] [SPEAKER_02]: Their service just down right now.
[00:14:40] [SPEAKER_02]: It's mind blowing to me.
[00:14:42] [SPEAKER_02]: All right, let's move on to Fairfax.
[00:14:44] [SPEAKER_02]: Now, Fairfax headed up by, you know, what people have touted the Warren Buffett of Canada, Prem Watsa has been a company.
[00:14:55] [SPEAKER_02]: I frankly just never really understand.
[00:15:00] [SPEAKER_02]: It is a conglomerate.
[00:15:01] [SPEAKER_02]: They're doing lots of insurance, reinsurance.
[00:15:03] [SPEAKER_02]: And I think that's the Buffett comparison here.
[00:15:07] [SPEAKER_02]: But they have also been pretty acquisitive and astute with capital of various other businesses like very agnostic.
[00:15:18] [SPEAKER_02]: And it's done quite well, especially as of late.
[00:15:22] [SPEAKER_02]: Now, in terms of financial performance, stocks done 12%.
[00:15:26] [SPEAKER_02]: The dividends grown a little bit and earnings per share have grown 21% during that time.
[00:15:34] [SPEAKER_02]: I think that's why the stock has ran up so fast is it was loved then unloved and then loved again while the business kept compounding.
[00:15:45] [SPEAKER_02]: And so the stock price had to catch up a little bit in the last few years.
[00:15:49] [SPEAKER_02]: Let's move on to Collier's International.
[00:15:53] [SPEAKER_02]: Now, Collier's and First Service, you know, spoiler alert, First Service is also on this list.
[00:16:00] [SPEAKER_02]: Collier's and First Service have a very interesting history together.
[00:16:06] [SPEAKER_02]: And both stocks have made it into this list.
[00:16:10] [SPEAKER_02]: Really, really successful in the real estate world here with Collier's professional investment management services for mostly corporate and institutional clients.
[00:16:22] [SPEAKER_02]: Brokerage services, debt origination, equity capital raising, market value, acquisition advisory and M&A.
[00:16:32] [SPEAKER_02]: They have been a really important service business in this country for real estate.
[00:16:37] [SPEAKER_02]: And the business has done quite fantastic over time.
[00:16:42] [SPEAKER_02]: It's managed extremely well.
[00:16:43] [SPEAKER_02]: Stocks done 12.4% on average and diluted earnings per share have exploded at around 38% during that time.
[00:16:54] [SPEAKER_02]: Another insurance company which has just low key continued to surprise me, Intect Financial, ticker IFC.
[00:17:05] [SPEAKER_02]: Intect Financial came on my radar when I was looking for a bunch of quotes because they own one of the subsidiaries of Bel Air Direct.
[00:17:17] [SPEAKER_02]: And I still to this day, you know, anecdotally have not been able to get cheaper car insurance and better service in terms of instant quote, quick turnaround and low fees than Bel Air Direct.
[00:17:31] [SPEAKER_02]: And Intect Financial has continued to do extremely well.
[00:17:36] [SPEAKER_02]: I mean, they have been huge in the auto space and then they just bundle with your home.
[00:17:43] [SPEAKER_02]: It's been quite successful.
[00:17:46] [SPEAKER_02]: Next up, BRP, stock I have owned for quite some time now, mid cap name, you know, less than 10 billion, more than 5 billion in market cap.
[00:17:58] [SPEAKER_02]: The stock hasn't done particularly hot as of late, but during that time is still grown on average 13% year over year.
[00:18:08] [SPEAKER_02]: Earnings per share have exploded 30% on a con cagger.
[00:18:14] [SPEAKER_02]: Wild success BRP has been since spun out of Bombardier recreational products.
[00:18:20] [SPEAKER_02]: The ticker is DOO for do which is a play on their two flagship products, CDU, which are jet skis and SKIDU, which are snowmobiles.
[00:18:31] [SPEAKER_02]: Look, this is a consumer discretionary company without a doubt selling recreational products.
[00:18:38] [SPEAKER_02]: They have they sell boats, motors, they've done some acquisitions, but really those two flagship products, jet skis and snowmobiles and also all terrain vehicles, ATVs have been very popular.
[00:18:50] [SPEAKER_02]: They've been their bread and butter. Just a blast. These products are so fun to use.
[00:18:57] [SPEAKER_02]: The reason the stock has done so well on an EPS number, like you'll get 30% during that time, they have bought back a lot of shares.
[00:19:07] [SPEAKER_02]: I think the stock is cheap here today. You actually want to buy these names when you're out of the cycle.
[00:19:16] [SPEAKER_02]: This is a cyclical company. You're going to see periods of mega growth and pretty big pullbacks in its financials because it is a consumer discretionary as they get.
[00:19:36] [SPEAKER_02]: It's not a stock that you can just hold and it goes up and to the right all the time. You have to know that it's going to have some ups and downs as a consumer discretionary name.
[00:19:50] [SPEAKER_02]: But if you track what matters, which is market share gains over time, the upper middle class are buying their CDs and jet skis no matter what.
[00:20:02] [SPEAKER_02]: You have some baseline there. The on top gravy is definitely going to be cyclical to the economy.
[00:20:11] [SPEAKER_02]: I've always said around cyclical names, you want to buy them when they're at high PE, which is so hard and contradictory to the brain.
[00:20:20] [SPEAKER_02]: You want to buy cyclical stocks when the PE is high. That's because the earnings are depressed.
[00:20:26] [SPEAKER_02]: You're going to have a high PE. That's when the stocks actually cheap. I know hard to map that out in your brain.
[00:20:33] [SPEAKER_02]: Next up, Brookfield Corp. I'm just going to bundle all of Brookfield into the corp ticker BN.
[00:20:41] [SPEAKER_02]: Many of the subsidiaries have done well, namely the infrastructure partners biz.
[00:20:47] [SPEAKER_02]: Let's bundle them all in together here because we just have a lot more history to work off of as well.
[00:20:53] [SPEAKER_02]: Stocks done at companionally growth rate of around 13% and cash from operations.
[00:20:59] [SPEAKER_02]: Got to use that number instead, not earn a share of around 10% year over year.
[00:21:04] [SPEAKER_02]: Now the numbers with Brookfield are always confusing.
[00:21:07] [SPEAKER_02]: The subsidiaries, it's spin offs, the asset management business is spun off.
[00:21:14] [SPEAKER_02]: It's been a confusing story. Some investors have, I think correctly labeled it a bit of a black box.
[00:21:22] [SPEAKER_02]: However, there are very few companies on this planet that can do what Brookfield can do.
[00:21:28] [SPEAKER_02]: And the management team is highly incentivized. They own a ton of stock headed up by Bruce Flat,
[00:21:33] [SPEAKER_02]: who's been with the business now for, I don't know, got to be close to 30 years as in the CEO seat.
[00:21:39] [SPEAKER_02]: They've tagged on Oak Tree with Howard Marks. They've done lots of interesting spin offs.
[00:21:46] [SPEAKER_02]: We're looking at probably any minute now they hit a trillion of AUM across all of the things that they do,
[00:21:54] [SPEAKER_02]: whether it's real estate, the reinsurance business, the infrastructure business and the renewable power company.
[00:22:02] [SPEAKER_02]: This is a bet on the management team. It has been, it will continue to be.
[00:22:09] [SPEAKER_02]: And yeah, I am long the stock.
[00:22:15] [SPEAKER_02]: All right, TMX Group.
[00:22:17] [SPEAKER_02]: TMX Group is the owner, operator of the Toronto Stock Exchange.
[00:22:26] [SPEAKER_02]: Ticker X on the TSX, the stock's done. Wonderful.
[00:22:31] [SPEAKER_02]: 14.5% on average last 10 years. And earnings per share has grown 17% during that time.
[00:22:40] [SPEAKER_02]: It's been a low key compounder and they also operate the TSX Venture, the TSX Alpha Exchange.
[00:22:49] [SPEAKER_02]: The business is moving more and more towards high margin recurring revenue business with derivatives trading and clearing analytics.
[00:23:07] [SPEAKER_02]: Obviously the listings business with equities and fixed income trading,
[00:23:11] [SPEAKER_02]: but it's really exciting with these types of what I'll call financial infrastructure companies.
[00:23:21] [SPEAKER_02]: Let's just make a quick basket here for you guys to wrap your head around to that.
[00:23:26] [SPEAKER_02]: The NASDAQ, the ICE which operates the New York Stock Exchange, TMX, S&P Global, Moody's Corp.
[00:23:34] [SPEAKER_02]: You have a refinitive under the London Stock Exchange.
[00:23:40] [SPEAKER_02]: A lot of them own and operate some sort of geographical monopoly with the exchange business.
[00:23:49] [SPEAKER_02]: And then what they're able to do beyond that with analytics and start charging not only listing fees,
[00:23:56] [SPEAKER_02]: but every time there's a new Robin Hood of the world that pops up,
[00:24:00] [SPEAKER_02]: there need to get direct pricing feeds from the exchange.
[00:24:05] [SPEAKER_02]: There are other data providers like an S&P, like an LSAG with a refinitive like a Moody's Morningstar,
[00:24:13] [SPEAKER_02]: like a FinChat, get data from those places.
[00:24:17] [SPEAKER_02]: But if you got to pipe in direct feeds for pricing of equity and fixed income through from the exchange.
[00:24:25] [SPEAKER_02]: And so they operate that monopoly, they take that cash and then they invest in strategic things on top.
[00:24:32] [SPEAKER_02]: It's a pretty good model.
[00:24:34] [SPEAKER_02]: It is a pretty good model.
[00:24:36] [SPEAKER_02]: Is this thing going to shoot the lights off returns moving forward?
[00:24:40] [SPEAKER_02]: No, but you do have kind of a regulated monopoly.
[00:24:44] [SPEAKER_02]: All right, CGI, Inc. ticker GIB.
[00:24:48] [SPEAKER_02]: So he's thrown me off that CGI has to go GIB.
[00:24:51] [SPEAKER_02]: But CGI has been a Canadian tech consulting company.
[00:24:57] [SPEAKER_02]: The stocks returned 15% on average during that time and cash from operations grown almost 13%.
[00:25:05] [SPEAKER_02]: Oh, no, I had that wrong.
[00:25:06] [SPEAKER_02]: That's the wrong one.
[00:25:07] [SPEAKER_02]: Earnings per share has grown 11% during that time.
[00:25:09] [SPEAKER_02]: CGI has been very acquisitive of buying, rolling up services very similar to a center, which is tech consulting.
[00:25:23] [SPEAKER_02]: Very similar to a WSP, which I may or may not talk about soon.
[00:25:28] [SPEAKER_02]: Rolling up services very similar to a first service corporation.
[00:25:33] [SPEAKER_02]: You have a niche vertical of services.
[00:25:37] [SPEAKER_02]: In this case of CGI, you are doing tech consulting, IT consulting, cloud migrations for governments and corporations.
[00:25:48] [SPEAKER_02]: And what you can do is just keep rolling them up.
[00:25:52] [SPEAKER_02]: These services business is highly fragmented.
[00:25:55] [SPEAKER_02]: You keep buying them.
[00:25:56] [SPEAKER_02]: You keep doing smart acquisitions.
[00:25:58] [SPEAKER_02]: You can do upsells once you have integrated these services together.
[00:26:02] [SPEAKER_02]: It's like, okay, I'll use the engineering example.
[00:26:05] [SPEAKER_02]: It's like, okay, I used to be able to do your land surveying only, but now also I can do your permitting and all your applications with the government.
[00:26:17] [SPEAKER_02]: Oh, and now by the way, I can also do your stormwater ponds because we just bought some company that does that.
[00:26:23] [SPEAKER_02]: And by the way, now we're actually going to do full stack start to finish for some civil engineering project.
[00:26:30] [SPEAKER_02]: These acquisitions make sense.
[00:26:32] [SPEAKER_02]: They've worked and these rollups do work.
[00:26:34] [SPEAKER_02]: All right, Main Street Equity Corp.
[00:26:37] [SPEAKER_02]: I don't know this business particularly well.
[00:26:39] [SPEAKER_02]: It's only around just short of 2 billion in market cap.
[00:26:43] [SPEAKER_02]: Stock's done extremely well.
[00:26:46] [SPEAKER_02]: 16% on average during that time.
[00:26:49] [SPEAKER_02]: I had to ask Finchette what they do.
[00:26:51] [SPEAKER_02]: Main Street Equity Corp engages in the acquisition divesture value enhancement and management of multifamily residential properties in western Canada.
[00:27:01] [SPEAKER_02]: Company owns portfolio of res properties, Vancouver, Calgary, Alberta, Southern Alberta, Edmonton, Saskatoon, Regina.
[00:27:10] [SPEAKER_02]: They have 15,000 Rev. Producing units.
[00:27:13] [SPEAKER_02]: Okay, so it's a REIT but not traded like a REIT.
[00:27:16] [SPEAKER_02]: That's what it looks like.
[00:27:18] [SPEAKER_02]: All right, moving on to Toramont.
[00:27:22] [SPEAKER_02]: Now Toramont is like I used to own based on these numbers.
[00:27:26] [SPEAKER_02]: It looks like you probably should have kept owning.
[00:27:27] [SPEAKER_02]: Toramont ticker T-I-H on the TSX.
[00:27:31] [SPEAKER_02]: Stock's done 16.3% the last 10 years on average and earnings per share has grown up 15% during that time.
[00:27:38] [SPEAKER_02]: So very similar numbers.
[00:27:41] [SPEAKER_02]: Toramont is a rental operator for construction equipment.
[00:27:47] [SPEAKER_02]: You probably see little Toramont on the side of the highway as you drive down a major series highway in Canada.
[00:27:56] [SPEAKER_02]: They have been the behemoth player under their subsidiaries.
[00:28:02] [SPEAKER_02]: The equipment group and CIMCO, which is rentals and service for mobile equipment and refrigeration systems for Simcoe.
[00:28:11] [SPEAKER_02]: But the equipment group, Battlefield is one of the main brands that they operate.
[00:28:17] [SPEAKER_02]: And you'll see Battlefield branded caterpillars or other types of equipment manufacturers.
[00:28:26] [SPEAKER_02]: So this world was surprising to me where if you're a construction company, it's actually a lot more,
[00:28:37] [SPEAKER_02]: it can be a lot more beneficial to rent basically everything you need for that job site,
[00:28:44] [SPEAKER_02]: even though you're a large scale operator of big government projects like major series highways.
[00:28:52] [SPEAKER_02]: And so if you're going up to the site, you need to do fencing security systems for the job site.
[00:28:59] [SPEAKER_02]: Battlefield would do that.
[00:29:01] [SPEAKER_02]: Okay, I need to get 40 diggers, 40 backhoes, whatever the job site requires.
[00:29:09] [SPEAKER_02]: I might just go to Toramont and rent all of that equipment directly from them.
[00:29:15] [SPEAKER_02]: And stock's done incredibly well.
[00:29:18] [SPEAKER_02]: Another surprising one to me is Thompson Reuters.
[00:29:22] [SPEAKER_02]: Now what have seemed to me like an older legacy business sticker TRI on the TSX,
[00:29:32] [SPEAKER_02]: they have done so well with legal software acquisitions and I've completely surprised me.
[00:29:42] [SPEAKER_02]: Stock's done 17% on average and earnings per share has up 23.6%.
[00:29:48] [SPEAKER_02]: I think I've came on here and been critical of some of the assets they own
[00:29:53] [SPEAKER_02]: and the legacy assets they own in the financial software world where I live.
[00:29:59] [SPEAKER_02]: And I still hold that sentiment, but they've taken that capital and been really smart with buying software
[00:30:06] [SPEAKER_02]: for legal professionals, corporates and tax and accounting.
[00:30:11] [SPEAKER_02]: So yes, the Reuters news and global print business may have lost some steam,
[00:30:16] [SPEAKER_02]: but they have taken that capital and made great returns on it in other spaces in the,
[00:30:22] [SPEAKER_02]: what I call professional software.
[00:30:25] [SPEAKER_02]: So good for them, long term Canadian brand.
[00:30:30] [SPEAKER_02]: So I'm actually quite happy to see Thompson do well.
[00:30:34] [SPEAKER_02]: Boyd, Boyd Group Services, Inc. Ticker BYD on the TSX, Auto Collision Repair Rollup,
[00:30:44] [SPEAKER_02]: Brilliant Management, they've done extremely well.
[00:30:48] [SPEAKER_02]: I think the stock's on a bit of a pullback right now to quote me, maybe worth a look here.
[00:30:52] [SPEAKER_02]: Stock's done 17% on average during that time and earnings per share has compounded at nearly 10%.
[00:31:01] [SPEAKER_02]: It's just cash from operations up 27%.
[00:31:05] [SPEAKER_02]: Really impressive execution from Boyd.
[00:31:08] [SPEAKER_02]: Not much more to say there, Auto Collision.
[00:31:10] [SPEAKER_02]: Alright, Koushhtar, which is in the news again right now for potentially wanting to take out 7-11,
[00:31:19] [SPEAKER_02]: acquire 7-11 stores from the Japanese holdco.
[00:31:24] [SPEAKER_02]: This would make for a monster, monster deal.
[00:31:28] [SPEAKER_02]: I think they're gonna have to raise some between 30 and 40 billion dollars to do it,
[00:31:31] [SPEAKER_02]: but this would cement them firmly as the largest convenience store operator in the world.
[00:31:37] [SPEAKER_02]: I mean, Koushhtar already is one of the largest in the world.
[00:31:41] [SPEAKER_02]: And the stock has compounded at 17.5% over the last 10 years and it's per share up 15%.
[00:31:48] [SPEAKER_02]: They've grown the dividend to over 20% a year during that time.
[00:31:53] [SPEAKER_02]: Look, you have a boring business of convenience stores with the best operators of convenience stores in history
[00:32:00] [SPEAKER_02]: out of Quebec here in Canada.
[00:32:02] [SPEAKER_02]: It's just amazing what they have done.
[00:32:06] [SPEAKER_02]: And the business now can look a lot more like 7-11 in the future.
[00:32:15] [SPEAKER_02]: And what I mean by that is trying to get people to come into the store
[00:32:20] [SPEAKER_02]: for more than just like a quick gas stop, which will still continue to be their bread and butter.
[00:32:25] [SPEAKER_02]: But there's a lot of really high margin things that they can do by positioning the stores
[00:32:30] [SPEAKER_02]: in very convenient locations as the convenience store suggests.
[00:32:36] [SPEAKER_02]: Koushhtar is one of those businesses where it's like they can't keep getting away with this.
[00:32:40] [SPEAKER_02]: Where it's like convenience stores, C-stores does not seem like a fantastic business really.
[00:32:47] [SPEAKER_02]: Fuel margins are whatever they fluctuate constantly.
[00:32:52] [SPEAKER_02]: What's this world look like with electric cars in the future
[00:32:56] [SPEAKER_02]: if you maybe don't have to go fuel up at the pump?
[00:32:59] [SPEAKER_02]: And it probably looks more and more like 7-11 in the future.
[00:33:02] [SPEAKER_02]: Because those businesses when you go to Asia and see the market share and the presence that they have,
[00:33:11] [SPEAKER_02]: it's not just a truck stop Red Bull experience.
[00:33:17] [SPEAKER_02]: It's more than that.
[00:33:19] [SPEAKER_02]: I'm moving on to waste connections to WCN.
[00:33:23] [SPEAKER_02]: Maybe Compounder Bro, Vol Compounder Bro stocks here with acquiring the mom and pop shops of garbage collection
[00:33:34] [SPEAKER_02]: around North America.
[00:33:36] [SPEAKER_02]: Very similar playbook to GFL on the waste side if you back out green infrastructure partners,
[00:33:42] [SPEAKER_02]: which they did actually.
[00:33:45] [SPEAKER_02]: Stocks grown at 18% on average over the last 10 years
[00:33:48] [SPEAKER_02]: and grown the dividend 14% or shares grown over 10%.
[00:33:53] [SPEAKER_02]: This is waste collection.
[00:33:57] [SPEAKER_02]: So recurring stable staple of a business with really smart capital allocation in acquisitions.
[00:34:07] [SPEAKER_02]: It's actually pretty easy playbook to understand why it's worked.
[00:34:12] [SPEAKER_02]: It's waste collection is very, very fragmented around North America.
[00:34:18] [SPEAKER_02]: There is still so many targets for them to go after.
[00:34:22] [SPEAKER_02]: I'd be happy to own the stock.
[00:34:26] [SPEAKER_02]: It's perennially expensive.
[00:34:28] [SPEAKER_02]: It is always such an expensive stock.
[00:34:31] [SPEAKER_02]: Every time I look at it, I'm like, this thing doesn't grow fast enough to justify this multiple.
[00:34:37] [SPEAKER_02]: And it doesn't matter what you paid.
[00:34:40] [SPEAKER_02]: Like I've been wrong because it hasn't really mattered the multiple you've paid because they keep executing.
[00:34:48] [SPEAKER_02]: Now, I think you kind of throw out your margin of safety with that methodology of investing,
[00:34:52] [SPEAKER_02]: but I'd be happy to own waste connections.
[00:34:54] [SPEAKER_02]: All right, my submission which got some love thankfully in the thread was WSP Global.
[00:35:00] [SPEAKER_02]: WSP is an engineering firm which now mostly focuses in the civil space.
[00:35:07] [SPEAKER_02]: Buildings, environmental services and consulting have been their bread and butter.
[00:35:14] [SPEAKER_02]: And the stock has compounded at 20% cash flow during that time is compounded at nearly 25%.
[00:35:22] [SPEAKER_02]: Look, same thesis waste connections.
[00:35:26] [SPEAKER_02]: You have NCGI.
[00:35:28] [SPEAKER_02]: You have very fragmented world of engineering services around the world.
[00:35:34] [SPEAKER_02]: There are so many 40, 50, 150 person civil engineering firms around the world that have awesome long term relationships with businesses and governments around the world for consulting services.
[00:35:50] [SPEAKER_02]: And they just scoop them up.
[00:35:52] [SPEAKER_02]: They've done I think nearly 125 acquisitions to date.
[00:35:57] [SPEAKER_02]: This is just kind of very quietly been done tons of actually they did and they've done big ones.
[00:36:04] [SPEAKER_02]: They've done small ones.
[00:36:05] [SPEAKER_02]: They've done, you know, small mom and pop 50, 60 type engineering firms to massive 2 billion acquisition take out of environmental services company Golder, which was in my world before I started FinCHA.
[00:36:18] [SPEAKER_02]: I've owned the stock since 2018 if memory serves me correctly.
[00:36:23] [SPEAKER_02]: Kind of always trades at a fair too expensive price, but I think mostly fair.
[00:36:28] [SPEAKER_02]: If they can keep rolling up names globally.
[00:36:31] [SPEAKER_02]: They're not confined to a North American network to keep doing global acquisitions.
[00:36:38] [SPEAKER_02]: Over 20 billion US and market cap now.
[00:36:41] [SPEAKER_02]: What is it?
[00:36:42] [SPEAKER_02]: What is it in Canadian?
[00:36:44] [SPEAKER_02]: 20 set nearly 30 billion in market cap now on the TSX.
[00:36:49] [SPEAKER_02]: And I like the stock now.
[00:36:53] [SPEAKER_02]: I've liked for a long time and I'll tend to continue to own it.
[00:36:56] [SPEAKER_02]: All right, moving forward.
[00:36:58] [SPEAKER_02]: Same story.
[00:36:59] [SPEAKER_02]: I've owned this one for a long time to TFI international.
[00:37:03] [SPEAKER_02]: There's a recurring theme here with high quality Canadian performance, which is acquisition based companies.
[00:37:14] [SPEAKER_02]: TFI international definitely fits that bill.
[00:37:17] [SPEAKER_02]: They buy operate extremely well distress trucking companies across North America integrate them make them more profitable.
[00:37:26] [SPEAKER_02]: And they've been very disciplined along the way.
[00:37:30] [SPEAKER_02]: Stocks done 22% a year on average over 10 years earnings per shares exploded up 28% per year.
[00:37:39] [SPEAKER_02]: Look, I mean trucking again.
[00:37:42] [SPEAKER_02]: Very boring.
[00:37:43] [SPEAKER_02]: Long term.
[00:37:45] [SPEAKER_02]: They have done.
[00:37:47] [SPEAKER_02]: I like seeing acquirers like TFI that can demonstrate that they can do small tuck in of distressed assets.
[00:37:54] [SPEAKER_02]: And then also carve out something massive like UPS freight business for just $800 million.
[00:38:04] [SPEAKER_02]: Excel on last mile delivery as e-commerce grew.
[00:38:09] [SPEAKER_02]: They've just been very opportunistic.
[00:38:11] [SPEAKER_02]: They've been very opportunistic.
[00:38:14] [SPEAKER_02]: Whatever Elaine Baderard and him and Elaine Bouchard from Couchtard.
[00:38:22] [SPEAKER_02]: Something's in the water there with high quality long term performance of acquisitive companies out of Quebec.
[00:38:33] [SPEAKER_02]: There's something to whatever they're doing WSP fits that bill as well.
[00:38:38] [SPEAKER_02]: Whatever they're doing keep doing it.
[00:38:40] [SPEAKER_02]: They operate 50,000 trailers almost 15,000 tractors and have almost 10,000 independent contractors.
[00:38:48] [SPEAKER_02]: Most people know the company as Transforce because all the trucks used to be called Transforce and then they just rebranded it to TFI and a little swoop.
[00:38:57] [SPEAKER_02]: It's pretty low key when you see the trucks on the highway now.
[00:39:00] [SPEAKER_02]: Alright moving on to Go Easy Financial.
[00:39:04] [SPEAKER_02]: Another how do they keep getting away with this?
[00:39:07] [SPEAKER_02]: Go Easy is subprime payday lender type of name.
[00:39:11] [SPEAKER_02]: The stocks compounded at 23%.
[00:39:14] [SPEAKER_02]: Earnings per shares grown 28%.
[00:39:17] [SPEAKER_02]: This is a financial lending company and their quarterly revenue looks like a beautiful software.
[00:39:26] [SPEAKER_02]: It's so sticky and recurring and it's not a company I would feel particularly great about owning with Easy Financial and Easy Home.
[00:39:37] [SPEAKER_02]: I do think that they take advantage of the right word but they definitely benefit from lower income Canadians and giving them very high APR loans with the loans and then also the financing on home products like furniture.
[00:40:02] [SPEAKER_02]: You can finance like an Xbox for like 48% APR or something outrageous.
[00:40:08] [SPEAKER_02]: Auto loans, point of sale financing.
[00:40:12] [SPEAKER_02]: I am shocked this has continued to work at the scale it's gone to but clearly the management team has done something right.
[00:40:22] [SPEAKER_02]: Alright dollar ammo stock has compounded 24% per year.
[00:40:28] [SPEAKER_02]: Earnings per shares grown nearly 20% per year.
[00:40:32] [SPEAKER_02]: This is the dream retail concept.
[00:40:38] [SPEAKER_02]: The dream retail concept.
[00:40:40] [SPEAKER_02]: I really can't think of a better retail concept.
[00:40:43] [SPEAKER_02]: Gross margins are amazing.
[00:40:47] [SPEAKER_02]: They run the business, they run them so lean.
[00:40:49] [SPEAKER_02]: You have like one or two people working there at any time.
[00:40:52] [SPEAKER_02]: The product is good.
[00:40:54] [SPEAKER_02]: Yes, of course it's low quality stuff but it's what you want.
[00:41:00] [SPEAKER_02]: I'm spending $2 on something.
[00:41:03] [SPEAKER_02]: I know exactly what I'm getting when I go there and it's consistent.
[00:41:08] [SPEAKER_02]: They continue to operate and grow the store count by like 60 per year.
[00:41:14] [SPEAKER_02]: I love the model.
[00:41:19] [SPEAKER_02]: I think I've been wrongly bearish on their continued expansion because they eventually will hit a wall.
[00:41:27] [SPEAKER_02]: It's a very Canadian brand.
[00:41:29] [SPEAKER_02]: They're way better operators and margin profile than any of the dollar stores in south of the border in the US.
[00:41:36] [SPEAKER_02]: But where's the next leg?
[00:41:39] [SPEAKER_02]: If I can answer that question, I'd be long the stock in size.
[00:41:42] [SPEAKER_02]: Alright, TerraVest.
[00:41:45] [SPEAKER_02]: TickerTVK, TerraVest has compounded at 30%.
[00:41:48] [SPEAKER_02]: I am a shareholder now.
[00:41:50] [SPEAKER_02]: Earnings per share, cash flow operations over 30% during that time.
[00:41:54] [SPEAKER_02]: Bit of a turnaround story.
[00:41:56] [SPEAKER_02]: Started as very small.
[00:41:57] [SPEAKER_02]: It's still less than $2 billion in market cap still.
[00:42:01] [SPEAKER_02]: Let's take a look.
[00:42:02] [SPEAKER_02]: Yeah, still less than $2 billion in market cap here on the TSX.
[00:42:08] [SPEAKER_02]: So this is going to sound different than what people are familiar with the company on because of course they operate tanks and fuel containment, processing equipment.
[00:42:21] [SPEAKER_02]: But the bet is on steel, steel products.
[00:42:26] [SPEAKER_02]: And that's what Dustin Ha specified very clearly in their latest investor day which I was listening to live.
[00:42:34] [SPEAKER_02]: Not many people were on the call.
[00:42:36] [SPEAKER_02]: He made it very clear that the business is about steel.
[00:42:43] [SPEAKER_02]: And of course when you have fuel containment, processing containment, transport trailers of liquefied petroleum grass, service trucks, storage tanks.
[00:42:55] [SPEAKER_02]: They're the propane storage cowboys.
[00:42:57] [SPEAKER_02]: But since they're also doing stuff with boilers and furnaces in the HVAC segment,
[00:43:02] [SPEAKER_02]: the bet is on steel when they acquire something for just a few times owner's earnings and then get huge economies of scale because the main manufacturing component of everything that threads their businesses together is steel.
[00:43:21] [SPEAKER_02]: And so they can turn something that they bought just for a few times owner's earnings a few years back,
[00:43:28] [SPEAKER_02]: grow the business organically.
[00:43:31] [SPEAKER_02]: The organic growth has been fantastic.
[00:43:33] [SPEAKER_02]: And their largest input cost in the manufacturing process for a storage tank being steel, they get economies of scale on.
[00:43:41] [SPEAKER_02]: There is real synergy.
[00:43:43] [SPEAKER_02]: Usually synergies are overstated.
[00:43:45] [SPEAKER_02]: I think that there is real synergies here.
[00:43:47] [SPEAKER_02]: I suspect they have another 400 targets they could take out over the next, I don't know, couple decades.
[00:43:53] [SPEAKER_02]: Dustin Ha is still in his 40s, the CEO.
[00:43:56] [SPEAKER_02]: I'm long the propane cowboys.
[00:43:59] [SPEAKER_02]: It's a small position for me.
[00:44:00] [SPEAKER_02]: The stocks popped again on successful results here just last week.
[00:44:05] [SPEAKER_02]: First service.
[00:44:06] [SPEAKER_02]: First service has been phenomenal Canadian story.
[00:44:11] [SPEAKER_02]: First service operates through its various subsidiaries, their residential and first service brands with property management being the big hitter.
[00:44:24] [SPEAKER_02]: So condo boards, cooperatives, homeowner associations, master plan communities, adult community, adult lifestyle communities, retirement homes.
[00:44:37] [SPEAKER_02]: These types of residential developments.
[00:44:39] [SPEAKER_02]: You need a company to operate them.
[00:44:43] [SPEAKER_02]: Do the cleaning, you know, maintain the cleaning of the elevators and the park aides and the various things that come up that are required.
[00:44:52] [SPEAKER_02]: That is a massive business for them.
[00:44:56] [SPEAKER_02]: And think about the unit economics.
[00:44:58] [SPEAKER_02]: Once you're in there, you're not going to switch property management products.
[00:45:02] [SPEAKER_02]: Like you can continue to kind of leverage pricing power and be the brand, the trusted brand that when you are up for renewal on your condo board contract.
[00:45:15] [SPEAKER_02]: First service has done it.
[00:45:16] [SPEAKER_02]: You know they're going to do a good job.
[00:45:18] [SPEAKER_02]: They also have other services businesses like California closets, Paul Davis Restoration, Serta Pro.
[00:45:27] [SPEAKER_02]: Those other brands are tucked into the first service business.
[00:45:30] [SPEAKER_02]: Lots of acquisitions.
[00:45:32] [SPEAKER_02]: Speaking of lots of acquisitions, constellation software.
[00:45:37] [SPEAKER_02]: You can't have a conversation about Canadian compounding stories without talking about constellation software.
[00:45:44] [SPEAKER_02]: Now, I didn't bring up any of the spincos that they've spun off into under the TSX venture like Luma and Group and Topicus into today's story because they just haven't been public long enough.
[00:45:59] [SPEAKER_02]: Yes, they have the same DNA as constellation, but you know Luma and Group, I think went public like last spring.
[00:46:06] [SPEAKER_02]: So there you go.
[00:46:08] [SPEAKER_02]: Now sporting what is it today?
[00:46:10] [SPEAKER_02]: Now sporting a 85 billion in market cap.
[00:46:14] [SPEAKER_02]: What is it here?
[00:46:15] [SPEAKER_02]: I should probably know this 91 billion in market cap Canadian dollars on the TSX.
[00:46:23] [SPEAKER_02]: It's probably the most satisfying stock chart you could ever imagine.
[00:46:28] [SPEAKER_02]: I have owned it for years and years now.
[00:46:32] [SPEAKER_02]: I'm happy to own it for many more years and years now.
[00:46:36] [SPEAKER_02]: Stocks grown on average 31% of the last 10 years and earnings per share has grown up 21%.
[00:46:43] [SPEAKER_02]: Revenue is probably pretty similar to that.
[00:46:46] [SPEAKER_02]: For those who do not know, which is probably a very select few people who listen to this podcast,
[00:46:52] [SPEAKER_02]: Constellation Software headed up by Mark Leonard operates five or six operating groups that have a lot of autonomy to do acquisitions of vertical market software.
[00:47:05] [SPEAKER_02]: I think there are like 950 companies today.
[00:47:09] [SPEAKER_02]: Any minute now, there's going to be literally over 1000 companies in the Constellation Software umbrella.
[00:47:16] [SPEAKER_02]: It is nearly 50% of my portfolio if you include Topikus and Luma and Group.
[00:47:23] [SPEAKER_02]: And some people will say, you've lost your mind. That concentration is absurd.
[00:47:28] [SPEAKER_02]: Well, first of all, it didn't start that big.
[00:47:32] [SPEAKER_02]: Stocks done so well to deserve that and I don't trim. I don't sell.
[00:47:36] [SPEAKER_02]: And secondly, it's more diversified than many portfolios with 10, 15, 30 companies.
[00:47:43] [SPEAKER_02]: Constellation in itself is a basket and an index play on vertical market software, B2B vertical market software companies serving niche end markets.
[00:47:55] [SPEAKER_02]: They take the cash from those companies that are spitting out a lot to cash at high margin and do it again.
[00:48:02] [SPEAKER_02]: They're buying over 100 companies a year and they've done it at scale.
[00:48:09] [SPEAKER_02]: There's a lot of targets still to go and there's lots of new targets being made every day.
[00:48:13] [SPEAKER_02]: My hot take is obviously long in size.
[00:48:17] [SPEAKER_02]: Shopify coming in at number one, the Canadian tech darling of a company.
[00:48:24] [SPEAKER_02]: Had some pretty impressive results lately.
[00:48:28] [SPEAKER_02]: It trades at perennially nosebleed multiples on the stock.
[00:48:34] [SPEAKER_02]: Stocks compounded at 46% of the last 10 years and earnings per share at 22%.
[00:48:40] [SPEAKER_02]: They have kind of turned on as they've needed that a bit of profitability.
[00:48:47] [SPEAKER_02]: Was it doing gap profit these days? Yeah, a little bit of gap profit these days too.
[00:48:52] [SPEAKER_02]: So you know the tide has turned in software when they're doing a couple billion in gap profits on a trailing 12 months.
[00:49:02] [SPEAKER_02]: So good for Toby and Harley at Shopify.
[00:49:06] [SPEAKER_02]: Amazing story out of Ottawa, Ontario, Canada.
[00:49:11] [SPEAKER_02]: I'm very happy about this story.
[00:49:15] [SPEAKER_02]: Now moving forward, the business has two kind of core pillars.
[00:49:21] [SPEAKER_02]: They have the subscription solution so that is if you are a Shopify seller, you pay for a plan.
[00:49:30] [SPEAKER_02]: So like a business plan or like an enterprise plan and you get multiple more features for being on that plan as well as lower transaction fees.
[00:49:39] [SPEAKER_02]: And then there's the merchant solutions part of the business.
[00:49:43] [SPEAKER_02]: Like handling logistics, handling payments, a lot of the fintech type of things that you'd expect Shopify would get into.
[00:49:53] [SPEAKER_02]: That's that merchant side of the business.
[00:49:55] [SPEAKER_02]: And look, if you want to start a e-commerce store and you don't use Shopify, there are competitors out there of course.
[00:50:04] [SPEAKER_02]: There's all these other web builders, the square spaces, the Wix. There's more.
[00:50:10] [SPEAKER_02]: If you're not using Shopify, the way I understand it and the way that the brand at least is positioned at this point is you're shooting yourself in the foot.
[00:50:19] [SPEAKER_02]: Like you're setting up your e-commerce store and you're picking a operating system of your entire business.
[00:50:28] [SPEAKER_02]: You don't want to mess this up.
[00:50:31] [SPEAKER_02]: Shopify is the name.
[00:50:33] [SPEAKER_02]: Merchant solutions have compounded revenue at 86% since 2012 and subscription solutions, which is really the juicy high margin part of the business, the SaaS part of the business.
[00:50:46] [SPEAKER_02]: 50% compound annual growth rate.
[00:50:49] [SPEAKER_02]: What's the run rate on that?
[00:50:51] [SPEAKER_02]: That's doing $563 million a quarter.
[00:50:57] [SPEAKER_02]: Yeah, well over $2 billion run rate and that's almost all coming through gross profit.
[00:51:05] [SPEAKER_02]: Like that's $466 million in gross profit on $563 million in revenue.
[00:51:12] [SPEAKER_02]: Monthly recurring revenue.
[00:51:14] [SPEAKER_02]: So every month is $169 million on that subscription solutions.
[00:51:19] [SPEAKER_02]: Look, incredibly successful execution here.
[00:51:25] [SPEAKER_02]: I think it's always been a bit of a battleground stock because yes, it was $2.57 years ago.
[00:51:34] [SPEAKER_02]: That's why you have this amazing run up.
[00:51:35] [SPEAKER_02]: But the stock trades for $75 US on the New York Stock Exchange.
[00:51:44] [SPEAKER_02]: I'm going to go to the Canadian listing here instead for the purpose of the podcast.
[00:51:50] [SPEAKER_02]: Pulled up the TSX listing now.
[00:51:52] [SPEAKER_02]: So you're looking at $103 on the TSX.
[00:51:57] [SPEAKER_02]: That was $3 in 2015, 10 years ago.
[00:52:01] [SPEAKER_02]: It reached a peak of $214.
[00:52:05] [SPEAKER_02]: I'm assuming this is all split adjusted.
[00:52:07] [SPEAKER_02]: I'd have to look when the last time they split.
[00:52:11] [SPEAKER_02]: $214 in November of 2021.
[00:52:15] [SPEAKER_02]: So it's still more than half off of its peak.
[00:52:19] [SPEAKER_02]: The drawdown total, yeah, is 52%.
[00:52:22] [SPEAKER_02]: It drew down 80% peak to trough from that timeframe to June 2022.
[00:52:29] [SPEAKER_02]: So it's been a bit of a battleground stock.
[00:52:32] [SPEAKER_02]: Software just got so bid up and now the tide came in.
[00:52:39] [SPEAKER_02]: And now it's back to, okay, we're going to reward these companies but we're cautiously optimistic.
[00:52:46] [SPEAKER_02]: So I think that that makes sense.
[00:52:49] [SPEAKER_02]: Anything trading at 64 times forward earnings, 23 times historical gross profit,
[00:53:00] [SPEAKER_02]: you need everything to go right when these things are traded like that.
[00:53:06] [SPEAKER_02]: And I think that it can go right here.
[00:53:10] [SPEAKER_02]: I think that things can go right.
[00:53:12] [SPEAKER_02]: I think you have the right people running this, the right vision and the right market.
[00:53:18] [SPEAKER_02]: But expect a lot of volatility when stocks trade at those multiples.
[00:53:24] [SPEAKER_02]: But my hot take is I like Shopify, I like the stock.
[00:53:28] [SPEAKER_02]: I hope it does well.
[00:53:30] [SPEAKER_02]: It's like proud Canadian tech store.
[00:53:33] [SPEAKER_02]: We don't have many.
[00:53:34] [SPEAKER_02]: We really don't have that many.
[00:53:36] [SPEAKER_02]: All right, that rounds out the entire list folks.
[00:53:40] [SPEAKER_02]: That was like a full hour monologue.
[00:53:43] [SPEAKER_02]: Never done that before.
[00:53:44] [SPEAKER_02]: May never do it again.
[00:53:46] [SPEAKER_02]: So it's a where were you moment here in August 2024.
[00:53:52] [SPEAKER_02]: We appreciate you listening to the podcast.
[00:53:55] [SPEAKER_02]: We're back next week myself and Simone and Dan Kent as well as the real estate podcast continues to roll on with Daniel Foch and Nick Hill twice a week in your ears.
[00:54:07] [SPEAKER_02]: Lots of exciting things up in our content schedule.
[00:54:12] [SPEAKER_02]: Lots of exciting partnerships that we're doing as well with some new partners coming online.
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[00:54:28] [SPEAKER_02]: you can do that by going to our website and you know, we have it obviously listed.
[00:54:33] [SPEAKER_02]: You can just Google Canadian investor podcast on Google.
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[00:54:42] [SPEAKER_02]: So there's ways to reach out to us.
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[00:54:56] [SPEAKER_02]: We'll see in a few days.
[00:54:58] [SPEAKER_02]: Take care.
[00:54:58] [SPEAKER_02]: Bye-bye.
[00:54:58] [SPEAKER_00]: The Canadian investor podcast should not be construed as investment or financial advice.
[00:55:05] [SPEAKER_00]: The hosts and guests featured may own securities or assets discussed on this podcast.
[00:55:11] [SPEAKER_00]: Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.