MARQUEST WEEKLY COMMENTARY – JULY 27, 2015

Liis Palmer, Cassels Investment Management Inc.

Monthly Pay Fund

Last week the TSX was down 3.1 percent. The Marquest Monthly Pay Fund A units closed at $3.94 compared to $4.06 the previous week. Commodity prices fell and took the index down every day last week. WTI oil was down 5.4 percent to $48.14/barrel. Unexpectedly, Chinese preliminary manufacturing data dropped to 48.2 from 49.4. This took metals down. Copper was down 4.5 percent.

Significant contributors in the Fund last week were Valeant Pharmaceuticals (up 6.4 percent), Cameco (up 7.7 percent) and DH Corp. (up 6.7 percent). Valeant reported a strong Q2, beating expectations and raising its outlook. VRX reported $2.73 billion in revenues versus expectations of $2.54 billion (19 percent organic revenue growth) and EPS of $2.56 versus consensus of $2.46. Its Salix acquisition is progressing well and expected to be accretive next quarter as inventory overhang disappears and the new drug, Xifaxan, is launched. DH Corp. is up in advance of reporting its Q2 on Tuesday. There is a wide range of expectations due to the recent close of the Fundtech acquisition.

West Fraser Timber (down 15.9 percent), Enbridge (down 7.0 percent) and Bank of Nova Scotia (down 3.2 percent) were last week’s laggards. West Fraser reported a weak quarter; adjusted EPS of C$0.16 was below consensus of C$0.53. US economic data releases did not help, although the Existing Home Sales number came in better than expected, the New Home Sales number was worse than expected which caused housing related stocks to fall. West Fraser has a strong balance sheet and strong management. It is the world’s largest and one of the lowest cost producers of lumber. However, the sector faces near term pressure despite the tailwind of the falling C$.

Global Balanced Fund

Last week the MSCI World Index was down 2.0 percent. The C$ was down 0.6 percent against the US$. The Marquest Global Balanced Fund A units closed at $18.58 compared with $18.84 the previous week.

Significant contributors to performance were Whirlpool (up 4.7 percent), CVS (up 1.0 percent) and Walt Disney (up 0.4 percent). Whirlpool had a good Q2. Its valuation is attractive; it trades at a discount to its peers at 7.5x 2016 EBITDA and a P/E of 11x. It is on track to grow its free cash flow substantially. Whirlpool is the leader in appliances in North America and is growing internationally. However, the international opportunities in Emerging Markets and Latin America are not without risk.

Laggards were Westshore Terminals (down 8.8 percent), United Health (down 4.4 percent) and Comcast (down 2.9 percent). Westshore Terminals has been pulled down with investor concerns about coal. However, Westshore has fixed rate loading contracts which are not tied to coal pricing and take-or-pay provisions in its agreements should provide some protection. The balance sheet is strong and there is very limited west coast port space for coal exports other than Westshore. Comcast reported strong Q2 results, ahead of estimates for revenue and EBITDA. Cable financials were in line and NBCU performance was outstanding due to two blockbuster movies (Furious 7 and Jurassic World) and strength at theme parks (they have the Harry Potter franchise). Analysts raised forecasts and targets but the stock price went down with the weak market.