The Canadian Investor - Big 5 Banks Deceiving Customers and Nuvei’s Potential Buyout

Episode Date: March 21, 2024

Dive into an expanded episode of the Canadian Investor Podcast, where Dan and Simon dissect the recent Canadian CPI data for February 2024 and why it could make the Bank of Canada’s rate decisions ever more difficult. They also explore the unexpected partnership discussions between Apple and Google which could have big impacts on the apple ecosystem. They then discuss CBC Marketplace's investigation into the Big 5 Canadian Banks sales practices. In this episode, they also discuss the recent news of a private equity buyout offer for Nuvei as well as Empire’s latest results and what it means for the grocery market in Canada. CBC 2017 Go Public investigation CBC 2024 marketplace investigation 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  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.

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It's going to be a bit more news heavy because earnings season is definitely coming down a little bit. Less companies reporting, but I'm sure it's going to pick back up probably a little bit like three, four weeks. That's usually the in-between between earnings seasons, right? Yeah. And there's still a lot of juicy news in the Canadian space. Yeah. Yeah. That's a lot of interesting things to talk about for sure. Yeah. So definitely a lot of news. We'll be talking about Canadian banks, not in a very good light, but we'll touch on that when we get there. But let's get started. I mean, we have a lot on the slate. So the first things first, it's fresh off the press. We have the Canada February 2024 CPI data. So the headline number came in at 2.8% year over year. That was lower than expected. The expectation I saw was like between 2.9% and 3.1%. The quoted numbers that I saw for the most part in different news outlets

on a month over month basis, it was up 0.3%. Now every major category, but to increase on a year over year basis, not large increases., when you have a 2.8%, those two categories were household equipment and furniture, as well as clothing and footwear. Now, food, that's one of the big areas, clearly, because it affects everyone, but even more so people that are on the lower end of the income spectrum. Food was up 3.3% year over year, but flat month over month. I'm not sure if the fact that it was flat. I know grocers have like this policy where they kind of freeze prices for a few months around the holidays.

So I don't know if that was kind of overlapped there a little bit. I don't know. Actually, I know Loblaws even just had a price freeze on their uh like their name their no name or whatever they did it for a while but i don't think they do it anymore that was like the middle of last year i didn't know they froze prices around christmas time yeah i think they do so it's like this i mean like take it with a grain of salt i think because obviously they can just catch back up on those increases later on but I'm pretty sure they have some kind of policy. Shelter inflation continues to be the main driver here with 6.5% year over year and 0.4% month over month.

And I'll touch on that a bit more because if you look at the changes, so there's four major, Statistic Canada said there's four major consumer price index components that decelerated in February. So it just means that they were lower in terms of a 12-month change. And Shelter was definitely not one of them. So in January, Shelter was 6.2% on a year-over-year basis. And like I just mentioned, 6.5% for February. year basis. And like I just mentioned, 6.5 for February. Shelter is becoming a big problem because the Bank of Canada, unfortunately, they just don't have that many tools available to them. I mean, they have one tool and let's be honest, they have a hammer and the problem they're facing is definitely not a nail. So it's not easy. People will see shelter inflation. They'll say,

just lower interest rates, right? People are paying higher mortgage rates. So that's increasing inflation. Rents are going up. Well, it's not that simple because we've talked about it before. If you lower rates, even let's say lower 50 basis points. So by 0.5%, it's not going to make a huge difference because I'm renewing my mortgage in about a year from now. And if rates are zero, you know, 50 basis points lower than they are right now, I'm still going to be paying a lot more on my mortgage than I currently am in the high twos in terms of the rate. So I think that's really important for people to remember is that that's not really a great solution. Sure, it may help, but then the consequence with that is it may spur the housing market, increase prices, and potentially not even lower the rate of inflation in terms of shelter if you look at just the mortgage component of it. So that's one of the potential side effects that you could get.

Obviously, you have the renters, so the rents that keep going up. That's more of a supply and demand issue. So I'm not sure to which point, at least in the very short to medium term, that would have any impacts. If they lower rates, sure, it may encourage some builders to build more rental homes, but that's not going to be ready for several years down the line. And then you have obviously the US Fed that is looking like they may not be lowering rates. So if you lower in Canada, you could potentially spur inflation on top of that. So they're really stuck.

And I tweeted something, I used a, let's say, a colorful word to say what situation the Bank of Canada was in in my tweet. But I do think they're, i don't i'm not sure what they can do i don't think they can do anything at this point yeah especially like like you said in order to see like the shelter inflation come down meaningfully like i got my mortgage in 2022 and i think i'm four 4.4 so there's even a chance that like I could see an increase. And most of the people who are renewing in the next while are much lower than me. So I mean, they would have to lower rates by so

much to ease that a lot. I mean, it'll definitely help, especially people on variable rate plans. But Dan, can you imagine the FOMO it would create in the real estate and housing market? FOMO it would create in the house like in the real estate and housing market here in Alberta it's already happening like we're the housing market here is crazy like on my street when I moved here it's like a fresh neighborhood there was like three buildings three houses on my street and they've put up like 15 of them in the last like year and a half two years it's absolutely nuts our housing market even right now, is going bonkers. Yeah, it's picking... All the data I've seen is that it's starting to pick up in other areas, at least in Ontario. Prices are starting to pick up. I'm not sure if it's more...

There's a bit of an imbalance between supply and demand as well. And I think there might be an expectation from people that rates are trending down. So people are getting excited, maybe taking, you know, a year or two fixed mortgage, log that in with the hopes that it will be significantly lower down the line or kind of planning for that. But it is interesting to keep an eye on. But aside from the housing front, I think there's other components that could definitely reignite inflation. So gasoline was essentially flat year over year, but up 4% on a month over month basis. Energy, which obviously gasoline is included in, but they do break down gasoline. Energy was similar with 1.3% increase year over year and 2.8% month over month.

So relatively small increases here. So it's not having a major impact, but there's still that risk that it could significantly pick up in the coming months or quarters and would drive up the headline number at the very least. cheaper than last year and then for internet access services prices fell 13% over a year so that's interesting I'm not sure I don't know I do you feel like cell phone plans are that much cheaper no I mean I'm like I'm not gonna lie my phone is just through our business so it's not like I'm like actively sought out a lower plan I'm sure I could get one but I don't know if I could get one that much cheaper and internet internet access services have definitely, I don't think I could get cheaper internet where I'm at either at all. Yeah. And I think it's, I'd be interested in seeing the methodology they're doing for that. Cause there was in the language, it makes me, it gives me the impression that they're factoring in like the fact that people may be being paying the same

price but having more data as you know as a reduction or something yeah as a reduction i'm not 100 sure it's just the wording was a bit strange the way that they worded it so i'd be interested in how they're weighting that yeah i don't think that's just like an outright cell phone plans are down that much i mean there, there is more competition here from, I've noticed like a lot of the smaller companies, I mean, you can get pretty cheap phone plans. I've seen some people with like 30, 35, $40 phone plans here with like a decent amount of data. So I don't know.

They definitely need to get cheaper. Don't we pay the highest? We pay the highest cell phone bills out of like developed countries in the world, think that sounds about quite a wide margin yeah yeah i don't know i don't have the data in front of me but i've heard that before and i guess the last thing here are the core cpi data so there's the cpi common median and trim won't go into detail but all that to say that it is the one that the bank of canada these three measures, they focus on the most and they are trending down. So they've been trending down pretty steadily essentially since, you know, September of last year. And I think even before that and now they're all at 3.1 or 3.2 percent.

So getting close to the bracket of 1 to 3 percent, that's the target for the Bank of Canada. So it'll be interesting but again there's so many variables involved i really don't know where they're going to go with interest rates at this point i think there's there's consequences whatever they do right whether they stand pad they lower rates i don't think raising rates is really an option but whatever they do there's going to be some perverse consequences and And I would not, as critical as I've been with the Bank of Canada, I would not want to be in their shoes right now. Yeah. It's like a kind of a damned if you do damned if you don't situation. I mean,

a lot of people are struggling and need rates to come down, but then if the Fed doesn't lower rates and Canada has to start lowering rates, then it creates a whole other basket of problems. Yeah, exactly. rates, then it creates a whole other basket of problems. Yeah, exactly. 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. Now enough about the Bank of Canada. Do you want to tell us about these Google and Apple rumors? Yeah, so this came out on Monday morning, I think. So Apple is in talks to utilize Gemini, which is pretty much Google's competition to chat GPT to fuel some AI features on their phones. So Google ended up spiking up on the news. I think like yesterday it was up 6%, 6.5%

on the day. And I think if this is true and the deal is locked down, it would obviously have huge benefits for Google. So there's billions of Apple devices out there. Apple and Google have already been partners for quite a while in regards to Google being the default search engine on Safari. This drives a ton of massive revenue for Google as it gets so much more exposure through its Google ads, things like that. The partnership is pretty much bulletproof as well, in my opinion, because Google's market dominance when it comes to search is simply unmatched. So if Apple ended up swapping search engines, I have a feeling that many people would just utilize a different browser.

They might not use Safari just because I know whenever my Chrome browser gets accidentally swapped to the Yahoo default search, it just drives me mad because the results are so bad. But there's no concrete information. And although the talks are for sure happening, that's pretty much been confirmed. The functionality of what will be done is pretty much pure speculation. So Apple did mention there would be AI features

utilized in their upcoming devices. And I think it's like iOS 18 they're on or something like that. And the interesting thing is- I don't know, I should check. I think it is 18, but there's apparently going to be some AI functionality on the new devices and the iOS 18 that, I mean, they might use Gemini for, I would imagine they will, but it's never a guarantee.

They're still in discussions, but there's been a lot of scrutiny and criticism of Google's AI platform. I mean, it's pretty much the reason it's caused the stock to be pretty average over the last while. Google's a core position for me. I've ignored the AI news a lot because a lot of these stocks simply trade on headlines over the short term. I think Google's going to be a pretty big player in the AI space. think a Google is going to be a pretty big player in the AI space. Um, it seems like Apple does too. I wouldn't view this partnership as like Modi as their search engine partnership with Apple, just because, you know, the AI race is so young, so early while Google, you know, has a 90% market share in search. So it's, it's not really the same type of situation, but

I mean, you would imagine most of, you know, I would imagine it would be Apple paying licensing fees to Google to utilize Gemini. So it's probably, like I said, you know, you got billions of devices. It would probably be pretty big news for Google. Yeah, they just have to make sure that Gemini image generator is a bit better or not as biased as it was because that was a bit of a bit of a disaster I think one of the original uh Google founders I think said like

yeah they really messed up with the launch oh yeah product and I think that's Apple that's what Apple wants to use it for I think a lot of that a lot they had mentioned was like image generation and stuff so I mean well as an apple um as an iphone user is like for me the only thing i want is siri to not be crappy like siri is so bad like if they can just make siri better it's half of the time it doesn't understand what i'm saying maybe granted a like you know siri doesn't understand my french accent. So maybe that's the case. But I there is I was watching Curb Your Enthusiasm. I don't know if you watch that show. But there was a bit with Larry David where he just like gets so pissed at the smart car that's using Siri because it's like saying he's asking to go somewhere and it's saying completely different.

And I could definitely relate with that. i've had i had an iphone like oh it had to be like seven years ago now and it was completely useless yeah i'm surprised they haven't made any improvements i'm an android like the i have a pixel and it's actually it's pretty good i mean the most things i use for it is to just tell it to set reminders for me that's about the extent i've utilized it so it works i. I thought you were going to say you're a Huawei user and you like to give your data to the Chinese government. I like to make sure I'm track for everything, although I feel like we are already on our phones, but I digress. We'll go now to the CBC marketplace investigation about the uh the big five canadian banks and their sales practices so have you were you able to to watch that video i didn't watch a video but i but i read over i read over

the notes here and it's i mean i'm not surprised at all yeah i wasn't either well and it's not the first time so So there was another kind of investigation that was done. I wasn't marketplace that one, but it was GoPublic that did a similar investigation with CBC in 2017. And the findings that they found were very similar. And I encourage everyone to either read the article or listen or watch the episode. You can view it on CBC Gem for free. I think you just have to watch them ads. The gist of it is that the big five banks are pushing products on customers and it's big five.

They did not include national banks. I don't know if they went to national bank and there wasn't issues or they just kind of focus on the big five banks. So I don't, you know, I don't necessarily want to put them under the same umbrella. I mean, it's possible that they have similar practices. If I had to bet, I probably would say. I wouldn't be surprised. I wouldn't be surprised either. But again, they weren't part of this.

And essentially is that the big banks are pushing products on customers that don't need it or are giving incorrect misleading or misleading information. And in the investigation, they even said that the information was in some cases illegal. There was an example where they put someone undercover. And essentially this all started because there were bank employees that went to CBC and essentially telling them this was happening. And for the most part, they wanted to be anonymous because they were afraid for their jobs, to lose their roles. But it prompted them to do this undercover investigation. And one scenario is a person went in and they said they had $50,000 coming in inheritance. What the person wouldn't say is that they also had $17,000 worth of credit card debt and $350,000 in mortgage.

And the person went in wanting to know what to do with the money. And they weren't upfront right away about the debt aspect because a good financial advisor planner would ask you these questions right off the bat, especially credit card debt, because if you have credit card debt, essentially like that's the no brainer thing to pay off because you're essentially getting what 20% is now the interest. You're getting 20% guaranteed returns on your money if you you pay it and you're never gonna earn more than 20 i mean you're not gonna outpace you may but it's gonna be really risky right yeah it's gonna be crazy risky it uh i mean it made like back of the pandemic when

people were you know i knew a lot of people who took out you know some money from a heloc when it was like three four percent you know at some point that made a bit of sense but I mean you should always eliminate credit card debt before yeah before buying high fee mutual funds yeah this is like basic stuff and essentially what they were telling this person is that some were saying oh pay a little bit off someone even said they should only do the minimum payment, which is completely ridiculous because then your balance just takes forever and forever to pay. Some said to get a line of credit to pay off the credit card and then invest the $50,000, obviously, because they can get more fees on the mutual funds. It was, I mean, I don't know to what extent it's a mix of the

financial advisors in air quotes just being completely clueless or really them knowingly giving false information or wrong information or information that's just not appropriate for the client and not having the best interests at heart. But clearly, you know, they get incentivized to sell these mutual fund products. And one thing they also ask, and they actually prompted them at some point because they weren't being asked whether there was debt or not. They said, I do have this debt. And that's the kind of advice that they were getting, which is completely terrible. And then when they asked the financial advisors, well, what are the fees and how are the fees apply? Is it just on the profits that I make or is it on the total sum that I invest or the total

asset under management? They couldn't even answer that. And for those who are new to the show and are not familiar with that, essentially when you have fees on whether it's ETFs, mutual funds, let's say you have a 2% fee, whatever money is under management, that 2% fee will apply. So whether you lost money on it, whether you gained money, it's the full value. That's why over like 15, 20 years, it can literally like reduce your returns by, you know, half or close to it. Yeah, I think it is pretty close to half. Yeah, like, I don't know, I would have a feeling that these guys would know where the fees come out. Maybe they're a bit, you know, vague about where

they're coming out. And like, it's just such, it's so obvious what they're doing. They're trying to like, they don't care that this person has that much debt they they know that she should pay it off but instead they just want to collect the 50 grand into their pockets because they you know they probably get incentive to sell the fund i mean it's it's pretty sad yeah and i mean it's it's bad because people are actually trusting the bank here and clearly the bank does not have their best interests at heart. If they're like, I mean, some of the employees and I had, I did a tweet on it or a post on X and people, I've had multiple people comment that they worked at a bank like 10, 15 years ago. And that was common practice.

It's nothing new. So they've been doing this for a very long time. And a lot of people just don't know any better, right? So they go to the bank, they trust them and they get this terrible advice just because the bank wants to boost their profits. And another instance where they showed is, you know, like a lot of the big banks, they'll have a checking account and they'll say, well, it's $20 a month unless you keep $5,000 in there. And then you don't, we waive the fee if you keep it. But what they don't say oftentimes is if the balance dip below 5K, in this example, one day you don't get the fee waived.

So you may have the whole $5,000 the whole month. One day you won't get it waived. And you're not really saving that much money or at all if you compare with what you could get. Right now, it's not hard to get 5% on your money. If you, you know, you go with a GIC, you go with a money market, you know, treasury bill option, you can get easily 5%. So I think that's one part that the investigation kind of missed because it doesn't factor in what you could do with this money aside from it being locked out. That's something else that they pointed out. And I'll just finish on this because I clearly, you know, I hate seeing the things like that. But the big banks, honestly, they just, you know, they're not they don't have your best

interests at heart. I think this is what is clearly evident here. So you're your own bank, I would say, I think, or you have your own best interests at heart i think this is what is clearly evident here so you're your own bank i would say i think or you have your own best interests at heart always make sure you shop around i mean that's why i'm like really happy that we have eq bank as a sponsor because i think they they're doing a great job at disrupting the legacy banks and you don't need a minimum balance in their savings account and you get a good rate on your money and their apps is fantastic and you're not you're not being pushed these terrible products like you're you're seeing here so i think you know obviously q bank is there to make money

as well but i think they have a much better approach than the the big five banks here and i do hope that regulators kind of step up. One of the pieces of the report is that the regulators are basically not doing much. They're not even doing slaps on the wrist. And one of the person interviewed said, look, if they want the banks to stop doing that, they need to impose fines. They need to do surprise visit undercover operations and impose fines that will make it unprofitable for the banks to have these kind of practices and I'll go as far as saying like they should hold these CEO accountable like this you know you see that very often and it just pisses me

off where you have like these CEOs that are like well you know I didn't know about that like that's BS this is so rampant that it's coming from the top. I do not get that whatsoever. These people are making a whole lot of money and they should be held accountable for this. And it's completely unacceptable that regulators are not doing anything. If they don't have sufficient resources, they should say it and get some more. I mean, there's enough money that's being wasted elsewhere. This kind of stuff is costing regular people, you know, hardship, especially when we're extremely indebted. And the solution from these big banks is more terrible debt products.

I don't know. I think my rant has been long enough. I won't say anymore. Yeah, it's I mean, there's a lot. You wonder why, like why there's just a crazy amount of people who've gone self-directed investing as well, because I think there's a lot of trust that's been broken because a lot of people dealt with these banks and they kind of figured out over, whether it be the short or long term that they just, well, like you said,

they don't have your interest at heart. They in the business of making money that's pretty much it and if they can if they can push their mutual fund sales reps to to sell you particular funds with you know immunity pretty much no regulatory impact then that's definitely what they're going to do because ultimately at the end of the day they're they're trying to make money they're trying to make the most money possible for shareholders. I mean, I swapped last year completely, entirely to Equitable Bank. And I think they give me 4% on my deposits. So just in my checking account, I make 4%. And then on the card or whatever, I get half a percent cash back. So with no fees, no fees at all.

Whereas like, I mean, I was with a treasury branch in, in Alberta, so it was a little different, but they still charge me like 12 bucks a month for my checking account with it. And unless I had, like you said, I think it was $3,000 over it. Yeah. That's pretty common. I mean, I switched, I think five years ago, cause I used to be at one of the big banks and I called them and I said, look, five years ago because i i used to be at one of the big banks and i called them and i said look waive that fee and i don't want to put a minimum balance if you don't waive it i'm taking all my business away they said well you need to put like i think it was 4 000 at the time to get it waived and they're like no there's no flexibility then i'm like okay that's it and i moved everything

and now uh i have two but i primarily uh do a uZQ bank as well, just because, I mean, it just makes all the sense in the world. So I know it sucks switching banks, the switching costs in terms of time. It's not the easiest thing to do, but you have to do what's in your best interest. And obviously, if people are satisfied with what they're getting with their big bank, that's fine. But, and I guess the last thing I'll mention is I do feel for these employees at times because I think the sense I got is a lot of them just feel pressured from management to do this because if they don't do it, they'll actually lose their job. So I think it's just I want to be fair to them.

To me, I think management, whether it's a middle management senior management they all need to be held accountable because it's coming from somewhere yeah and i would imagine like if you didn't want to push these like aggressive tactics they would just kind of find somebody who would because i'm sure there's a lot of people who would i mean yeah it's uh this has been going on for a very long time i mean it's yeah i think what's really gonna hurt the banks and who knows what's gonna happen but i think the timing of it coming out now as more and more people are struggling financially are dealing with high debt you know in 2017 it wasn't as bad as it is right now i think just the fact that there's this perception

that the banks are even taking advantage of Canadians, I don't think this is going to go well for the big banks in the next months and quarters. I hope they get some pushback from government and regulatory agencies. Obviously, I know OSFI is really busy trying to reduce the yields of high-s high savings ETFs to help out the banks. But at some point, you know, maybe they'll work, they'll collaborate different agencies to crack down on this kind of behavior.

Yeah, that's a very good example of how like there probably won't be a crackdown because all those banks did was complain once about those ISA ETFs. All those banks did was complain once about those ISA ETFs, and they were just, within six months, they changed the definition of, I think, something to do with a fund where they had to take the yield down by, I think it was 50 basis points. So now they don't really yield as much as many of the big banks, conveniently, as many of the big banks' money market funds. So it worked out, yeah. I mean, something needs to happen, but it's hard to imagine anything will at least over the short term here, but this, maybe this comes to light and there's a bit more crackdown on it. Yeah. 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. 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. I think we've talked enough about this. I will put the link in the show notes if people want to look at the listen or watching the investigation. I'll also put a link to the 2017 one for those who are interested. Now we'll go on to, you know, a company that's backed by probably the best looking guy in Canada, according to my wife. So you want to tell us about Nuve, who's famously backed by Ryan Reynolds?

Yeah. So I think Ryan Reynolds bought in last year, I think it was. I think so. Or maybe 2022, something like that. It hasn't been too, too long, but they're a payment processor in Canada. They IPO'd not too long ago. And at one point, over their short trading duration, obviously, they were one of the best performing Canadian IP ipos i think this was mostly as a result of just the pandemic much like any other payment processor it's it's gotten like obliterated post-pandemic so at one point it was it was trading near 170 dollars and now

it's sitting at just under 40 and the that is with the 35 spike we witnessed yesterday because of the news so you're talking it's taken an absolute beating witnessed yesterday because of the news. So you're talking, it's taken an absolute beating the last while. So the news was the private equity company Advent International is apparently in advanced talks to buy Nuve with a price largely unknown. So this makes the move on the news here even more crazy as there's huge risk here because nobody really knows what the premium would be or even if there would be one. I imagine there would be one because the stock is pretty cheap at these points, but nobody knows the price that's going to be paid for the company.

But Nuve's decline hasn't really been from a lack of operational results. Management has done some really odd things over the last bit here and they've certainly broke trust. They made a really odd decision. I believe this was at some point last year to declare a dividend. Yeah, I remember that. And it just confused... I'm pretty sure when they issued that dividend, the stock bombed. I can't remember completely, but I'm pretty sure it did because it was just so confusing. Its guidance has been relatively weak and it's been a bit of a mess. I don't really blame the firm for looking at the company right now, though. It's only trading at 20 times cash flow and 11 times expected earnings. This isn't a cash-burning company.

They're profitable. They have $285 million in trailing TTM cash flows, trailing 12-month cash flows. They have pretty high gross margins. Debt does remain a bit of an issue, at least on the surface. So a quick look up of financing costs in their most recent quarter, and they've almost 4x'd. So they paid $92.3 million in interest in 2023 compared to just $23.3 million in 2022. So pretty much the company formed a special committee over the weekend to take a look at the offer that would take the company private and i have read a lot of chatter about possibly speculating on this one in regards to buying it and hoping the multiple is even higher than it's sitting at now and i do think there's big risk in that because i believe in a way the

vultures are kind of circling here. I mean, it was trading at 2950 pre-acquisition rumors, and it's now in the high 30s. So if you're buying here in hopes that the multiple is higher, what exactly are you expecting this venture capital firm to pay? It would have to be like a 75 to 100% premium. And I mean, even then, if the premium is lower, you're taking a huge risk just to, you know, you could get an outsized return if the premium is much higher, but you're also taking on a lot of risks that if the premium is lower, you might not even make all that much money. that the stock would probably take a bit of a beating again because it went up 35% on the news. But I think whatever venture firm buys it is probably getting it at a pretty good price. There's a lot of slowdown priced into the stock right now. It hasn't done very good the last while. Yeah. And I have here for joint TCI listeners. So like you were saying, interest expense has just been kind of continuously increasing since pretty much the rapid interest rate increases started.

So clearly, without knowing the type of debt they have, I'm going to go on a limb and say that it's a variable rate. So it's some kind of debt that's variable rate just based on what we're seeing here, assuming that they haven't added additional debt to that. It'll be interesting. I guess the one wildcard is there's multiple PE firms that are looking to buy them out. And this would most likely be a leverage buyout that they would do to buy Nuveg, take it private, get it levered up. That's usually the playbook. And then 5-10 years down the line, you sell it or you go public again. So that's kind of the playbook and then five, 10 years down the line, you sell it or you go public again. So that's kind of the playbook for private equity with these type of plays. Yeah. From what I heard or from what I read, I can't remember this exactly, but I think they want to keep

the CEO on like, or the majority owner is going to stick around. I'm not sure in what position. I might've read that wrong, but I'm pretty certain that's what's going to happen. I mean, if anything happens, there's nothing that's been confirmed yet. I mean, they're discussing the deal depending on what it is. I mean, if you bought Nuve in 2022 and you're sitting at $120 cost per share, you're not exactly excited about a $50, $60 buyout. That's for sure. No, that's right. Yeah. And I guess what we're seeing too with payment processors is that, you know, I think Visa and MasterCard being the exception because of how massive their networks

are. But a lot of them, I think my perception is it seems like it's almost like becoming a commodity, right? There's so much competition in this space. And I know Nuve kind of focuses a bit more, if I remember correctly, on the gambling aspect. But I think they diversified away a little bit from that. Todd's actually 100% sure on that. I know Matt, like the other guy at StockTrades, he owned Nuve. I'm pretty sure he bought it on IPO.

So he's kind of, yeah, I'm not sure on their total overall makeup. I know they do have some gambling, but I didn't think it was a huge, huge chunk of the business, but I might be wrong on that. Oh, that's okay. Yeah, I went on memory. It's been a while since I've looked at them, but it'll be interesting. I'm just kind of questioning even the private equity buying that when it just feels like there's a lot of, yeah, it's almost becoming like a commodity, right? Like it's just there's so much competition. And I think it's just going to be harder and harder for companies to be extremely profitable

i'm not saying they're not going to be profitable but i think the margins are going to be reduced because there's so much competition i mean what do you have like visa mastercard paypal you have lightspeed uh what else would you have i don't even know of another there's tons of them yeah there's at the end there's uh stripe like different oh yeah stripe yeah yeah there's probably hundreds of them uh like if not thousands depending on the size of the companies there's behemoths but even stripe and adyen they've seen their margins really drop off because they're seeing more and more competition so it's um it's an interest pay interesting space i own visa and mastercard not a lot it's like a relatively small portion of my portfolio,

but those are the two and the rest I'm not too interested just because I just don't know how much of a moat that they have and how easily it can be replaced, especially if they end up losing a big customer. Yeah, it's kind of the same with me. I own like a decent sized position in Visa and then like a smaller, pretty small position in Lightspeed that I've kind of bought in and out of since its IPO. I mean, I guess I would be more interested because I own Lightspeed,

what multiple a company like Nuve is going to sell at. Like that's the most interesting thing for me is how much are they actually going to pay i mean nobody really knows it's kind of weird like the stock jumped 38 percent maybe you know maybe it'll jump another or maybe the multiple's lower than that there's there's a lot of i don't know why this is this just pure speculation people jumping in now expecting a buyout over and above that i don't know it seems crazy gambling fever is back it's like 2021 again i guess uh yeah i was listening a couple podcasts and i one of the things that um one of them was saying and i can't recall i think it was michael howell a really smart guy from the uk and his basically his explanation for kind of the bull market we've been seeing is that uh even

back in late 2022 he was saying that liquidity was at its low in october november and liquidity has been increasing steadily since then which is a reason that we're seeing like a bull market obviously bitcoin pull back up as well so it's all tied to that. So it'll be interesting. He thinks it's going to be continuing up until the end of 2025. We'll have to see. But if that's the case, I mean, I'd be interested in seeing if we see an uptick in these type of acquisitions or maybe IPOs start picking back up again. Yeah, because we've had, well, what did we have last year? Like maybe one or two IPOs? One? Yeah. we had one on the tsx yeah absolutely nothing yeah that's uh okay well we'll move on because we have a couple more things to get to i think that was it right in terms of the details for this for new yeah yeah there's not much news right now just

kind of they're in discussions i'm sure something will come to fruition pretty quickly so i'll do this uh earnings that i had planned for last week and then uh so this is pet value they had their earnings release and then we can finish with empire another grocer and i think that'll be enough for today as we're getting uh pretty long on time already now pet value they had their q4 in fiscal year 2024 i'll go over mostly the full year earnings just because we don't talk about this company very often. Now, system-wide sales were up 10% to $1.4 billion. Revenues were up 11% to $1.05 billion. The main difference between the two is because the majority of their stores are franchises.

They have 222 corporate-owned stores and 561 franchises. And same-store sales growth was 5.2%. Net income was 11% higher to $90 million. Free cash flow was down 8% to $78.1 million. And margins have been trending down compared to previous years. One thing to keep an eye on here is the interest expense, which went from $20 million to $30 million last year. And in terms of guidance, they expect revenues to be in the around $1.13 billion. I just took the mid-range

here. And that would be a 7% increase from last year. And they expect their same store sales to be up 2% to 5% and open 40 to 50 new stores this year. So clearly it's a business that you're relying on opening new stores to grow. It's not a business that I would be interested in personally. But I still think it's really interesting to keep an eye on these kind of businesses. Especially those that obviously like focus on pets, because I have a dog and we spend way too much money on our dog. Oh, yeah. And you have a dog as well, right? Yeah.

Yeah. And it's, you know, it's like a member of the family. Right. And it would be one of the last things that we would cut in terms of expenses. Sure, we may cut on certain little things that are just kind of nice to have for him. But with the Fed and all that, I mean, usually, right, you just kind of pay whatever you need to pay for your pets. So that's why I think these business are really interesting because at the end of the day, they can be resilient in a lot of different kind of environments. That's exactly what

i was going to say like this is where i get my dog's food because he's got like he's got to get this allergy food um our my dog has definitely cost our dog insurer our pet insurance company a lot of money but yeah we i didn't even know this company was this big like we just have one close by where we're at and I have to buy the food from them. But like you said, I was exactly going to say that. People don't really trim down on their pet spending. I mean, I'd probably cut a lot of stuff before I had to start buying my dog cheaper food, things like that. So I'm pretty sure Pet Valley was like a pandemic IPO, wasn't it? I think it may have been.

Yeah. I think it's relatively recent. June 2021. Pretty much absolute market peaks. Yeah, pretty close to it. But I thought it was just an interesting one because we have them all over the place here. Obviously, there's PetSmart too, but PetValues are more kind of intimate. They're a smaller footprint.

PetSmarts are like these huge, you know, huge stores. So it's I enjoy going there are my little buddy. He's 15 pounds. And I'm sure if there's listeners that have been here for a few years, they've heard him a few times on the podcast. But I thought it was interesting just to look at because they're doing all right. I wouldn't say it's like, you know, firing on all cylinders, but I mean, they're still growing and even the same store sales are keeping up with inflation. So you can't ask for much better, I think, for this kind of business. Yeah, this is kind of what I would expect. I wouldn't expect explosive growth from a pet store business, but but yeah i don't know it's a decent

quarter by them we'll have to see how it is moving forward yeah we'll have to do it again there in their next quarter yeah see how they're doing now do you want to go over empire they reported their results recently i can't remember when though i think it was last late last week i think four or five days ago probably now it's uh this one's pretty interesting because i've mentioned a few times myself like i've started i used to shop at sobeys all the time which is pretty much their staple store but i've kind of stopped going there and i've started to go to like a no frills stuff like that more just because it's so much cheaper so they missed estimates on both

the top and bottom line, but it really wasn't by much. In terms of headline numbers, it was a relatively inline quarter and they're actually doing a bit better than I predicted, but it's still been pretty rough for Empire over the last while. Sales are effectively flat on both a quarter over quarter basis. And when you compare the first nine months of this year to nine months of 2023, and when we think of how much food prices have gone up in the last year, it's a bit surprising to see sales flat. When we look to a company like Loblaw, they're growing sales, I think in their food segment by about 5%. So there's a pretty big difference there, especially when you're talking like that big of revenue from those departments. Operating income dropped by low single digits over the same timeframes as

I had mentioned before and adjusted net income or adjusted earnings per share dipped by 11.7% and 14.7%. So, or sorry, that was adjusted net income. So when we look to earnings per share, the company actually hasn't had earnings per share declined that much because it's buying back a ton of shares. So at the end of the third quarter of 2022, the company had around 261 million in shares outstanding. So it now has 249.7. So this is a buyback of around 4.3% through the first nine months compared to the last, which is it's quite a bit in terms of buybacks. Same store sales on the quarter excluding fuel grew by 1.9%. When we look to the first nine months, they're up around 2.6%. And the company's operating income on the food retail side of things seems to be pretty solid. However,

it's real estate end, which for the most part, and I haven't dug too deep into this, but I think it owns a big chunk of, of Crombie REIT. So I think like Crombie owns a lot of their grocery anchored retail REITs. And then, and then I believe Empire owns a big chunk of Crombie itself, but I believe it had, you know know it has had some pretty poor results over the last while which is impacting them a little bit they're in the midst of transitioning a bunch of so boy sobies and safe soap ways stores to freshco uh it's discount banner so this is likely to result in a bit higher capital expenditures over the next few years but i imagine it you know it pays off for them because

the discount model is becoming a bit more popular these days. And we can clearly see this because Empire is reporting declining earnings, whereas Loblaws is growing earnings by 13%, 14%. And just overall, they've struggled to get it going for quite a while. The recent correction in price has the company back to pricing levels you haven't seen in six years. And this is with buybacks as well. So they've touched all-time highs in April of 2022. And ever since policy rates have been increasing, it's been in a constant downward slide. So since those 2022 highs, Empire is down over 24%, while Loblaws is up 4%, or sorry,

Metro is up 4%, and Loblaws is up 31%. So I know this is popular for a lot of Canadians due to its big dividend growth streak. I think it's at like 28 plus years, but this just kind of goes to show that the market really doesn't care all that much about dividend growth. They just care about earnings, cashflow growth, future expected earnings, things like that. Yeah, no, I think you're right. I mean, the one thing I like about them, and I don't know, I'd have to look at their financial results and listen to their calls. I mean, it's not a company that interests me all that much, but I mentioned them before. So they bought Farm Boy, farm boy yeah for 800 million in

2018 and they do those stores are like very nice like they are really different experience yeah it's a different experience and I think they're only in Ontario so anyone outside of Ontario you wouldn't be familiar with them but essentially it's more like it almost feels like almost like a kind of more farmer's market. They have a lot of food that's made there already prepared. So it's typically very popular, especially like they'll have their locations at the bottom of a huge apartment building, huge condo building. So a lot of people will go there or nearby a lot of office spaces. So people

go there at lunch to grab these like kind of, you know, these kind of hot food from them. So it's quite popular, but they have they tend to have really good produce, but it's not the cheapest. So I think they are very selective as where they open new locations and definitely not, you know, it would not be catered to where more, uh, kind of cost-effective clientele. Yeah. Yeah. I think like there is a specific strategy in that. I mean, I had a buddy who lived in downtown Calgary, so we always ended up shopping at

Safeway, but that's only because it was a absolute pain to get anywhere else. You know what I mean? So if you can strategically place these stores where it's convenient or you got a lot of people who don't mind spending the money. But outside of that, I mean, I don't shop at Sobeys anymore. It's so expensive. Groceries are just getting crazy. Yeah, that's the same. I mean, we tend to be more... We used to shop at Farm Boy more than we used to. And now it's just, yeah, like you said, it's just too expensive. And we have to be smart with our money like everyone else.

And here I was just pulling up because you mentioned in terms of total returns. So, yeah, they've definitely trailed both Metro and Loblaws. So Loblaws is up 150% over the last five years. So Loblaws is up 150% over the last five years. You have Metro at second here with 66% and you have Empire that trails them 26%. So clearly, I think I'm safe to say that you're trailing the market pretty massively with Empire and Metro. Yeah, I mean, if you look at where like Loblaws has outperformed for quite a bit,, like, in a post-pandemic world, for sure, they've been the best grocer. But you can see, if you look at a chart, you can see, like, a clear distinction in 2023 where it just started to take off. Because of, and I think that is because of the fact that, you know, they have the widest reach.

I believe I've mentioned this before, but I think the average Canadian is only about nine kilometers away on average from a Loblaw store. And that's like countrywide averages. And they also just have so many more discount brands like Loblaws, Superstore, things like that. So I think that's why they're performing quite well. Whereas Empire, it's just for the average Canadian,

it's way too expensive i mean sobeys is expensive but safeway is even more expensive i don't know if you if you have safeways there no we don't have too many anymore but yeah no we don't i can't recall any safeways in ontario yeah yeah which is why like it's clear that they know this too because they're starting to you know that that freshco it's discount brand, they're just completely revamping stores and turning them into those. So they clearly understand that this is probably the way to go in the future. But for me, I've mostly, like Costco, I shop at Costco so much now. Yeah, same for us.

I mean, the trick is to always check the expiry date when you buy perishable because you get large quantity at Costco. Cause even if you eat a lot of stuff, like a lot of a certain thing, uh, sometimes just having a couple more days to eat it makes a big difference. My, my wife joined me at a recent trip and she learned that the hard way where she bought these like salads and forgot to check and then the following day she's like oh my god they expire the best before it's like tomorrow like a rookie mistake when you buy perishable you have to look at the uh date at costco because you just have the quantity like you need those extra few days. Exactly.

Yeah. I mean, there's a clear shift. I think we talked about Costco's earnings last week. And like the foot traffic in terms of Canada is just huge. The same store sales, Canadian same store sales and traffic through the stores. Like it's definitely a shift in Canadian spending at least. Yeah. The next time we talk about Costco, you'll have to put your Kirkland hoodie on.

Hoodie on, yes. I know it is that. Yeah, yeah. I'll put my Kirkland, my jeans on. Yeah, represent the brand. But I think that's it for today. I think we went long enough. And the last time I think we talked about grocers,

we had someone reach out to us. And I think it was reaching out to me on Twitter saying that he went to, I think it was Food Basics or one of the discount brands. And he bought, he didn't mention what meat he bought. But he's like, yeah, I bought some meat last night. I cooked it. I'm still chewing it this morning. Oh, yeah. Food Basics is Metro's discounter.

Yeah. I think, yeah, Food Basics. I don't know, yeah. I think, yeah, Food Basics. I don't know. I can't. We don't have any here. Yeah, I kind of forget all the brands, but they're all very similar, the discount brands. But I think that's it for the episode today.

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