The Canadian Investor - BCE Sells a Prime Asset and FedEx’s Bearish Guidance

Episode Date: September 26, 2024

In this episode, we dive into BCE's surprising decision to sell its 37.5% stake in MLSE to Rogers, giving Rogers a dominant position in sports ownership.  We break down why Simon thinks this is a missed opportunity for BCE and how they could have avoided it by cutting their dividend to manage debt and overall leverage.  We also discuss the U.S. Federal Reserve's 50 bps rate cut, what it might mean for the markets and the future of interest rates in the US. We then analyze FedEx's most recent earnings and what it’s potentially telling us about the current state of the global economy. Finally, we touch on the upcoming vote in A&W's merger, a deal that could unlock significant growth for the fast-food chain.    Tickers of Stocks & ETF discussed: BCE.TO, FDX, AW-UN.TO 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 Dan’s Twitter: @stocktrades_ca 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  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. 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

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before we get started? Pretty good. It's crazy weather here right now. It was like one degree a few days ago and now it's going to be 29 today. Oh, okay. Yeah, it's hard to handle. But yeah, that's Canada for you. Alberta, Septembers. Yeah, we've been lucky in Ottawa, I'll be honest. I think probably the most bigger part of Ontario, Montreal too. No, definitely some nice weather. So I've been enjoying that before it gets. We have to go into our cocoon during the winter and then start enjoying. I guess the good thing is hockey is starting soon. So for all the hockey fans, I think a couple of weeks, right?

Regular season. So yeah, it's coming out quickly. But we have a lot on the slate. So we will shift back to the investing part. So the first big piece of news last week is that BC and Rogers announced that BC would be selling its MLSC stake to Rogers Communications. So the news came out last week that BCA was selling its 37.5% stake in MLSC to Rogers. This will bring the Rogers stake at 75% with the remaining 20% being owned by Larry Tannenbaum. VIA is holding company called Kilmer Sports. And the remaining 5% is actually owned by OMERS. So the Ontario Municipal Pension Plan, it's owned via Kilmer Sports as well.

So some big news there. And for those who are not sure in terms of, you know, what is MLSC? So if you're not into sports like all that, you know, you may be wondering a little bit what MLSC is. And for JoinTCIA viewers and subscribers, you'll see on my screen, I'm just showing just kind of an image that's on a MLSC site. So it's the Toronto Maple Leafs, the Raptors, the MLS franchise. So Toronto FC, there's the Argonauts, the Marlies, the Raptors 905. What is that? I don't know.

Yeah, so there's a few I'm not super familiar with, but regardless, I mean, it's definitely, I think there might be maybe the minors for the Raptors. I'm not like quite sure, but yeah. They're affiliated with the Raptors. Yeah. That's it. I mean, the big three, I would say is the Toronto Maple Leafs, the Raptors, The big three, I would say, is the Toronto Maple Leafs, the Raptors, and I think Toronto FC is starting to get pretty big too, the MLS in Canada. These are very valuable franchises, so it is something to take note. The reason that BC said it would sell, well, the stake is that it would use the proceeds to reduce debt levels, which in itself, I think, is not necessarily a bad thing because Bell has a whole lot of debt. BC has a whole lot of debt. It was close. I think his net

debt is around $39 billion, but it's debt without factoring the cash is closing in on $40 billion. So those are the big headlines. Before I get going, Dan, you want to chime in a little bit? Yeah, I was actually, I'm trying to dig up just the revenues of most of these franchises. As we talk about it, I'll look up some more and see. But yeah, I mean, they're huge, huge franchises. I mean, the Maple Leafs are the most valuable franchise in hockey. I think they're close to the Rangers, I believe, and the Canadians are up there too. to the Rangers, I believe, and the Canadiens are up there too.

But these franchises tend to just go up in value. I mean, they don't produce a whole ton of cash flows, as we'll mention, but they do tend to just go up in value. And I think this is one of BCE's best non-core assets that they ultimately had to just sell off because of some mismanagement, in my opinion. There's a lot of differing opinions on this. Yeah. A lot of people don't like it because, you know, Rogers is already in a ton of debt.

I believe Rogers, because of the Shaw acquisition, is in like the worst debt situation out of any of the major telecoms. So I don't think a lot of people don't like the fact that they, you know, went out and spent this type of money. But yeah, there's a lot of mixed opinions on it for sure. Yeah. And Rogers did say it won't affect its debt leverage ratio. So we'll have to see. They said it will include some private investors. So not quite sure how they'll make that work. There might be some more details coming out. My view is that this is not a great move by VC management. And I'll elaborate a little bit on that. So first of all, I think these are great assets, whether you, you know, you like sports or not. limited number of sports franchises, especially when you're talking about the big four in North

America. So the NHL, MLB, NFL, and NBA. And then obviously, if you include like, you know, internationally, obviously, there's some very extremely valuable, you know, soccer or, you know, European football franchises probably, actually, probably like it's the NHL franchises are dwarfed by those in terms of value because they're kind of a global brand. But having said that, just to give people an idea here is that there tends to not be big increases in the amount of teams. These are essentially not, I would say, oligopolys, but they're definitely, like, limited, right? The NHL controls how many teams there will be. So just to give people an idea, and there were 30 NHL teams in 2000, there are now 32. And there were 29 NBA teams in 2000, there are now 30. And if you factor into, like you said,

the Maple Leafs are extremely valuable when you're looking at an NHL franchise. And like, you know, when you think about NHL franchises, especially in Canada, I think there's the Maple Leaf and Canadians that kind of stand apart because they end up having like massive amounts of fans throughout Canada, right? Like they'll visit and even in the US, they'll visit different cities and you'll typically see tons of jerseys for the Canadians or Maple Leafs, but the Maple Leafs are likely a bit more valuable also because just the GTA, right? It's just such a massive population compared to, you know, the Montreal Canadiens, a bit smaller. But I think those two stand aside.

And then if you look at the NBA, the Raptors, I mean, it's a lone Canadian team. I know I've seen talks, I think in the past year, there might be another team coming back to Vancouver. And who knows in the future, if there would be one in Montreal, who knows. But I think that would kind of be limited. Like I think, realistically, those are probably just the two other cities that could have enough population to support an NBA team and the economics behind it. But until then, I mean, they are Canada's team, whether people like that or not, whether they want to get on board or not. So that's where I have a bit of an issue. And then obviously, you need to have financial capabilities to be able to purchase like a sports team, especially the big four in North America. But when I look this up,

there's over 1000 billionaires in North America alone. And then when you factor in corporation, you factor in pension plans, institutions, you know, the number of potential buyers is much greater than the supply. Granted, obviously, not all of them would be interested in these type of franchises, but just goes to show you that there is definitely some scarcity when it comes to that. And barring, I would say, kind of a Great Depression type of environment, I think these franchises will probably, at the very least, keep the value, but likely go up in value over time. And where I have some issues with it, too, is that, you know, Bell could have reduced its with it too is that Bell could have reduced its leverage, its debt in the last couple of years by simply reducing its dividend, by cutting the dividend. I mean, they're paying currently $3.7

billion in common and preferred share dividends per year, which is more than the free cash flow they are generating. They could have cut that by $2 billion, still pay a dividend that would yield around current prices around 4%, which is not bad at all. So they could have done that and use essentially $2 billion a year and reduce the debt. Obviously, it would take some time, but just with this sell, if it goes through, because it still has to go through regulatory approval, which is no guarantee because Rogers also controls the blue jays and sports nets and all of that around it so it's no guarantee but even with that i think i calculated roughly

that they'll just say save like a couple of hundred million a year in terms of his interest expense because i think they're um they're current and I'm just going on memory here, I think their average interest rate on their debt is about 4.5% currently. So I think that's the average interest. So rough math, I think they're going to save about $150-200 million. So that probably means that they'll still be paying around $1.4 billion, $1.3-1.4 billion in interest payments every year. And that's based on their current run rate with their latest quarter, which puts them at about $1.6 billion per year in terms of interest payment. So, I mean, it does reduce the debt. They have been downgraded by two credit rating agencies in the last month. And I think one of the reasons was

that they're extremely leveraged. The growth is slowing for BCE and they haven't seen concrete action. So it's possible management just decided to do this to show that they're doing something concrete. But to me, at some point, you know, if you want to do this, you should also think about reducing or cutting, well, reducing or cutting your dividend. I think it's a no brainer. This management team, I've been very critical, but I think they're just too focused on the short term. I'm assuming their incentives are aligned with, you know, keeping the dividend pretty high. I'm sure they have a fair amount of shares that are getting some extra income with that. By the end of the day, if you had a long term vision, that's what you do. I know I had some pushback on Twitter with my thoughts um but it's funny that most

people that are pushing back on it clearly have no idea of how bad the financial situation is for bc i don't think they understand the financials how many interest they're paying how much that the dividend is not being covered by free cash flow just by the comments because it tends to be well you know i bought it at this price and was paying like an eight and a half, nine percent dividend. OK, like good. I guess that's good if they don't cut the dividend. Yeah, exactly. Yeah. So I just think they could have taken other measures to avoid that. But now they've waited too long to reduce their debt. And it was probably in their view, one of the only assets that they

could sell that would gather quite a nice profit. And it looks like it will. Yeah, I think that was it. I guess you can't really blame them for doing it, but that doesn't necessarily make it the right decision. They're pretty much being forced to do it because they mismanaged the balance sheet for two plus years, got into a complete mess, and now they have to dump what I would feel is a pretty good asset. Like if we look to, I just looked at like, say the Maple Leafs are the easiest team to find data on. But I mean, you'd look at the top four revenue generators in the NHL. You have the Edmonton Oilers, the Toronto Maple Leafs, the Kings and the Canadians with the Oilers and Leafs being the top. Then you look at operating income. I mean, the Maple Leafs have a 6% compound annual growth

rate on operating income since 2004. So you're looking at a 6% compound growth rate over the course of 20 years. And then you think of the value of the franchises as well. That is just a brand value. It's never really going to decrease. I mean, a lot of people say tickets are getting too expensive, which is true. Like many normal middle class people can't even afford to go to a hockey game anymore. But the Maple Leafs do have some of the highest corporate ownership in the league. And those corporations will pay whatever to get the season's tickets. the maple leafs do have some of the highest corporate ownership in the league and those corporations will pay whatever to get you know the season's tickets you could raise them 20 30

they just cough over the money to get into the building yeah so i mean like i was looking at because there was a lot of things you know like recessionary wise and i look back at the maple leafs attendance i mean you look at the dot-com bubble, the 2008 financial crisis, like any case that building was fully sold out, not barely an open seat the whole time. So, I mean, I just think like they're being forced to sell one of their best assets just to, you know, kind of make up for some multiple years of mismanagement when they could have just, if you think about it as an investor, would you rather own this asset and they cut the dividend or just be paid that dividend and they cut this like it just seems like such a i would rather own something like this i mean you're looking they bought it for i think it was 1.5 billion or 1.4 billion in 2010 or 2011 i mean they've tripled their money on it

over the last 14 years or so who's to say that it doesn't you know grow that much in the next 14 years yeah and to bells defend to bc and obviously i use both interchangeably but uh so to bc's defend they did secure kind of uh the broadcasting rights for uh they have some long-term agreements yeah in place um with i think i guess mlsc or rogers as part of that. So that is good because they still own, for example, a TSN, right? So they still own that. So I think that's good from that standpoint. But their leverage ratio from a net debt to EBITDA ratio. So EBITDA, for newer listeners, it's essentially just earnings before interest,

taxes, depreciation, and amortization. I think it's a fair profitability metric for a company that would have a lot of depreciation like Bell. So you kind of zero that out because it's a non-cash item. And even with the sell, that ratio will be going from 4.2 to 3.7. And for context, that only brings it back to 2022 levels and hasn't been under three since before the pandemic. So they're not out of the woods here. And, you know, a dividend cut is still a very real possibility, in my opinion, in the next couple of years. I think it's probably delayed

that because without this, one of my bold predictions and maybe I'll still do it for 2025 is that Bell will cut its dividend. But now I think it's less likely of happening in the near term. But I think there's still decent odds that it happens the next two, three years, for example, because the business is stagnating a little bit. And obviously, with the federal government kind of tightening immigration as well, you don't have as many new potential customers. There's still some pretty aggressive pricing from like a Freedom Mobile, Videotron as well, that are, you know, they bought that brand. So it'll be interesting how it goes, but there's still some pretty aggressive pricing going on.

So we'll have to see. I mean, I do urge people, if you do own BC and you don't agree with us, that's fine, but please understand their financials because it's very very important understand the financials because what management is saying i found in those calls it doesn't really line up with what the financial they're actually saying no i mean they've held like bc has held a 3x uh leverage ratio like the the debt to ebitda for a very long time or actually it was 2.5X.

And then like when they couldn't hit the targets, they just bumped them up. They kind of realized they can't hit their debt targets. So they just bumped it. I think we talked about this. And then the other target, I can't remember what the target was, but it was a debt target that they couldn't achieve. So they just cut it out of their guidance. They just said they weren't going to issue it anymore. So I mean's they're they're struggling right now this i would say that this sale does probably save the dividend even though like debt repayment like they've issued i think i looked it was six billion dollars in debt this year alone so like the sale doesn't even cover the debt issuances this year and they've been talking about like kind of shoring up the balance sheet and you know reducing those debt levels for like 18 months now i mean this this sale doesn't even get them back to

you know 2023 levels of debt so i mean it's yeah i don't think it's a good thing but who knows maybe rogers buys it and and you know it's stagnant for the next decade you never know i mean it could be a bad deal for rogers as well it's kind of up in the air right now. I personally right now think Rodgers will come out of this ahead. Yeah, that's what I would have to bet too. But Rodgers is not without their issues. So don't take with what I'm saying. And I think what you're saying that, you know,

Rodgers is a great business per se. Like that's not what we're saying. I think some people on Twitter thought I was implying that. No, I would not touch Rodgers with a 10 think some people on Twitter thought I was implying that. No, I would not touch Roger with a 10-foot pole either, but that's beside the point. 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income.

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Telegraph, they cut by zero point, well, 50 basis points. So now the Fed's fund rate is between 475 and 5%. I think a lot of people were thinking 25 basis point, but it was funny. I don't know if you read it or you saw some people comment on it. But so the way it works, there's like a blackout period

for all FOMC members. So those are the people that will decide and Jerome Powell is the chair that will decide, you know, what the policy rate will be. And usually I think it's about 10 days, there's a blackout where they can't talk to the media. And I guess before the blackout, their discourse was more like, okay, more like, you know, most people were thinking 25 basis point, I think the odds, the CME Fed watch tool was around like two thirds of a chance for 25 versus a third for 50. And I guess the Fed doesn't like to take the markets by surprise. So a few days before the Fed announcement, Nick Timoreos, and I'm probably butchering his name a little bit, but he's a writer for the Wall Street Journal. And he's also known as the Fed whisperer.

He came out with this article basically saying that the Fed, you know, was likely considering a 50 basis points as well. And it's very obvious that there was some information leaked and they kind of, you know, told them like, you know, can you write basically an article just to prepare the markets? It's been out there quite a bit, but I wanted to mention that because that was pretty interesting hilarious yeah have you have you ever heard of him i've heard him on a few podcasts and i've i try to read most of his articles just because i know he's so well connected i mean it makes complete sense if you don't want to surprise the markets that you have somebody who's uh you know able to relay some uh yeah yeah exactly yeah yeah it's so funny though how that works but regardless so the key word here was kind of recalibration so that was kind of the buzzword he was using during

he used it multiple time they said powell said that inflation is eased significantly i mean he's not wrong the headline cpi in august was 2.5 percent versus nine percent in the mid-2000s they did mention that the labor market has cooled with job gains slowing. There was also that big revision that happened. I'm sure they took that into account. The unemployment rate did rise a little bit in the past few months as well in the U.S. You emphasize that the labor market is still in solid condition and they want to keep it there. So they were really pushing kind of the soft landing narrative, meaning that they're trying to, you know, cool down inflation,

but make sure that the economy doesn't go into recession or, you know, does it slow down too much? One of the things he said, the GDP is growing at an annual rise rate of 2.2 percent the first half of the year and they expect it to be around 2% for the rest of the year. So a decent growth. They're saying that it's moving towards a more neutral policy stance, reflecting the reduced inflation risk and balanced outlook for employment. In short, the Fed has two mandates. It's maximum employment. It's also controlling inflation. So what they were saying now is saying that, well, they're looking at both things, whereas prior to that, they were more focused on getting inflation down. It was a very interesting

press conference. I've seen some suggest that a 50 basis point show that the Fed is panicking and they are afraid of a severe economic downturn. And they would point out, I believe it was the dot-com bubble. They did a 50 basis point first cut. I think it was also the financial crisis. They had that and then obviously 2020 with COVID. But Powell did mention that if they had the job data for July a few days earlier, so their last meeting was just a few days before the July employment data was released, that they would have likely considered a 25 basis point dent, meaning that maybe they would have only done 25 at this meeting if they had already cut. So I don't know which answer it is. Maybe they are

panicking and there is an issue that they're seeing. I mean, history just show that the Fed and central banks tend to be reactive. They say they're data driven. But at the end of the day, a lot of the data they look at is lagging. The employment data that comes out, it's done through surveys and notoriously gets revised. And it's been revised downwards pretty much for quite some time now. So it is something that, you know, weren't noting that the revisions are not upwards, they're actually downwards. So it'll be interesting where it goes. But clearly,

that's something the markets was really hanging on to. And with the press conference now, and what he said, I think the market will be paying very close attention to all the employment numbers that are released between now and their next meeting, which is right after the election. Yeah, I mean, all good points. The one thing that I have noticed a lot, and you kind of mentioned it, how they're panicking, things like that, the amount of click-driven content that's coming out as of late just because like of what has happened when the fed has cut rates by 50 basis points like there's been if you take out the covid pandemic which went from like you know they didn't i was there a time when they cut 50 basis points during covid or did they just go like right down to i think they cut the first cut was 50 and then they did others but i'm just

going on memory yeah i can't remember there yeah she went down fast but i mean i i kind of like isolated that one out i didn't really count it but if you know one yeah it was it was kind of a isolated scenario but if you look to like the last two times uh since you know in the last 30 some years that they've cut 50 basis points so they dropped it by 50 basis points in December of 2000. The next two years, the S&P 500 lost 30%. They dropped rates by 50 basis points in August of 2007. The next two years, the S&P 500 would pretty much lose 30%, lost 29%. So I mean, a lot of people are kind of, you know, like pointing, oh, well, look what happened the

last time the Fed dropped 50 basis points, things like but i mean two events are not even remotely close to a sample size where you could ever come to any sort of conclusion and i mean there was a lot of different you know the 2008 financial crisis is a lot different of a scenario than we're in right now so i mean you're gonna see a lot of this type of stuff about you know how the cuts are you know the market usually tanks after the cuts which i mean it could there's no predicting what could happen i mean it could it could not i think you know it all depends on you know the economy right now whether they achieve that soft landing or whether uh they are reactive right now and and the data gets worse and worse and worse

but uh yeah and i i think that's why like i know we have kind of a bit different philosophies and you know you me and brayden when it comes to that my personal view is i'm hedging a little bit but i'm not selling everything i think you have to be careful you know i'm sure there's some people that will like kind of see this kind of stuff and they'll say, OK, I'm just going to sell a good. Oh, I'm going to put everything in cash and just wait until the market correction. Well, I mean, you know, markets could go up another 15, 20 percent from there and then correct 30 percent. But you you know, who knows what will happen or it could go another up like 30, 40 percent, then correct 20. Like you still lost out on some gains.

So you have to, you know, I think you can rebalance a bit, but you have to. The way I see it is I just try to hedge my portfolio in a way that it should perform well in a variety of outcomes. So that's how I approach things. But if you're fully in equities, that's fine. But just be prepared that, you know, if there is a correction, it could be, you know, it could be significant. We haven't seen one for quite some time. I mean, it was pretty much what, like, the last really real downturn was COVID, and that lasted, what, like a month, basically? Yeah, I would say the correction.

Maybe 2022, like a little bit. 2022 was pretty bad, and then there was another one in 2018. End of 2018 was pretty nasty and then uh yeah it's it's been but again these are not like these are not like 40 50 percent corrections either right like which is not impossible um but i think you know i like to think in probabilities and just place that accordingly and i guess the last thing i'll say is the cme fedWatchJewel, anyone interested, just Google it. You'll be able to see the probabilities based on options.

It's the Chicago Mercantile Exchange, so it's the options exchange in the U.S. And I guess it's almost a 50-50 chance at this point that they go 25 or another 50 basis point cut in the November meeting. And then essentially it's close to like you're looking at uh the market is pricing it a 50 chance that they'll be down another like total 100 basis points by the end of the year so it's uh yeah i wouldn't know i'm really curious as to where canada ends up i mean will they go 50 50 i hope so i got to

renew my mortgage in a year and a half here yeah me too like well not even so for me it's in mace i'm like well again it all depends right if you're looking at more variable rate you'll see the impacts of that so variable could become very attractive because yeah it is um you know dependent on you know the overnight rate in canada but if you're looking at the five-year fixed, who knows? It's not any guarantee when you're looking at fixed that longer duration bonds will go down accordingly. That's based on the bond market. And I think that's important because the five-year bond actually dropped quite a bit before the Bank of Canada actually started cutting. So keep that in mind.

Same thing for the U.S US 10-year, for example. So the bond market tends to be a bit more proactive. And we've talked about it, I think, on the last episode. But if the market starts getting worried about inflation picking back up, then you'll probably see those yields on the 5 and 10-year start picking back up because then they're anticipating the central banks to start raising their rates to tackle inflation. Yeah. The, you know, dropping rates by no means guarantees lower fixed rate mortgages. I mean, variable rate, obviously it helps, but it seems to me right now, like they're pricing, like the price of variable rate mortgages, like at least from what I've seen, doesn't really offset,

you know, most variables you're sitting at like high 5% range. Whereas, you know, there's some fixed rate mortgages for like 4.25 right now. So you need some pretty steep cuts to ever make that work. Yeah. To make it work and pretty quickly too. So the calculation, right, is always, are they going to cut the variable fast enough and low enough to make up for the time that you're paying more than you would be on a fix. So, that's a calculation. No one knows. That's why fixed mortgages, the main, like, the biggest advantage is they give you certainty. Yeah. So, if you want certainty, you know, you may not end up being, you know, may not end up being the best move in terms of the best return on your money

at the end of the day, but it gives you certainty. It may end up being still the best move depending on what the bank does, so the central bank. But I think that's about it. I think we've talked enough about the Fed. 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot

of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So do you want to go, let's do the A&W merger vote coming up, and then we'll talk about FedEx, because I feel like I led the first two segments, and I need to blow my nose for a minute. Yeah. Yeah, so this merger actually happened like a few months ago, but the vote is coming up in a few weeks. There's almost like zero question.

It's going to pass. This is going to be approved just because of, you know, there's a ton of insider ownership with A&W, and they have strongly, you know, backed this deal. But yeah, I'm actually surprised we never chatted about this because it's a pretty notable deal. So, I mean, A&W is, at this point in time, like when you buy, it's a publicly traded company on the TSX, but it's actually a royalty company.

So it's a top line royalty company. So what this means is you as a buyer, you wouldn't have any exposure to the actual restaurant end of the business. So if we take a company like Restaurant Brands International, they own Tim Hortons, Burger King, all that type of stuff. You have exposure to the operating expenses of the restaurants, the profits of the restaurants, all of that. But with the A&W royalty, what you actually did, so what this company would do is they would license the trademarks to the restaurants who could then sell the A&W. They could use the A&W trademark, sell the food, all that type of stuff.

And they would have to pay a 3% royalty back to A&W royalty. And then from there, A&W royalty would pay off all his expenses, taxes, all that kind of stuff. And then the remainder would be distributed to shareholders. So it was typically, it was kind of looked at as a very risk averse way for investors to get exposure to the restaurants

without having to take on all the added risks of running the restaurants. It was a high yielder, monthly yield. And in a way, no matter how poor the bottom line, the royalty only benefited from an increase in sales. So this is all due to end in October. The companies are looking to merge. So actually, the royalty would license the trademarks to A&W Food Services, which would essentially operate the restaurant. So they're going to combine those two, and they're going to create a publicly traded stock that is similar to Restaurant Brands International. that is similar to Restaurant Brands International. So you're now going to have exposure to the entire operation and profits of the underlying restaurants.

So this is a stock I actually held as a royalty. I was pretty happy about this. I mean, the stock was trading at around 27 bucks per share. And the deal for shareholders is $37 in terms of cash or shares in the new corporation. And a lot of people might think there's a bit of an arbitrage opportunity here as the stock is only trading at $34.50, but it's a bit complex right now. I'm not even exactly sure how it's going to work, but they only have allotted a particular amount of cash set aside for this deal so if all the cash

is taken up like if a lot of investors choose to opt in for cash you might be forced to take shares once all the cash is gone so i mean that might that might be why there's like a little gap in terms of why it's not trading at that 37 dollar range. I wouldn't buy this at $34.50 thinking, you know, because it's supposed to close in October. So, you know, in theory, you could buy it at $34.50 today and maybe make $2.50 a share by October. But I don't think it's a guarantee. So I think that's why it's trading at a bit of a discount. And I do think that the new corporation is definitely going to be interesting. I think it unlocks a lot more potential growth for those who want exposure to it.

I mean, the royalty company was a very niche investment. I mean, you had to be somebody who really didn't want to take on very much risk, primarily looking for income. But now, you know, you get exposure to A&W. And A&W, a lot of people might not know this, but A&W is pretty much the fastest growing burger chain in Canada. It's growing at a faster rate than McDonald's, Burger King, Wendy's in Canada. I don't know much about the US. I know like A&W is generally a complete dead business in the US. I know they do have restaurants, but they're like nowhere near the popularity up here.

I don't know why it is a US founded business, but for some reason it's just taken off massively here in Canada, but in the US, it's kind of a, it's a no-go for the most part. It comes nowhere near close in terms of annual sales or store counts than, you know, like McDonald's, Burger King, Wendy's, stuff like that. But it has the fastest levels of store growth

and it has the fastest levels of overall sales growth and i think that's like primarily you know the company's marketing strategy heavily towards gen z and millennials with the things like that you know the grass-fed beef the no hormones no antibodies like all that type of stuff they kind of you know their restaurants are more like a sit-down type thing which i guess like mcdonald's and stuff are kind of going towards that you know they're kind of ramping up the insides of their restaurants but i mean a and w just kind of has a different feel to it in terms of all that type of stuff and whether or not you like believe in all that kind of like that style of marketing i mean they're marketing to you know gen c and millennials who do make up the largest portion of the population at this point in time and continue to grow.

For the new corporation, they expect 3% to 5% annual same-store sales growth through 2027. And they expect around 2% to 2.5% annual store openings over that timeframe, which would be, I mean, if they hit the top end of guidance, that would be a faster growth rate than Restaurant Brands International. And I mean, if you isolate out the pandemic years, so A&W kind of struggled during the pandemic, but every single quick service restaurant did. If we take COVID out of the picture, they had posted 20 consecutive years of consecutive sales growth and restaurant growth. And it's been a pretty impressive company and I'm pretty interested to see how the new corporation operates. I think this is a good move. I think people will be much more interested in owning the entire business rather than the royalty. Yeah. Yeah. I'll probably switch from retirees to non-retired investors. Yeah, exactly.

So quick question for you you what's your favorite meal what's your go-to when you go there at a and w the matzo burger matzo burger with onion rings yeah or that like nashville the chicken sandwich they got there is very good but it is like it's they have to have very strong marketing because their prices are ridiculous yeah they've gone up yeah i mean we were talking before we started recording, like I don't go very often. Usually, you know, for I think it's only in Ontario, but we have like the en-routes.

If you go on the kind of 416, 401 on your way to Toronto. So there's a few that have A&Ws and my go-to is usually onion rings which people who know me will find that funny because i'm not i really don't like onions typically but for whatever reason i like their onion rings so that's usually the go-to but yeah the prices i when you were saying they're definitely not cheap but i think you know their marketing's working pretty well i mean the impression i get for someone who doesn't go there very often it's like almost a slightly more upscale mcdonald's is kind of the way i would see it yeah i mean the quality is like when you look at the quality of a and w and mcdonald's it's not even comparable i mean in my opinion the quality is much better at a place like a and w but the

one thing is as well as you had mentioned they don't have a lot of exposure in Eastern Canada. So I think they have like 1,100 stores, and I think over half of them are in Western Canada. So, I mean, you've got half your stores located in areas where there's not very much population. So, I mean, any sort of expansion into Eastern Canada, I mean, you're tapping into Ontario, Quebec, things like that. to eastern Canada I mean you're tapping into you know Ontario Quebec things like that I mean there's there's lots of potential for growth whereas you know like restaurant brands is more that blue chip play you know especially like on their burger element like Burger King does not do very well it hasn't done very well for a long time so I mean for somebody who's looking for something like this the the new corporation should be uh should be pretty interesting for sure the one thing I'll say though there's probably gonna be a lot of people who this applies to,

is for some reason, Well Simple Trade is going to charge me $50 to process the transaction, regardless of what I choose. Which I don't understand. I've known a few people who are with RBC Direct or TD. They're not getting charged. But Wealthsimple, for some reason, regardless of whether I choose cash or the new corporation, I'm getting charged $50, which is kind of an anger. It's probably a way for them to get revenues, right? Because they do what?

No fee trades? Yeah. There's no commissions. Yeah, exactly. right because they do what no fee trade yeah so there's no commissions probably yeah yeah exactly so they probably have to find little ways to get additional revenues and they probably they must do they must have fees on options too huh typically yeah yeah yeah so yeah and their their prices for options are ridiculously high yeah so it's probably just a way for them to get additional revenue at the end of the day,

right? The other platforms you pay some, you have some trading fees, so they can probably afford to not do that and just kind of not charge that extra fee. But no, that's a good breakdown. I mean, I knew of them in terms of being a royalty fund, but I think that was definitely a delightful for me because I never really looked into them all that much because of that reason. Definitely, yeah. Enlightened for me because I never really looked into them all that much because of that reason. Yeah, it's a great business. I'm actually glad that they're not doing the whole high-income retiree royalty structure.

And it'll be interesting to see how it grows. I mean, Restaurant Brands International is killing it right now for sure. So we'll see if A&W follows suit. Okay, yeah. And now we'll move on to our next segment we had the u.s fund flows uh prepared for the etfs but i don't think i think we'll run out of time so that's okay we'll keep it for next week because it is kind of slow for the um the earnings season so it's not bad to to have some extra things to talk about so the last thing i'll talk about here is fedex earnings now fedex is a really

interesting company because it is a bellwether stock gives you a good idea on how the economy is going because obviously of all the goods that are being shipped by fedex so it was not a good quarter i think the stock was down like 15 on the day uh got completely uh yeah it wasn't a good day they missed estimates by a mile. Like usually, you know, small misses here and there, but they missed by a mile. I'll raise you a lowering the guidance as well. So that's the other reason. So the revenues were down 0.5% to $21.6 billion for the quarter.

Operating margins were also down 168 basis point net income was down 32 percent to 790 million now obviously the results like we just mentioned were not great they're now expecting revenues to grow in the low single digits for fiscal year 2025 their fiscal year's a bit it's not the calendar year obviously so this was q1 2025 previously saying that it would be in the low to mid single digits now it's going to be just low single digits so i wouldn't be surprised if we see revenues even being flat although they did not guide for that but that all depends how the economy is trending going forward and if uh you know jay powell and his 50 basis point cut is any indication it it could be not so good.

So we'll have to see with the holiday quarter coming up as well. They also reduced the top end of their earnings per share guidance. And on the call, they said that the demand was weaker than expected, especially for the U.S. domestic market. The weakness in industrial economic led to pressure for business to business volume. So B2B, particularly in the US, but also in Europe. Overall, it's clear that the near term challenges for FedEx are there, but the management team said longer term, there will be some improved profitability led by their current cost reduction initiatives. So they seem really confident about

the long term, although, you know, it's hard to say at this point. I think, you know, if you're interested in macro, you listen to different economists, different, even like fund investment managers that would be managing their own funds. I think that generally, for the most part, there's a lot of uncertainty. I mean, you can listen to 10 different economists, for example, and you'll probably get like 10 different outlooks, 10 different variations. So it is a bit hard right now. Just there's so many different things that are going on to see where the economy is going. And what I'm sharing here for a joint TCI subscriber is it compares the US revenue and international revenue.

And what's clear without looking at the number, you can just see the bar charts. But really, in the last two years, in the trailing 12 months, you can see kind of the revenues for both the US but also internationally that have essentially peaked. And they've been going down a bit. Yeah. So I think that's an indication. Obviously, there was a big tailwind with the pandemic, but now I think it's an indication that things are slowing down and consumer, but also like they said, businesses are cutting down. And they also mentioned that businesses are selecting cheaper options as well.

So they're selecting things that take a bit more time for a slower cost versus kind of the express overnight type of option yeah and this company like i would imagine it wouldn't be impacted like say like the business to business type stuff but i know like i would be terrified of somebody like amazon like in terms of like home package deliveries like i know i believe it was in 2021 or 2022 amazon became the largest uh home delivery like package distributor in the united states and i'm in you know they've spent so much money like i'm pretty sure it's got to be in the hundreds of billions expanding like their infrastructure network and and like i would just the competition there from from amazon which it doesn't seem like anybody's gonna be able to stop them would kind of make me worried

if i was if i was fedex from like uh i guess you could say a retail side of things whereas amazon really wouldn't have anything to do with like the the business delivery or anything like that but yeah i'm kind of wondering if this is a combo of the slowdown, but also of Amazon, you know, stealing market share. Yeah. I mean, that's a good point. I mean, we can also have a quick look on how UPS is doing because obviously UPS, it's going to be a bit similar here. And I'm just looking at their US and international. So UPS, I mean, pretty much identical. Yeah, I mean, you Yeah, if I didn't show you the name, I think you'd realize that it's almost the exact same kind of chart. So same kind of thing kind of leveling off in 21 2022. And then kind of

stagnating or downward. So it's just interesting that these two companies are kind of on the same trajectory. And probably the countering argument to Amazon is businesses that want to be outside of that Amazon ecosystem because, you know, Amazon takes a big cut and, you know, also comes out with their own product to sometimes go against something

that you might be selling. It could be, you know, for these businesses, they may want to not encourage Amazon and go with like a UPS or a FedEx. But I think that's a good point. But it's interesting to see that. Yeah, it's almost the exact same chart. I mean, if I didn't show you the name and I use the same colors, you probably thought it was the same business. Yeah, they're definitely I mean, they they're going to be cyclical to an extent, especially like during the pandemic, like just the surge of, you know, online shopping, things like that. I mean, if you look from, you know, 2019 to 2022, it was likely a very hard comparable to keep up with. Like if you look from, you know, let's say 2017 to 2019 on that chart it's kind of like

steady growth and then you go from the pandemic years and it just skyrockets probably like unsustainable to to a to a certain extent and a lot of it was probably fueled by you know lockdowns and uh just overall fears in the pandemic things like that but i would know i would be worried in terms of in terms of amazon they're kind of yeah it's certainly a worry they have i heard they're pretty big business yeah they have uh some financial resources at their disposal yeah yeah like my so my dad lives in arizona and he can get same day so he can order something in the morning and it's there in like three four hours that's how quick the delivery is it's insane yeah we're pretty i think we get can get most they most things at least where i live in ottawa uh like pretty much one day yeah we're one not same day just yet yeah but same the same day just yet. Yeah. But same day is. Yeah, same day. We'll see.

One day. Yeah. I hope so. Yeah. Okay. Well, I think this was a great episode still, despite it being kind of the low season for earnings, you know, BC and, you know, we came to the rescue with Rogers. So that was kind of good. And obviously the Fed meeting, I think we had to talk about it was probably the most

anticipated Fed meeting. And I we had to talk about it was probably the most anticipated Fed meeting. And I don't know how long. So and obviously, it has an impact, whether you invest in Canadian stocks or US or internationally. You know, let's be honest, the Fed is the world's central bank. I think that's pretty much what it is, right? So yeah, so it has a big impact on the whole world. So I think it was a fun discussion. And we do appreciate all the support for everyone and all the nice reviews that we get, the emails. We try to respond to most of them. We don't always get the chance to get to all of them.

But we do appreciate the feedback. We're pretty engaged on Twitter, you and I. I'm at fiat underscore iceberg. You're at stocktrades underscore CA. So people want to engage with us by all means. You know, we try to get back to people as much as we can. So thanks a lot for listening and we'll see you again next week. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast.

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