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MARQUEST WEEKLY COMMENTARY – FEBRUARY 23, 2015

MARQUEST WEEKLY COMMENTARY – FEBRUARY 23, 2015

Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was down 0.4 percent. The Marquest Monthly Pay Fund A units closed at $4.66 down from $4.67 the previous week. Canadian retail sales fell 2 percent in December; it was the slowest December in 4 years. At the same time, Canadian wholesale sales grew 2.5 percent in December, the fastest pace in almost four years driven by gains in automobile and personal household goods.

Significant contributors in the Fund last week were Restaurant Brands (up 8.2 percent), AutoCanada (up 8.0 percent) and AG Growth (up 3.2 percent).

Restaurant Brands is the new company formed by our own Tim Hortons and Burger King, the second largest fast food burger chain in the world. It reported strong Q4 global same store sales growth. Burger King’s franchised business model creates stable and predictable earnings and cash flow will low capital requirements. Tim Hortons is likely to see accelerating international growth, especially in the US and improved cost discipline in the new structure. 3G (Burger King’s owners) have a strong record of value creation.

AutoCanada, the auto dealership operator and consolidator, announced a share buyback last week. To some extent, the company’s buyback provides a floor for the stock price; it had fallen on investor uncertainty with regard to the Alberta car market. Canaccord Genuity analysts wrote: “While shares of AutoCanada have risen by 48% over the past two weeks, the company trades at only 12.2x our 2015 EPS estimate, continuing to represent a discount to its U.S. peers at 14.8x, despite offering a far better EPS growth profile, now further enhanced by potential share buyback activity.”

Laggards were TD Bank (down 2.8 percent), Royal Bank (down 2.0 percent) and Goldcorp (down 8.4 percent). Investors are anticipating less robust quarterly reports from the banks as well as the possibility of an interest rate cut. Goldcorp reported a disappointing Q4 and bullion was down $23 to $1,206 on the week. Goldcorp is a senior producer with a strong balance sheet, a low geopolitical risk profile and near term production growth.

Global Balanced Fund

Last week, the MSCI World Index was up 0.9 percent. The C$ was down 0.7 percent versus the US$. The Marquest Global Balanced Fund A units closed at $18.78 up from $18.61 the previous week. Investors continue to focus on possible agreements between Greece and its lenders. In the US, the Fed minutes seemed dovish with regard to an interest rate increase, expressing concerns about US$ strength impacting US growth and the low level of core inflation.

Last week in the global equities portion of the portfolio, leading contributors were Novo Nordisk (up 9.0 percent), AbbVie (up 5.9 percent) and United Health (up 3.2 percent). Novo Nordisk, the global leader in diabetes drugs, announced positive phase II results for oral semaglutide in people with type 2 diabetes. Oral semaglutide is viewed as a potential blockbuster drug. The product would compete with the DPP-IV segment which represents a US$8-10 billion market opportunity. AbbVie’s share price recovered somewhat from weakness in previous weeks which we discussed.

Laggards were Keyera (down 4.4 percent), Alaris Royalty (down 3.1 percent) and TD Bank (down 2.8 percent). Keyera’s share price gave back some of the gains it has made in previous weeks.

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