The Canadian Investor - A Blockbuster Acquisition & Canadian Retail Giants

Episode Date: November 24, 2022

In this episode, we talk about a blockbuster Canadian acquisition. We also discuss earnings from some well known Canadian stocks, the latest Canadian CPI numbers and some more FTX news. Tickers of stocks discussed: HCG.TO, DIS, L.TO, ATD.TO, ZM, DCBO.TO, ANF, CTC-A.TO Shakepay Bitcoin Survey Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. How we doing? Today is November 22nd. My name is Brayden Dennis, as always joined by the extremely thoughtful and incredibly handsome Simon Belanger. Welcome into the show, folks. We are talking news,

earning some big blockbuster acquisitions here in Canada as well. And yeah, it should be good stuff. And then of course, we'll dip into the drama. Gotta love when there's drama for a business podcast, just to keep it entertaining for all y'all. Yeah, for those that didn't like crypto, definitely FTX is giving us, it's like, you know, when Musk is behaving in terms of news and you have Sam Bankman free just picking up where Elon left it. Dude, you need a little drama. And yeah, that's right. If you were like a bear on all this stuff, you just get to, I told you so everyone. So there you go there you go uh simone let's kick it off here as we do every time we get a monthly inflation print in canada let's start there and then get

into some big news yeah yeah so obviously i mean i think everyone is talking about inflation still a year later i think it pretty much started a year ago. Now, October 2022 Canadian CPI figures came out. Like I always say, they come out a week after the US figures. So we always have a preview of what's happening down south. Overall, I think it was okay, but it's still obviously very high. And I think I say okay in relative terms. Obviously, if we were looking at more of a history of 2% here, you know, I'm not sure if it would be all that okay. It terms. Obviously, if we were looking at more of a history of 2% here, you know, I'm not sure if it would be all that okay. It'd be pretty crazy. But overall, inflation was up 6.9% year over year. It was up 0.7% versus September's on a sequential basis.

Food was up 10.1%, still very high. And it was up 0.2% versus September which is good obviously not too significant an increase one other metric that's really important shelter because it impacts everyone again increased 6.9% however it was up almost 1% versus September 0.8% which is really high. Gas and energy were up 17.8% and 16.2% respectively. They were both up 9.2% and 6.2% on a sequential basis. So still very high. I wanted to mention sequential here because last year we all remember gas and energy prices were significantly lower at this time of year. So wanting to put that in context, eliminate a little bit of that base effect that would be in question compared to last year. And then every major category was up at least 3.9% except for good old clothing and footwear, which was up 1.8% year over year. which was up 1.8% year over year.

And if we're looking from a geography basis, Quebec, Newfoundland, Labrador, and Ontario were the three provinces with the smallest increases at 6.4% for Quebec and 6.5% for the other two provinces. And PEI was on the other end of the spectrum here with 8.7%, followed by Manitoba at 8.4%. And what's really important from a Bank of Canada perspective, they look at three core CPI measures. Those are the measures that are preferred by the Bank of Canada. They do break them down on the StatsCan website if people are interested. They stayed relatively stable. I think a couple of them went up 10 basis point, but that's it.

So that's good news. Overall, I think it's pretty good. Could have been better, could have been worse. I think that's my take on that. This is the concept of managing expectations visualized here in numbers and in market reactions, I'd say over the past, however many months now, right? It's like the idea of, you mentioned, inflation, K-State, Core CPI sits around two, three. And everyone's like, all right, boys, we only got 8% this month. Or I guess it was 6.9%, but you get the picture. It's quite a funny phenomenon and it talks about managing expectations and where numbers come in relative to those expectations seem to be

everything. So, that's a good summary. Anything else on the inflation front? Dude, I can't wait to stop talking. Yeah. Yeah. I mean, obviously, it's the elephant in the room, right? I think the last thing I'll say is we're doing better than Europe. So, I'll just leave it at that. Right, right. Yeah. Western Europe, it's I think low double digits. So, I mean, I know it's not great, the numbers we're seeing in Canada, but it could be worse. Yeah, it certainly could be worse. A little bit of gratitude listening to the show here. You have the ability to tune in, chill, listen to a podcast, live in this country.

You know what? I'm very grateful. All right, let's talk about Home Capital Group. They were purchased or they have been agreed to be purchased by Smith Financial Corp in a deal that values the company now $1.7 billion, which is $44 per share on the market. And so this would take the business private. And it represents a 63% premium from the closing price on Friday, last Friday at $27. So this is substantial because the market was significantly pessimistic on the two largest Canadian alternative lenders, Home Capital Group and Equitable Bank. If you're not familiar with Equitable Bank, you probably, if you listen to the show, you know EQ Bank as well, which is one of their assets.

Home Capital Group was trading at like 60% or 0.6, of their book value. And now this premium they're paying at $44 a share puts at about 1.1 times book value. So over its book value, and this is obviously one of the most important metrics valuation wise for a bank. Now there's a couple of interesting things here, right? Smith Financial Corp, the one doing the acquisition, was already a very major large shareholder of Home Capital Group and is already today a very large shareholder of Equitable Bank as well. And so people are kind of speculating on what might happen with that. And so EQB, the stock, is up 25% on the news for Home Capital Group, but it's still

trading at about 0.88 times book value today as of recording. So my quick thoughts is this, I'm surprised it's only up 25%. I'm surprised it's not at least somewhere close to 1X book value given the transaction comp, the upside. And frankly, that Equitable Bank has been a much better business than Home Capital in terms of growth, navigating risk, and building this beautiful business of EQ Bank, which has just had explosive growth here in Canada. And I hate when we talk about EQ Bank as like so positive because they are a sponsor on the show. And it sounds like I'm such a, like just pumping their book. It's not actually at all. I actually have owned the stock well, well, well before we even started this podcast. And I mean, just look at the top line for EQ Bank segment. Anyways, this is a fairly

significant transaction. And we'll see how this affects the rest of the alternative mortgage lending space. And they were so beaten down. I'm surprised they're 63% premium. I guess that's what it was going to take for them to agree to it. Yeah, yeah. It's not a name I follow. I was the most familiar with just because I think I've heard Dan and Nick talk about it a few times on the one hand.

And the other reason was that Warren Buffett, I think pretty much bailed him out, right? Yeah. During the fight. Yeah. I think he threw him a $2 billion credit facility. Yeah. That's when I bought Equitable Bank stock was during that downturn because their stock fell 50% trading on the news that was just something bad happening for their competitor, which made no sense. That was a pretty good trade and held it since.

Yeah. Yeah. No, that's kind of, yeah, that's most of what I know. So I don't follow that name closely, but they must see some value in it. Clearly they were already shareholders, right? So they just bought it out. So they must own the business quite well and they must see some value with it. I don't know their track record, but it kind of makes me think a bit. We had a question on Join TCI from someone asking, I think they were just kind of confused a bit about the whole BAM spinoff and saying about my dividend portfolio, whether I thought they would roll back up BIP

or BPS at all. I think it's unlikely, but they have been known to do it with Brookfield Property Partners when they saw that the market was not valuating properly and they decided, you know what, this is so cheap, we're going to roll it back in. So sometimes, you know, when you know the business that well, you kind of see some value where maybe others don't see it. Yeah. No. I mean, yeah, they're major shareholders, right? So they're not new to the biz, right? As you're saying so. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense.

And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF.

One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right, let's move on. This was surprising to me. This was like a news dropping on like, what, Sunday night. This piece of news here.

Yeah, exactly. So some big news. Bob Iger returned to Disney replacing Bob Chapek. So shares of Disney were up 7% on those news. That essentially Bob Chapek got fired by the board of director. And Bob Iger was asked to come back and he agreed to do so. I think it's mostly the market kind of looking at Bob Iger's track record, getting a bit excited here because, I mean, there's a lot of work ahead. I mean, on one hand, it's quite a bit surprising

if you look at what happened in the last couple of years because Chapek, or Chapek, I'm not quite sure how you pronounce it. I always say Bob, like a Cha. Not a Sha. But I also don't know Sir Bob personally. So let's say Chapek because they are both Bob. So Chapek. That's true. Yeah. I didn't even realize that. Chapek had been picked by Iger, essentially handpicked to become the CEO in early 2020s when Iger retired and Disney's board had also extended his contract by two and a half years this June of this year and originally the contract was set to expire in February coming up of 2023 but was extended until 2025 and at the time Susan

Arnold which is the chairman of the Disney board of Directors, said, and I quote, In this important time of growth and transformation, the board is committed to keeping Disney on the successful path it is on today. And Bob's leadership, Bob Chapek, I'll just clarify here, is key to achieving that goal. We're in a bit of a Bob multiverse here. is key to achieving that goal. We're in a bit of a Bob multiverse here. Bob is the right leader at this time for the Walt Disney Company, and the board has full confidence in him and his leadership team. That was on June, I think June 28th.

It was late June. Talking about JPEG. JPEG, exactly. And Disney had its latest quarter earnings a few weeks ago, and it just wasn't great. So I'm sure the board obviously did not like that, especially since earnings per share was down 19%, Free Castle was down 10%, and the park segment had lower revenue growth than analysts had projected as well. So it's kind of funny, right? You have a bad quarter. I'm sure the board is

looking at least medium term, but you have to bad quarter i'm sure the board is looking at least you know medium term but you have to think i'd hope so i'd hope so as well and you have to think something else happened like this was probably the you know last straw i mean when you give the guy a vote of confidence you extend them by two years when you clearly did not have to. And then within a span of like four or five months, you let him go after a bad earnings report. It leads me to believe that some things happened between those four or five months that the board was not very keen on. And for those, I'll just finish here. Bob Iger, so the new CEO, he was CEO of Disney for 15 years before he retired. So, you know, we'll see how it goes. If you're interested in Disney personally,

just kind of wait a little bit to see what Iger's vision is for the company in the next couple of years. I was so, I have just a world of confusion here because one, the market being up so much on Iger was confusing. I mean, he made some historically bad capital allocation decisions. If I had the time to just look at Disney's history, I could come up with 10 things during his 15-year tenure that I think were very questionable for Disney. That being said, I mean, perhaps it's one of those things where, you know, pick a business so good that any idiot can run it because one day an idiot will run it. The old Warren Buffett quote. So there's that. I'm not saying Bob Iger's an idiot. Of course he's not. He's obviously

incredibly smart guy. But I was confused on the 7% action. And two, JPEG like spun Disney Plus out of like nothing into the most number one subscriber count in the streaming war. What am I missing here? I don't know what I don't know in this story like you. Like there's something else here that you're not going to find in any headline. Yeah. I think Iger gets a lot of credit for disney plus though because it was launched just before he retired so i think you know there was some people that probably accredited that to him and chapek came from the parks division of disney so i don't know you know if there was some issues there i know i read some things that there were rumblings that the creative side of disney you know the dis Disney Plus side and what, you know, they're filming and so on.

There was less liberty given to them under JPEG. And I think, you know, I read some rumors. I don't know to what extent it's true. So maybe there was some pressure within underneath JPEG saying like, look, we don't like the direction it's going. But again, I agree with you. It'll be interesting. I think the market was probably looking at the Disney stock price, the fact that it did very well under Iger and they're hoping that the same thing is going to happen going forward. Dude, take this in, okay? Chapek gets the CEO job in February of 2020, one month before his parks were locked down, right? Literally like, okay, here's the keys to the Ferrari. There's going to

be no wheels on the Ferrari for at least two years. So good luck, pal. Oh, and by the way, we have this asset and we need you to grow it. You grow it excellently and wonderfully. The park's back, open back up. The business is doing pretty good again. Maybe not on EPS, but I mean, that fluctuates. And then you get fired. I don't really get it,

but I also don't follow Disney that closely. Yeah, me neither. So it is what it is. Here's the thing, right? Disney's IP is going to print no matter what. Like, it doesn't matter who's running Disney's IP. Like, it's going to print. That's why IP has such a moat.

All right, let's move on here. So I originally started writing preparation of Alimentation Couche-Tard. How did I say that, by the way? How was that? Yeah, it's not bad. Alimentation couche-tard how did i say that by the way how was that yeah it's not bad alimentation couche-tard yeah there's like no d okay you don't pronounce the d there's no d yeah i'll never i'll i keep saying it and i'll never say it as majestically as you as french canadian but i can get closer and then i realized they were port earnings tomorrow so i'm not very smart in case you wanted to know kushtal means like sleep late sleep what is alimentation means like kind of food like grocer it's like a sleep late night grocer yeah late night grocer if you'd like yeah like you're hungry it's after

dinner and you're gonna go pick up some chips and ice yeah basically i like a convenience store right so kushtal was their brand. So, it just means sleep late, basically. Or late night. Okay, got it. Got it. Well, what a business that has become. But we're not talking about it. We'll talk about it on the next earnings. By the time you hear this, they just reported earnings. So, maybe you can go check and then we'll talk about it next week. But I needed to fill the void. And I looked down on your notes. And you were talking about two Canadian retailers today.

You're talking about Canadian Tire later. And you're also talking about Loblaws, which I think are two probably some of the better retailers in the country. I have hesitation about ever investing in them due to scale limitations. But they obviously know what they're doing. And I was like, okay. I went to a conference the other day. It was two weeks ago now, I think. And it was basically about why we should be

bullish on Canada and some interesting dynamics of why we should be bullish on Canada. And while it's not perfect, and there are some real advantages and disadvantages of betting on and building companies here in this country, I tend to agree with the sentiment. Overall, I think it's directionally true. I mean, you and I have a podcast tailored to Canadian news content, Canadian businesses, but also talking about the stock market in general, but you know, the nuances, TFSA, TFSA, that kind of stuff, right? So overall, I mean, technically, I'm betting on it. I think it's directionally true.

And so it's like, okay, I want to look up the growth of the country. And I know we have huge immigration, but I didn't realize it was at this level. So here's some context on scale and numbers for you. Canada's population is going to hit 40 million within the next 18 months, based on some quick maths, some quick napkin maths. First of all, I tend to think betting on immigrants is a good idea, just generally, economically. They're typically great hustlers. Anecdotally, I think that's true. Statistically, I think that's true. They're good entrepreneurs, hungry to fill jobs and build a better life. So first of all, shout out to Canadian immigrants. You guys rock. The stat at the end of 2021 was that 8.3 million

Canadians are immigrants at 23%, which is quite a staggering statistic. And it's growing very fast. 1.3 million new immigrants settled in Canada between 2016 and 2021, which is an astounding scale of immigration for a country of our size population-wise. Not geographically, of course, with our landmass being so giant. Now, here's some additional scale, Simone. The US population is around 333 million. The population growth in the past year has been 944,000. So less than a million. Canada's population is 38 million, 38 and a half, maybe 39 by the end of the year. And Canada's population growth in the past year has been over 700,000. So almost similar type population growth between Canada and the US, a couple hundred thousand off.

But when you compare that it's 10x the population size, roughly, this is material growth. And this represents an almost 2% increase on showing 12 months on population in Canada. So where I'm going with this is like, I think I've been underrating how fast the country is growing population wise. Like it feels like every year or two I look and I'm like, holy shit, 39 million? Wow. It was 33 and then it's 36 and then it's 38 and now it's going to be 40. It seems like I've been underrating that a bit. And so, I thought it was interesting to put some numbers in here. Yeah. I mean, I was going to say, I think you forgot your realtor ad because you sound like you're a realtor bull saying that the

market will just go up because of increased immigration. Oh, and I'm sure Dan can give us some stories. I don't have any homes to sell you. I don't have any homes to sell you. I don't have any advertisements in selling homes. But if you do care about the Canadian real estate market, of course, listen to the real estate pod. Yeah, yeah, exactly. But it's the main argument for real estate bulls. And I think real estate will be fine over the long run. But they basically, you know, think immigration alone will override like, you know, much higher interest rates than we've been used to in the last decade. It's just going to continually put pressure on supply. But at some point, you can only get financing for what you can get, you know, as the interest rates go up, right? So I think that's putting a whole lot of pressure.

So I just find it funny because they tend to just look at that one angle where the reality, and I think Dan and Nick do a very good job of looking at that, is it's a lot more nuanced. And of course, you're going to have pressure from, you know, having more people in Canada looking to buy a home, but also more pressure in terms of the amount of debt you can get is lower. So therefore, it's going to put some pressure down on the prices. Yeah, good call. Yeah, balanced approach to just realtors trying to hustle you if you want a more balanced approach, listen to the Canadian Real Estate Investor Pod. It's part of our network, our family of podcasts

here on your podcast player. But yeah, I know overall, I mean, I guess I've just been underrating those numbers, even though, yes, I hear that so much from realtors and all their messaging. I just, you know, I tend to just discredit most things they say. That's fair. Now moving on here to a company, we do talk a bit about it on the earnings because it's Canada's largest grocer, Loblaws. They released their earnings and I think there's been a lot more focus on grocers in general, especially since there's been a lot of politicians that have been looking at them. They've been getting a lot of flag because of rising food prices. Now, sales were strong for their private label brands especially, so they made a point to point that out.

So we're thinking here PC and no-name brands. Revenues as a whole were up 8.3% to $17.4 billion. Food retail was up 6.9%. So for context here, the food CPI for that period of time was actually 10%. So the prices were actually up for food retail lower than CPI. Obviously, you know, nothing's perfect. CPI is a basket. There's different weightings on everything but just so people put a little more context here drug retail was up by 7.7 percent so that performed quite well operating income was up 14.8 percent to 991 million earnings were up 18 percent to 575 million free cash flow was up 14 percent and they repurchased 403 million worth of shares during the quarter.

So I think, you know, pretty good overall. Steady as she goes. It's never going to blow you out here. But if you want a business that can be pretty resilient regardless of what's happening in the economy, regardless if we have a new pandemic or Black Swan event, Loblaws is probably going to be that business. I am very bullish on whatever retailer has the best private labels. This is why Kirkland and Costco is the goat of this model. And I think President's Choice and No Name are the best in class for the private label brands for Loblaws. I believe that full stop as one of the reasons to own any major retail is the strength of their private label brand.

Kirkland wrote the book, right? Like Kirkland wrote the book on this with Costco. So I agree with you. Steady as she goes. You know, it doesn't get much more blue chip on the TSX than this yeah no and everyone I know in Toronto has a cold so they're all buying stuff from shoppers drug mart you can't even buy cold medicine I know no I know it's it's pretty crazy maybe I'll bring some from the states and just sell it for profit in Canada after I come back from Syracuse you're going US

Thanksgiving right yeah that's right yeah I don't I they're fine there. I think part of it is, I don't know if it's fully true, but I think part of the shortage is because of the bilingual requirements for some of the medication that they bring to Canada. Oh, true. I would never have thought of that. So, I don't know. I'll see. I mean, obviously, if there's tons of supply in the US, it's probably that.

New side hustle, slinging cold meds. I'll sling you Buckley's, 20 bucks on the side of the road. You'd be loaded. Maybe I'll check as well. I am off to Austin on Saturday. Yeehaw. I've never been to Texas. I am pumped. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real

people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has

everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering

these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right. You got another one here. We hinted at this before. Let's talk about scam bank run fraud yeah i mean it's hard to it's like a car crash right you can't really look away even though there seems to slow motion car crash oh man yeah i mean there's just stuff coming out every day obviously we won't be talking about them every week but there was just so much that happened and i'm glad last week we did a deeper dive and waited actually four or five days until you know there was more info and now obviously there's more information last week a new CEO was appointed to oversee the bankruptcy John Ray III

he did an initial report on the state of FTX and for those not aware John Ray III oversaw the bankruptcy of Enron, Nortel and a bunch of other names so he knows I think what he's doing and he knows when you know he's seen some poorly run businesses we'll just say that and here's a quote where he did not mince words never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. And this is a guy who's seen some shit, man. He's seen an anorak, let's just say that. Yes. And now when he talked about FTX and more specifically Sam Bankman Freed and FTX leadership, that small group of people that kind of ran things,

the more we learn about this. And he said, quote, again, from compromised system integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individual, this situation is unprecedented. So I'm sure, like I said, there's going to be more stuff coming out. I mean, there is obviously going to be a documentary because this makes, you know, the names we've seen coming out. It's kind of ironic, too, that she got sentenced, I think, last week by the whole Theranos. Elizabeth Holmes.

Elizabeth Holmes. Elizabeth Holmes. And the more I read about FTX, the more it's like, you know, Elizabeth Holmes, Anne Ron, Madoff. It's like, it's kind of small potatoes compared to what these guys were doing. It's unbelievable. I mean, well, you can't ever put Mr. Bernie Madoff and small potatoes on frauds. No, no. But this- It was like 60 billion or something.

small potatoes on frauds. No, no. It was like 60 million or something. Yeah, no, but the scale and I think also the extent of, you know, parties that were defrauded, whether it's investors, whether it's, you know, small depositors who bought cryptocurrencies on the platform, you know, it could be people only have like three, four, $500 to like large investors that also had cryptocurrencies, other organization that had it.

It's kind of crazy all the stuff that's happening and just a wide range of people affected. I just looked it up. Bernie Madoff, his Ponzi scheme was 64.8 billion. Okay, so not quite there yet. Holy smokes. It affected mostly very wealthy people. 64.8 billion. Okay. So not quite there yet. Holy smokes. It affected mostly very wealthy people. I think that's the biggest difference, right?

I think here you have very wealthy people affected, but you also have retail investors that just wanted to buy some Bitcoin or whatever it is on the platform and just leave it there. Right. The Wizard of Lies, Robert De Niro stars as Bernie Madoff. That's an awesome movie for those who like this kind of stuff. If you want to watch a movie, The Wizard of Lies is about Bernie Madoff and his ridiculous Ponzi scheme. So, if they make a movie, who should play Sam Bankman Freed? Quick question. Oh, Jonah Hill. Yeah, that's the name. But Jonah Hill needs to get fat again.

Yeah, that's the name I keep seeing. But wouldn't he be a bit old though? I guess with makeup and stuff because he's like, I think he must be 40 now. Jonah Hill is now 38. Yeah. Okay. He could pull it off though. 38, what's bank run fraud like 30? Yeah, it's 30 now. So it's not that far off. Yeah, it's not too bad.

But Jonah Hill's an absolute stud now. We need someone more dusty. Doesn't need to be someone with curly hair. You can do a perm though. That's not an issue. Yeah. We'll get a wig on you and you can do it. Okay.

So we'll probably stop talking about this until the next domino falls. But the funniest thing about FTX and scam bank run fraud is the different levels and layers of irony. This is what I find really funny. His parents teach law and ethics as professors at Stanford. What? Like, I can't make this stuff up. His dad was involved in the company. The dude should never be allowed to teach another class. Number two, his effective altruism thing of saying he's becoming wealthy, becoming a billionaire so that he can give it away. It's like the idea of getting super wealthy

so that you can help the poor people. That's what effective altruism is, at least how I understand it. I have no idea. Destroy like what, hundreds or probably thousands of lives. Imagine like a lot of people had like, you know, substantial amount in their lives on the platform and they lost it all. But you know, it's for a greater cause. It doesn't matter if I destroy some lives along the way. Yeah. What a psycho. But the irony here is that he achieved his goal. People gave him his money and it's all gone. Yeah. It's all gone, buddy. And third, this is tangentially related, but I was disgusted.

Mainstream media is a joke, dude. I have been the least... I think mainstream media being called out as a joke since February of 2020 has been very rampant because they deserve to be. And this one was like, oh my God. The New York Times wrote some puff piece on him, being like, he's not a bad guy. He just made some mistakes. They wrote multiple interviews with him, guy. He just made some mistakes. They wrote multiple interviews with him, post-fraud or pieces about how he just made some mistakes. He's not a bad guy. Meanwhile, people have literally lost billions of dollars. And so I'm not a tinfoil hat guy, but you see the donations he's made to the Democratic Party in the US and all left-leaning publications have wrote some real bullshit about this story. And it discredits how much harm he has done to people, which is unfortunate, right? Because

people have gotten seriously hurt by this, like financially. And so, you know, this is why you listen to the podcast, folks. We have no political bias. We don't care. We just see the facts and interpret them with logic, no matter which side of the political spectrum this stuff is on and with no BS because some of the pieces around this written by mainstream media are a disgrace and really discredit how much harm white collar crime can do to people. And that didn't make me very happy. I think that they need to be called out for this, the New York Times. Yeah. And if you want to have a look of what SBF is actually really made of, just Google. There's a really good Vox article that came out about four or five days ago. He was sending text messages and the reporter actually like leaked the text messages and

showed when he was asking the questions and basically he's just saying like everything he had done is just like lies and bullshit he's like mostly admitting to everything he just admitted to lying about everything like yeah pretty much and like you know he's wishy-washy at times but for the most part he's like oh yeah that was a lie that was you know this and that so i encourage anyone it was a really good you know article Vox on him. So, I read it a couple days ago, I think. I'm just going on memory here, but it's worth a read. All right, moving on. Zoom video. We haven't talked about Zoom video in a while. We're recording right now on a Zoom meeting. So, there you go. Third quarter total revenue is up 5% to $11 billion. Okay, 5%. Not great. 7% in constant currency. Third quarter enterprise

revenue is up 20% to 614. So that's material growth, but it's not really material on their total revs. Like 614 million on 11 billion of revs being their enterprise solution. So it's easy to call out a segment and be like, hey, look, our sticky enterprise customer is up 20% year over year. But it's not as material of the makeup on the total pie as I thought it was. So there's that. Number three, number of customers contributing to more than 100K in Revs was up 31% year over year. So again, that's very similar to this enterprise thing that they're calling out. They had 276 million of free cash flow, which is down

about 100 million year over year. And a decent amount of free cash flow. What's Zoom video market cap? Yeah. And just a quick correction. I saw you made a typo. It was $1.1 billion for the quarter. Oh my goodness. I saw your notes and I'm like, if they make four point something for the year, it's not going to be just a decimal. It's okay. Just the difference of $11 billion in your calculation. I'm like, man, it's trading cheap. I love it. Yeah. You know what? That's true. The market cap. Yeah. That would make a difference

now, wouldn't it? That would make a material difference. See, this is why you have two mans on the podcast to do some quick auditing here. That is 1.1 billion. So 276 million free cashflow. This number's right. I'm reading it right off the press release. And it's down about a hundred million year over year because they did 274 in free cash flow or sorry, 374 in free cash flow year last year. So I look at that, I'm like, what? It's like 18 times free cash. It's pretty cheap, I guess, like that's a lot of free cash. But where things get interesting is how wild the market got. When you look back on software as a service names that serve the work from home enterprise niche from March 2020 to basically this time of last year in 2021, when the market euphoria wore off a little bit for some of these names.

And they're expecting a full fiscal year revenue of 4.4 billion. See, that lines up perfectly with the corrected number. Thank you, sir. And they did 4.1 billion in 2020 in sales. So this only represents a 4.5% increase in top line revenue. And of course, they don't call that number out. You got to do that math yourself because they're not going to be flexing on a sub 5% revenue growth. So you had this really, really steep curve. And then not even like a, yeah, okay, we have a deceleration here, like a Shopify type thing, where it's, yeah, there's a deceleration, but it's still growing to this name where it's like, oh, wow. It's hardly growing at all. And sure, they can keep flexing pricing power on the enterprise customers, but not without churn

and certainly not without churn on the non-enterprise customers. Because let me do some quick synopsis here, right? Simone, they're saying 614 million is the enterprise customers on 1.1 billion in revenue. So more than half, and that's growing 20% year over year, but they're only guiding for 5% increase. There's going to be lots of churn on the non-enterprise. Okay. That's not great. And it's just really not that sticky. That's the reality. I mean, we pay for it right now. We could switch to another one. Why do we pay for it? We could just use my Google Meet. Yeah, there's a couple of functionalities that are slightly better there, but we've talked about

it. I mean, when it comes up, it was a pretty good deal when we got it. But I mean, it's not, if I had to choose with all other things being equal, I prefer Zoom. But again, the difference is very incremental. If Zoom didn't exist tomorrow, it wouldn't affect us at all. No, exactly. Yeah. Like we would just be like, okay, that's all right. We'll use something else. And so that's just the reality.

It lacks integrations when compared to other things all being equal, especially when you compare it to the juggernauts of integrated enterprise workforce software stacks like Microsoft, Google, Salesforce. And the stock price has now done a perfect round trip from February of 2020, way up and then way down. Anyone who's tried to catch this falling knife, including Cathie Wood, I don't know how she hasn't blown up the fund at this point. I even started to think this is getting too cheap. I think I called it out on the podcast when it was like 50% ago. But nope, it wasn't too cheap. When you see the results and the guidance and the growth, it just decimated.

So now it trades at what? 27 times EV to EBITDA. I actually think that is still too expensive with the trajectory right now. Even if profitability say they grow free cash flow or EPS for double digits for a little bit, but for how long, I don't know. Not when it's only growing the top line of 5%. So, this one was so obvious in hindsight, I think. Probably one of the most obvious in hindsight names. Yeah. No, I mean, it's hard to disagree with you here. It was a pandemic play and now, I mean, at least it's profitable and I'm sure it'll be, you know, a decent business, but just don't expect a whole lot of growth. Yeah, they're not going anywhere. They're doing like a billion in free cashflow run, right? It's fine. Yeah, that's it. Now, moving on because we have a

couple more names here. I did remove one because we had too many and it's a bit of a boring one. So it's all good. We don't do boring on the podcast, baby. I mean, it's a name I own, so it's not that boring, but Decibo. Hey, nothing wrong with boring businesses, baby. Exactly. So Decibo, which is a company that's dual listed in the Canada, in the US, they reported a couple of weeks ago, but we had so many earnings going on than the whole FTX thing. So it felt like a good time to look back at these results because I know some of our listeners do own this. It is a smaller company here and I'll be talking in US dollars because they do report in US. Now they have a market cap slightly below 1 billion USD. Total revenues were up 37 to 37 million, 37% to 37 million. Subscription revenue

was also up 37% to 34 million. Annual recurring revenue was up 40% to 145 million. Gross margins were up 160 basis point to over 80%. So they did actually a pretty good job at cost control. The operating margins went up from 7% to 30%. Net income was up more than seven times to 10 million for the quarter. So not huge. It looks impressive, but it's not like they had a whole lot of net income. They've lost $765,000 on a free cash flow basis so far this year compared to $4.2 million for the same period last year. They increased their customer base by 23% to 3,245 customers. And the average contact value, so it's basically the annual recurring revenue divided by the amount of active customers, it increased 13%. So, I mean, at this point, you know, they are definitely profitable on an earnings basis.

But I would say, you know, you can probably say they're breakeven at this point. So it's just so close. I haven't used their products and it's a, I don't think I mentioned it, but it's a learning management system. So it's for companies that are looking to have some training done online for their employees. I've been with my past two employers. That's something they were putting a lot of emphasis in.

And especially right now with a lot of people still working from home, this is something that's very attractive for employers, especially as they want to keep their employees, make sure they are gaining more knowledge. It's seen a bit as a retention tool especially as they want to keep their employees make sure they are gaining more knowledge it's seen a bit as a retention tool and definitely something that it's a bit of a must-have now for a lot of employers it'll be interesting to keep an eye on they also have a net cash position of 213 million as of September 30th a lot to like here obviously they're working out of like a

pretty small base of revenues and overall but definitely a pretty good story and it's helped up pretty well compared to other growth names i would venture to say that it's because they're kind of you know flirting with profitability this is dual listed right you said that yeah dual listed i'm just looking up the name right now dcbo yeah the ticker's dcbo okay so so it trades at like, yeah, 10 times sales today? Yeah, a bit less than that. Yeah, I would say it's probably like seven and a half times sales, eight times sales. Okay, if you use this result.

Yeah. True, okay. Well, yeah, the term that people use is LMS. It's a learning management LMS enterprise software. And you're right. management, LMS, enterprise software. And you're right. I mean, this is needed for large companies to do onboarding and training and to just kind of have that all in one place. I wonder if that's something that gets cut pretty hard and really goes with employment as well, right? Like employment has to give at some point. That's literally the mandate from the Fed right now. And so that is

something to consider maybe on the short term. But I think long term, they've done an exceptional job. Once it's profitable, I think it'd be pretty interesting. They're still losing almost a billion in free cash. But sorry, sorry. You're still losing almost a million, a million. A billion would suck. Imagine losing a billion in free cash.

That would be terrible. Yeah, they're definitely just flirting with that profitability line. So it's definitely a name you want to see that, you know, those revenues keep increasing. I had a good clip and you just want them to, you know, be a little more profitable. I have been the king of typos today. Off by, you know, just a cool billion. Okay, so 765,000 free cash flow negative. But you said how much in cash? something 213 million in cash so they okay so their burn rate is like zero compared to the cash pile yeah okay

very interesting that's good one to keep watching i think yeah definitely i mean another company i'm probably asking i'll say is i've never used their software, but potential buyout target by some larger firms because it's so small. So they could give them just a really juicy premium if their software is really as sticky as it seems like. Yeah, agreed. Totally agreed. This could be tucked in really well for a lot of tech. Okay, Abercrombie & Fitch, ticker A&F. I don't think this stock's

been on the show before. Have you seen the Netflix documentary on them? I did. It's pretty scathing. It's not good. It is. They didn't throw a New York Times softball pitch up. I did watch it. And you know what's funny? Is there a big comeback happening? I think that it could be a big comeback happening for Abercrombie. Unfortunately, not the company, but just the segment of Abercrombie. on socials for women and styling fashion and outfits. And so, it's pretty cool. She'll make like some 15-second video. It's fast-paced. She shows her wearing like two to three different outfits now that it's getting cold with like her winter coat or something or whatever. And you know, women love it. I mean, it makes sense. Like people like consuming what they find interesting and what they're interested in. For me, it's like, you know, I can't say anything. I sit on the couch and watch seven hours of football on Sundays. So like,

you know, I literally, I can't say anything. By the way, brands send her so much clothes, man. Like we are small potatoes in terms of bringing in stuff for the sponsor. Hey, sponsors, send us some more stuff. And she makes like damn good money doing this as a side thing. Anyways, she's crushing it. And if you ever want any signal on the market, guys, Aritzia content does numbers. All right. Just a little piece of anecdotal evidence here. So naturally, she looks great all the time, great fashion. And then there's me, Simone. I look like homeless. I wear the same black t-shirt every weekend. like homeless. I wear the same black t-shirt every weekend. You know, I like my Lululemon stuff, but for the most part, like, you know, homeless, who's this homeless guy walking across the street. So I got to step up my game, right? I'm like, I really got to step up my game,

but I don't want to spend a lot of money because, you know, dirt and ramen, you know, dirt and ramen. And it's a bear market, man. We need the capital. So, where do I go, right? And I've been doing some research from hanging out at the mall, the place I absolutely hate. And Abercrombie, the guy's stuff, I was like, dude, this is nice. It's solid. I like the style and it's not expensive. And it got the real thumbs up from my girlfriend who likes style and clothes. I'm going to trust her opinion. And it got the real thumbs up from my girlfriend who likes style and clothes. I'm going to trust her opinion. And so they've really pivoted from that A&F across the front. You know those t-shirts? It's like A&F right across the front. No one wants to rep that anymore. So they've caught up with the times. Anyways, you keep me updated on how your new

podcast studio is going up. I'll keep you updated on how I'm not going to look homeless anymore. So basically, up until the past two years, this story has been pretty bad from a business perspective and certainly the stock. The stock is up 20% today because they beat estimates. Now, most of their segments are pretty brutal numbers. Net sales are down. But if you look at the Abercrombie brand sales, which is about half the business, it looks good. It's up more than 10% year over year. And it's really grown from 2019 numbers. Unfortunately, the Holden Co. owns Hollister, which you may as well call a melting ice cube in terms of net sales and brand power. That was popular when I was in grade four.

The stock has done virtually nothing since it went public, A&F, legit almost 30 years ago. This is a testament to screw investing in fashion because its stock chart looks like a graph of its relevance of being cool over the past 30 years. So all in all, this is not a stock I want to touch with a 10-foot pole right now. years. So all in all, this is not a stock I want to touch with a 10-foot pole right now, but I would not be shocked if in the... Call it when you see it. Within the next 12 months, if this stock does extremely well on a re-rate that investors are following the Abercrombie segment and rebrand success as a real turnaround, I do think it could re-rate the multiple fairly significantly over the next 12 months. This is not investment advice. Always do your

own research. That's just what I think could happen. Yeah. I mean, it could. I would not touch down with the 10. Oh, me neither. Look, don't hear what I'm not saying. I ain't investing in the stock. No, it's like I was looking at their chart as you were talking. It's literally a rollercoaster ride. It's literally a roller coaster ride. It just goes up, down, up, down, up, down. But, you know, over time kind of trends down. Have they paid a dividend? I don't know.

I think they cut it. I'll have one check. Historicals on Strato. Anyways, I'll finish with the last name here. You alluded to it. So Canadian Tire, they released their earnings. And I wanted to have a quick look. It was a couple of weeks ago.

And obviously, it's a predominantly Canadian name so it gives us a decent idea of what the the sales are looking like retail sales more specifically because obviously Canadian Tire sells a broad range of items they also have some subsidiaries like Sportcheck for example now revenues increase 8.1% to 4.2 billion and six percent if they're excluding their gas sales retail revenue was up 7.4 percent they do have a segment for like their financial services so if people are wondering why it's not lining up that would be why net income decreased 19.5 percent to 225 million earnings per share were down 21% to $3.14. The dividend will be increased by 6% to $1.725 per share that will be payable on March 1st. However, if you look back a little bit,

I mean, I'll hand it to them. Since December of 2021, their dividend will have increased 47 compared to the next payout that will be on march 1st actually i think they may have a payout in between but the date of records already passed but still to have a 47 increase in like essentially a year and change that's pretty impressive clearly if you're a canadian tire shareholder or you're interested in this business like you mentioned earlier I mean you're really betting on Canada here they don't really have much of a presence elsewhere maybe some of their brands I know they they bought can't remember like a clothing brand they might sell a little bit in the U.S. but for the most part very Canada dependent so to what you said I think immigration will probably play part in the the US, but for the most part, very Canada dependent. So to what you said, I think immigration

will probably play part in the story here, but the rest of it will be, hopefully they keep returning a lot of capital to shareholders and clearly, you know, they're doing it by dividend, at least for the time being. Yeah. You see their capital allocation strategy. The dividend has been growing extremely fast. And so as they should, I mean, it's a mature company. Store openings is not, you know, a huge possibility, you know, I mean, yeah, the population is growing, but how many more Canadian tires can they really build? You know, that number is limited for sure. Unless they want to try the old, hey, we're a Canadian brand, let's break into the US and then fail miserably every time. Yeah, no major comments from me. What's up?

Yeah, it was just like it happened to look. So, with the increase, they're yielding like 4.7%. Wow. Yeah, it's pretty... I mean, I don't think it's like anything bad per se. I think they've just been increasing the dividends so quickly. Look, I don't think it's a bad business. Like I just said, I just think, you know, there's just limited growth opportunities. But, you know, if you like dividends, I guess that's not a bad play for that. Yeah. I mean, they pay out a pretty significant amount of free cash to it, right?

I haven't looked at the payout ratio, but yeah, that would make sense. Yeah. Yeah. I mean, cash to it, right? I haven't looked at the payout ratio, but yeah, that would make sense. Yeah. Yeah. I mean, as they should, right? Like it's, they don't have a lot of other options. That's why I don't want to touch the stock. Yeah.

Yeah, exactly. And they'll probably do both. All right. That does it for today's show. Just, you know, just because I was curious, I checked it out. Abercrombie did stop paying their dividend in 2020. Probably not to anyone's real surprise there. So you're hearing this, this episode comes out on Thursday, the 24th. The 29th, stratosphere.io launches our new platform.

If you sign up before the 29th to any paid plan, including the middle tier, like the personal plan, I'm going to automatically give you the pro plan on the 29th on the new platform for the same price. I'm not going to change your price. You get locked in indefinitely on a legacy plan that you're going to be on if you sign up before the 29th. And dude, it's nice. It's nice. You've tried it. It's slick. You're going to like it. So that is on the 29th, you sign up to any paid plan. Now you're going to be locked in because the pro plan, we're moving to $300 US per month. And so, you know, you don't want to pay that. So... Yeah. No, I did try it. It's very smooth, way smoother, a lot of functionality.

pay that so yeah no i did try it it's very smooth way smoother a lot of functionality i do like the feature i think i texted you about that just a historical dividend payment because that yeah yeah that was always kind of like you know something that annoyed me for you know a bunch of sites is just you know you have to even sometimes it's hard to find it on the ir page and then nasdaq does a decent job for the nasdaq listed stocks but it's hard to find it on the IR page and then NASDAQ does a decent job for the NASDAQ listed stocks, but it's never consistent, right? So, it's kind of nice to have it all in one place. Most sites don't show currency, which is relevant for Canadian investors because some TSX names pay in USD, right?

I don't know what you did for the code, but it's a hell of super smooth. Yeah, dude, it's so much faster. Oh, I'm very proud of it. So go do that. Go check out stricer.io. And then before Tuesday the 29th, if you're going to sign up for a paid plan or at least just try it out for a month,

you're going to want to do it before then. Thank you so much for listening. We appreciate you guys and we appreciate all the support at join tci.com. That is the Patreon to support the show and see our portfolio updates for our own capital every single month. We will see you in a few days. We appreciate you very, very much. Take care. Bye bye. The Canadian investor podcast should not be taken as investment or financial advice.

Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.