Greg Bonnell with Rob Tetrault
Greg: Valeant shares are one of the stocks that are actually up after the company named Howard Schiller as interim CEO. Well, respective of how the company has been handling the situation, we’re off to Winnipeg to speak with National Bank Financial Portfolio Manager Rob Tetrault. Rob, thanks so much for joining us.
Rob: Thanks for having me, Greg.
Greg: So, let’s start, there’s some uncertainty, and investors hate uncertainty, over the situation with Michael Pearson, and then we’ve got an interim CEO this morning. The stocks are a little undecided and then it moved higher. Is all this action basically based on what we found out this morning about who’s going to be running the company in the short-term?
Rob: I would think so, absolutely Greg. What did it finish at? What did Valeant finish at? I’m getting powered here in Winnipeg, was it up 3%?
Greg: Valeant shares I believe above 3% yeah to finish off the day.
Rob: 3%. So, obviously the management by committee approach was not something that was favoured by the market. You’ve had a lot of talking heads on today. Very smart people went on your show today and said, it’s a smart thing. Specifically the approach by committee wasn’t one that the market liked. Now we have a name, a name that’s been there four years, it was by Person’s side from 2011 to 2015, he was there, he was the CFO, he knows the company, and the fact that he’s coming back obviously is a signed that the market liked today, and the fact that he’s back in the CEO role is good for sure for the company, says the market.
Greg: All right. We just showed viewers a graph, and actually had 2% of the data but the point it was trading around 3. So, do you think this will bring some stability to the name for at least a little while until we can figure out what’s going to happen with Mr. Pearson?
Rob: I think so. The markets certainly want Mr. Pearson back to follow up on that Walgreens deal that he signed. And remember, he took this company from nothing to a very, very large player. So, they want to see how are they operationally, how are they going to do this? How specifically are you going to implement that deal with Walgreens? Schiller is a great name and he knows the financial side of it, but operationally I think the market will be even more relieved if Pearson comes back.
Greg: Big story there to be in the newsroom today was the fact that the Loonie had a new twelve and a half year load, taking us back to early summer of 2003. How is the value of our dollar affecting your investment’s strategy?
Rob: That’s a great question, Greg. For us specifically, we were either smart or lucky, but we had a lot of our US holdings unhedged. So, we’ve been overweight US for a while. We’ve been a believer in the US cycle for a while. We’ve purchased a lot of holdings in USD and that has now been obviously a great move, as we’ve made money both on the stocks and on the currency. So, the question now is, do you unhedge? When do you unhedge? And that’s going to be something that’s going to weigh on our minds for sure here as we’re approaching. If you can believe, it’s 70 cents here on the US dollar.
Greg: When do you make that decision? How much of a time window do you have before you have to jump in either one camp or the other?
Rob: Well, for us it’s not something we take lightly. It’s something we take a look at all the macro factors, we take a look at what’s happening, obviously we’ve got a petrol dollar, so we’ve got to factor in what’s happening there. And I’m certainly not a bottom picker, because I do enough of that at home when I change the diapers for my three kids. So, this is not something that I want to specifically pick the bottom for. We just want to reduce risk. Our strategy obviously is to reduce risk. And if we can take one risk off of the table, which is currency, well then that might be a good move. So, we’re looking at it closely. It’s something that we may decide to move on in the next week or two.
Greg: It’s been about eight years since I changed my last diaper at home, but you never forget the experience. I want to talk to you a bit about the trade deficit as well. The narrative that we’ve been hearing from policy makers is, “Don’t worry so much, eventually the low Loonie will improve exports.” Still a two billion dollar trade deficit but not as bad as we thought.
Rob: We thought the analysts; we thought we’d see a 2.6 billion dollar deficit. Now, this is significant. This is the 14th significant month that we see negative numbers like this, and this is going to be the worst year ever for the trade deficit. We’re talking about probably somewhere on a 20 to 25 million dollar trade deficit when all is said and done. Now, the good news is, if you consider it good news, is that they revised the October provision by about .4 of a billion, and not only that, but we had obviously more exports than we thought we would. The Canadian dollar helped us on that side if you will. Auto parts, auto manufactures, ores, as well as forestry, those numbers all proved to be more positive than the analysts had expected. And as a result, the deficit is only, and I say only, obviously tongue in cheek here, but it’s only two billion dollars for the month of November.
Greg: Yeah Rob, it was another tough day on the markets. Only the third trade of the year, nowhere to hide, where are you putting your money?
Rob: Well, right now, we’re being honestly very cautious. If we have cash, we’re sitting on it for now. We will start considering to deploy it soon. But we have a couple of names that we like to follow. Specifically, when I come on here, I’m very proud Manitoban and I always like to talk about Manitoban companies, and today I’m going to talk about New Flyer. New Flyer is a company that we really like for the past while now. Honestly, the last now that now it’s run up significantly. It’s in the high 20’s now. But for a couple of reasons we’re like, 1) for the first reason, CEO, CFO, and at least one board member were doing some insider buying. Now, this is November in to December they’re doing some insider buying and some significant amounts. So, whenever I see that obviously I like that. I mean, if the CEO believes in this company, I like it too, right? So, that was one major reason. And 2) the Motor Coach acquisition is something that I think is going to be very creative. We’re talking four hundred and fifty five million dollars. They bought it at a six time multiple, six times a bit the multiple. Now, that’s a fantastic creative deal in my mind. They did it without issuing equity so there were no new…they had it all on a debt financing, and on top of that, the multiple that New Flyer is trading at now, they’re going to see some creative help. Motor Coach is a couch industry maker and New Flyer is making city buses. Between the two of them they will be some creative cost savings, and figure somewhere around ten million or so per year just in cost savings. So, I like New Flyer. I liked it a lot more a month ago, but today and yesterday it’s kind of closer to where we might get into that stock but I like the company plus it pays a nice dividend. They just increased the dividend yield so they’ve got a 13% bump on the dividend. Nice little dividend yield, close to 3% so everyone’s happy with that. I like the company and I like that it’s a Manitoban story.
Greg: It’s nice to hear a bit of optimism on such a down day. Thanks for your time Rob.
Rob: Thanks Greg.
Greg: That was Rob Tetrault, Portfolio Manager at National Bank.