The Canadian Investor - Canadian Stocks Are Outperforming - Earnings Roundup

Episode Date: March 24, 2022

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Canadian February 2022 CPI figures SEC is exploring making environmental disclosures mandatory Equinix to acquire data centers in Chile and Peru Alimentation Couche-Tard earnings Accenture earnings Hut 8 mining earnings TSX outperforming the S&P 500 this year HEXO earnings   We finished the episode by answering some non-investing questions from twitter. Tickers of stocks discussed: HEXO.TO, ATD.TO, ACN, HUT.TO, EQIX   Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

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My name is Brayden Dennis, as always joined by Simon Belanger. We keep the content going for you guys, no matter what we're uh jumping through hoops bending over backwards to make sure the recording schedule doesn't miss a beat for you guys as i'm on the road and simone thank you for being so flexible by the way my guy but we keep it going two episodes a week yeah yeah i mean we're making it work obviously we we like to take some a little bit of time off like everyone else but when we do we just had to to plan and record a few more episodes in advance so you guys have some steady content even though we're off for a little bit i didn't realize before we you know

committed to the two episodes how intensive the planning would be if we decide to go away or do anything like that. But keep it flexible. You have first on the slate here, some talk about inflation. And it's something we keep tracking every time they come out with their monthly number because it's top of mind for everyone. We're not usually macro guys, but it seems something that's always top of mind. I'm going to talk about some new things coming up from the SEC and then we'll talk earnings, even though it's been really slow lately. We'll still talk earnings. Yeah. Want to hit us with the CPI print? Yeah, definitely. So Canada released its February CPI figures. Before I get started on that, I was actually listening

to something a couple of weeks ago. They were talking about inflation, but comparing it a little bit to the 1970s and 80s. And apparently you'd have like back in the day game show hosts and stuff like that, that would be talking about inflation because it was so bad. And I kind of, it kind of feels a little bit like right now where, you know, people that are not into investing, into macro or anything like that are actually know about inflation or keeping an eye on it. And it's something that's top of mind. So I think it is appropriate for us to talk about it because, you know, it's top of mind for a lot of people. When it hits your wallet day to day and you feel it and notice it, it comes up in casual conversation. So that makes sense uh in

game shows has been insane so hope we don't get to that point yeah yeah i mean obviously media was way different back then but just a little anecdote i listened to i'm like okay that's that's interesting we'll see what develops over here uh if we start hearing about it more on like saturday night live or stuff like that. Yeah. But now back to the actual figures. So headline, the headline number was 5.7%. So the increase in CPI in February compared to February of 2021. So if you go on the Statistics Canada site, you'll be able to see a lot of the information.

You'll be able to see a lot of the information. I think they do a pretty good job in putting it into categories and geographical regions across Canada and so on. But they did mention in that release that a big part of the increase was due to higher gas prices and a big part of that, the recent increases, was due to the geopolitical conflict in Eastern Europe. So obviously, we know what they mean when they talk about that. It's the Russia-Ukraine conflict and the upwards pressure it's putting on gas prices. Now, gas prices were up 32.3% and up 6.9% on a month-over-month basis. So that means in February, you paid close to 7% more for gas than you did in January. Food increases were 6.7% year over year. Shelter 6.6% year over year. It was interesting when I was looking through the numbers, one of the smallest increases year over year was clothing and footwear, which increased 1.2%. So that seems pretty low. And I don't know about you, but that's pretty good news because I've been mainly wearing sweatpants in the past couple

of years. So I'll be able to refresh my wardrobe as things are reopening. If athleisure stays at 0% inflation rate, I'm in good shape. I'm in really good shape for a lounge around the house. Yeah. So it's, you know, if you have some spare money aside from investing, it might be a good idea to refresh that wardrobe. I mean, it's not being too impacted by inflation, but I mean, I'm obvious I'm joking around here, but one of the metric that I get annoyed the most about the core CPI, which essentially excludes food and energy increases. I find that really ridiculous because it's a big part of our everyday lives and the cost that we pay and things that we spend on. So that was 3.9% compared to 5.7% year over year. Again, they do post it on the site and the US talks about it a lot when they have their own figures. Keep that in mind. I tend to pretty much not pay attention to that core CPI metric. not including food is like hilarious. Like, you know, it's like the only thing that you absolutely

1 million percent need is food and water. So, I mean, that's going to be hitting every single person. It's like saying, you know, what's the cost of utilities at the place you're at? And they're like, well, the number we're going to give you doesn't include electricity. It's only gas. So sorry about that. It just makes no absolute sense. Now, it's interesting you said that clothing and footwear and stuff like that. I mean, with people staying home more over the last two years, those kinds of things seems to be deflationary in price, which makes complete sense. Demand has been lower for those kinds of things. So yeah, but I mean, don't look too into it. I mean, prices across the board up, labor across the board up. So, you know, more of the same.

Yeah, exactly. So now that's it on our update on inflation. So I know you have an update on the SEC now. Yeah, today they floated some mandatory disclosure of climate change risks and emissions. So they floated this around saying that this is probably going to be happening and that public companies will, if this passes, be disclosed, sorry, forced to and required to disclose greenhouse gas emissions and climate risks under this kind of landmark SEC proposal in the States. Now, this is not something that I'm surprised by at all. I know a lot of people have been saying, you know, what is this? This is like a huge change. And I agree, but I don't think we should be very surprised given the pressure and push there have been from investors and many large corporations already voluntarily reporting their emissions in this like kind of disclosure and push for companies to be more compliant in this stuff and show how green they are in some ways.

The problem here, Simone, is that it can get really tricky to correctly calculate and disclose those emissions. I used to do this for my job. I went to school for environmental engineering, so I can speak to this a bit. And I used to do this for a utility company. Now, let me back up here a bit and give some context on reporting emissions. There are typically three agreed upon scopes of emissions. You have scope one, which are direct emissions from your operation. I'll get some examples in a second. Scope two, which are indirect emissions, like from purchasing electricity for your operations. So that's indirect because those emissions would be from the power plant down the street. They're not directly in your operations.

And scope three would be like all these other kind of weird indirect emissions, not included in that heating and electricity emissions that you have. Let's get some examples. You are a trucking and logistics public company. You got to start doing your disclosure. Now, this is actually a pretty straightforward example. So I don't think it's that hard for this type of business, but let's give an example. Okay. So the direct scope one emissions are the emissions coming out of your vehicles. You're a trucking company. This is your largest, vast majority of your emissions are coming right out of the vehicles. Okay. So fairly easy to figure out if you have like some basic calculations you can use,

how many kilometers they're driving or miles, whatever it is. Now, number two would be, you know, the electricity you purchase for the warehouses, the heating and cooling for the warehouses, maybe your head office. Again, not hard to figure out because you're just going to be looking at utility bills. That might be the most accurate of all of them. And number three, scope three, these are emissions from your supply chain. Really difficult. Emissions from your employees driving to work. Really difficult.

Employees taking flights for business meetings can be tracked. Depending on where your business is, it can be really difficult to do this, and there's going to be gray areas all over the place. However, you know where my mind goes, I'm like, who benefits from this? The three companies that come to mind immediately are like the credit rating agencies and the data companies, and maybe even ESG investing companies, maybe like in BlackRock. But the three that come to mind are MSCI, ticker MSCI, S&P Global, ticker SPGI. They've been making acquisitions and do a lot of work for climate disclosure and software for companies to make this process easier. And Moody's Corp, ticker MCO. These credit rating agencies have dove head first into this trend. And now this kind of legislation, these companies keep winning. They have this type of reporting and they're ahead of it. They have this kind of baked in moat and the moat is built on that these companies have to do it. They have no ability to not get their bond rated.

You know, like all of these things are S&P Global and Moody's, these credit rating agencies keep getting force fed this business and this duopoly. I mean, there's other players, but they're tiny. And now this. And so this is good for two companies. I love S&P Global, Moody's Corp, MSCI. I know a little bit less. But again, these are companies, two companies. I love S&P Global, Moody's Corp, MSCI. I know a little bit less. But again, these are companies, analytics companies.

They have these software offerings for companies to be able to help estimate these emissions. This is big business. Yeah. And hopefully it'll make investing in things like ETFs that are more targeted toward ESG a bit easier for people where it's just not, you know, all tech companies that emit a lot less emissions, I guess, for the most part would be more like direct emissions than most other public companies. I think hopefully that might be a benefit when it comes to that. But a lot of it, like you said, is very hard to quantify. And it goes back to when you talk about ESG, the social and governance, that's always been something very

hard to quantify as well. So I know this is more towards the environmental impact, but I'm wondering if eventually we'll see this kind of push as well for more of the social and governance aspect. this kind of push as well for more of the social and governance aspect? Yeah, maybe. If there's this kind of ability to really verify and measure and have some of this stuff audited, I think that that gives some transparency. And then, yeah, like you said, the social and governance, I honestly think that there just needs to be an E on an island and an SG on an island. Sure, they're related, but I think in a lot of ways, investors are looking for two different things when they are looking at those two things. S and G are just so hard to verify. At least this is

somewhat, somewhat verifiable and measurable, somewhat. And those numbers will be disclosed. They'll be mandatorily disclosed. So I think that that is a good thing for investors. It sucks for a lot of companies who have this new reporting wing. This new expensive reporting wing has just come out. And dude, I should start a consultancy. I did this for however many years. I guess only three, four years. But still, dude i'm i gotta start a consultancy on how to estimate your emissions yeah yeah someone wants to start the business and bring me on as an investor you just hit me up on twitter but it's funny it's true what you're

saying i've been like hitting that drum repeatedly is when we talk esg at most people my perception is that they own in on the e and they kind of forget the S and the G. And I think there's, like, it's much harder to quantify granted, but I think we're seeing with Russia, but also China with the geopolitical climate that's happening right now. And obviously, some of the supply chain issues and some of the, you know, how workers are being treated in some other countries, I think we're seeing a lot more how the social and the governance aspect can have a pretty big impact on investing and on companies you invest in. Perfect. Now we'll move on to something pretty funny that I saw on Twitter. So it's about the Russian-Ukrainian crisis, but more specifically, Russia is launching its own version of McDonald's.

And I think I'll probably retweet that when the episode comes out so people are aware because the logo is hilarious. It looks very similar to the McDonald's logo. And what happened is McDonald's- They just turn it on a 90 degree side. Yeah, not a bar. It's just like that. I think, right? Yeah. is mcdonald's they just turn it on a 90 degree side like it's just like that i think right yeah and yeah so essentially after mcdonald's said it would shut down its 800 plus locations in russia

some members of the russian government were not pleased with the announcement last week a moscow based patent lawyer filed for a trademark and logo for restaurants, which would be called Uncle Vanya's. The logo, like I said, it's so similar to what McDonald's is. And it's pretty funny because I know it's not the only instance that they're trying to create the Russian brand from their own, but it's just hilarious. Like it's even when you zoom in on the logo you can almost see where they like photoshopped it to add that extra line you can't make this stuff up man what's happening right is you get these like large american corporations just saying okay you know russia you're canceled closing all our locations our you know company x we're just X, our software is just not available in the country

anymore. And this is a string of a bunch of Russia's version of it, as they're doing the same thing with Instagram. It's like a copycat that comes out, exact same UX. A lot of these Russian entrepreneurs are just like, hey, there's an opening gap in the market for me to just make this version of X for our country. Ultimately, like a lot of it is just signaling, like what is one of shutting down 800 McDonald's? And like, I guess some people were not pleased with the announcement from the Russian government. They're like, you know, they really just wanted to be able to continue to muck those junior chickens. You know, like they wanted more of those Big Macs like shit. Yeah. And I mean, at the end of the day, right, the company might say it's closing

its stores in a specific country, but especially if they're franchises, they might not support them and they may have closed any relationship, but how can they actually enforce that i think that's really comes down to that so messy exactly so if the you know the franchisee just wants to keep operating it and not pay whatever royalty to mcdonald's i mean they'll have to figure out a bunch of logistics on their own but still there's nothing really how can mcdonald's enforce it do you think putin is gonna enforce that when they said they were leaving Russia? Probably not. Hell no. And especially because like, name a more

American corporation than McDonald's. Like, you know what I mean? You'd be hard pressed. I'd be hard pressed to find one. Maybe like, I don't know, man. I don't know, like, what's more American than McDonald's? I mean, they love I don't know. What's more American than McDonald's?

I mean, they love their burgers. 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. Chile and Peru through its intended acquisition of four data centers of Intel. It's not like Intel, but Intel. It's a Chilean communications provider. It's an enterprise value of $705 million is the USD, is the deal size. Now, data centers is a REIT business type that we like quite a bit. I know you own it in your portfolio. Stratosphere covers it in depth. Equinix has some really nice competitive advantages, and they are the largest data center provider in the world. Now, Equinix and American Tower have been making acquisitions, buying data centers in emerging markets,

emerging markets being the case here with Peru and Chile. This is a really smart idea because the data demand is still fairly nascent in those markets. I mean, of course, it's come a long way, but if you look at the grand scheme of things, huge long runway. So I think it's a smart idea these are you know amt and equinex are unsexy compounders they pay nice growing dividends still long runways for growth the reason i'm coupling them together is because it's a very similar process however now amt is directly in the data center business they bought core site for 10 billion i believe i can't remember the price but it was core site yeah 10 billion i think is the number sounds about

right they were they were the smallest pure play i think uh pure play publicly listed real estate data center yeah that's right yeah there's a of them. Equinix being the big dog and AMT eating up core site makes them directly in that game. And so these companies have been deploying capital all over the planet in emerging markets, which is interesting to own some of that really, really important infrastructure providing the most valuable commodity of this world, which is data. Yeah, yeah. The one thing, and I own a pretty significant position in Equinix, the one thing I would like to make people aware, for any of these businesses, I think there will be some short to medium term headwinds when it comes to chip supplies. Takes so many chips. Exactly. So these data

centers use, obviously, they're storing these massive computers, these data computers, and they don't necessarily own them, but a lot of their clients, they will need those computers or servers to be hosted into the data reach center. So if there are supply chain shortages specifically for chips, it could affect the growth for these companies in the short to medium term. So be aware of that. That's something I'm keeping an ear on for the conference calls when they're coming out, just to see what management has to say about that. It could be a reason. I've never really thought about it until now. It could be a reason that on the last maybe 24 months as a generalization, the capital allocation strategy has been quite acquisitive versus new build. And so maybe that has something to do with it. I mean,

if you can deploy the capital and acquisitions and grow your footprint versus, you know, not have to deal with the shortages of new build, maybe that makes sense. Yeah. Yeah. I think it's just something to keep in mind and don't be scared if you see that in the short to medium term. But I think long term, I believe they have great prospects here. Now, moving on to some earnings, Alimentation Cousteau released their Q. I was so pumped for you to say the name, by the way. I was I was hyped up over here. Yeah, for our French speaking fans. And I know there are some a lot. I was so pumped for you to say the name, by the way. I was hyped up over here.

Yeah, for our French-speaking fans. And I know there are some. I do get some tweets and some DMs from people who say, ask me when I'm going to do a French episode, which I'm not sure if we'll... It's like 15% of our listenership. From Quebec, but we may have some French listeners from Ontario, from other areas, but obviously but obviously predominantly most likely Quebec but that's true we'll see if we ever do that I won't promise anything maybe I'll we'll do a spin-off in French at some point who knows huh yeah the Canadian investor podcast on Francais exactly well said so Alimentation Cousteau, they released their Q3 2022 quarter results.

And obviously, they have a bit of a weirder financial schedule here. Their revenues increased 41% to $18.5 billion, fueled, no pun intended here, by fuel revenues, which were up 59%. It's not surprising considering the cost of gas has gone way up since the same time last year. Merchandise revenue increased at a much slower pace, but still 5.8%, which is pretty good if you ask me for a company as mature as Alimentation Cousteau. The increase in merchandise revenue was due to a combination of new acquisition and organic growth. Organic growth was 3.7% in the U.S. and 7.2% in Europe and 0.8% in Canada. So kind of stalled a bit in Canada here.

Net earned. That U.S. number, really? Yeah. That's good. Yeah, that's not bad. 7.2%. No, that's in Europe. 7.2% in Europe, 3.7% in the U.S.

Oh, 3.7% in the U.S. Okay, well, still pretty good. That's pretty good for organic. Yeah, that's in Europe. 7.2% in Europe, 3.7% in the US. Oh, 3.7% in the US. Okay, well, still pretty good. That's pretty good for organic. Yeah, that's a good number. For a company that essentially sells low-cost merchandise for the most part, I think it's pretty good too. Yeah, it's convenient. C-store. Convenient store.

That's it. Net earnings were up 23% to $756 million for the quarter. They declared a 11 cent dividend per share for shareholder of record on March 24, 2022. So, I mean, I think you would have to invest essentially today if you wanted to be recorded just in time. So by the time you hear this, it'll be too late. This is the same as the previous quarter. late. This is the same as the previous quarter. So the dividend is the same as the previous quarter, but was up compared to last year, up 25%. So all in all, I think a very, very good results from Alimentation Cousteau. All the numbers I mentioned are in USD with the exception of their dividend, which is Canadian dollars. Yeah, because they're only Canadian listed. So that makes sense.

I think because such a big part of their operations is in the US now, ever since they made that Circle K acquisition, right, years ago. And also in Europe. So most of their results are actually set in USD, but then the dividend is in Canadian dollar. It's kind of funny. I feel like, you know, just make it consistent across the board. But anyways.

Well, I'm saying that because it's only listed in Canada. So it makes sense to issue the dividend in CAD. But it's so funny that they state their results in USD, though. Yeah. I think it makes sense. That part makes sense to me. Yeah. Yeah.

Well, just so much of their business, right? If you look at the revenue mix. Now, yeah. Like if you look at a dividend per share of CouchTar, it is like, it's egregious, like 25%, you know, year over year, pretty consistently like 15 plus percent on the dividend. I mean, it's not a huge dividend. It's not going to rock your socks off, but it has been a sneaky good stock. You know, the best time to buy that stock was when everyone hated it when they were

going to buy Carefour, the French grocery store. That was a confusing one. It was really confusing, had some negative sentiment. Oh boy, it's been a good stock since. Now, I just want to highlight CouchTire because I'm going to talk about the risk in a second, but they have grown their gross profit per location from $600,000 gross profit in USD in 2018 to their most latest print that you're talking about in Q2 of 2022 fiscal over $700,000 in gross profit. So per location, they have extracted very consistently on the up and up to right now of over 700 grand gross profit per location. That is the investment thesis that they have had same store sales growth and a consistent knack for excellence on an operational level that's the thesis of kushtar it's like no one does c store better than them

in the world yeah it's actually probably a bit higher because your data is q2 2022 this was q3 so it's probably actually a little higher than that. Yeah, they just released Q3. Ping my analyst. Hey, update this. Yeah, no, no. Okay, fair enough. So a little higher. Like it's been a story of operational excellence. I think that's the investment thesis.

The risk that I'll point out, and it's written on the Kushtar report on Stratosphere, is the EV risk is real. I know they have about 5,000 chargers that they've built. They've done this pilot program for EV charging infrastructure in Norway, you know, one of the most forward thinking in electric vehicle infrastructure countries. However, if you had a pump in your garage, why would you fill up elsewhere for the most part? Like assuming you have the connectivity to be able to charge at home with an EV. I think that's a requirement. If you have

an EV at this point, why would you charge elsewhere a few times a year, a few times a year? And I don't care if it hurts fuel revenues. You know what? Like it's such low margin, like who cares? So much low margin, but the traffic that they make money off of is that merchandise volume. That's the concern that I think that people will have. To counterpoint to what I'm saying of my own bear case is if you're stopping for 15 minutes to charge, 25 minutes to charge, chances are you're going to stop and get a snack. However, that traffic, I don't see a world where it doesn't decline drastically over the next 15 years. That's my opinion. That's what I think. Yeah. Yeah. I think it's a good point,

especially since I'm thinking most of the time I go to a convenience store is because I'm going to fill up our car. So it is definitely related there. So it'll be interesting how they pivot going forward. I think probably another, maybe a little bit of a question mark is growth by acquisition. It may be a bit more limited going in the future because they've grown so much. So there might be some question marks there,

especially with them trying to buy Carrefour. I think it's an indicator that they were trying to think outside the box maybe a little more with acquisitions. So I suspect you'll see a lot of returning capital to shareholder in the upcoming years from Couushtal, whether it's increasing that dividend or potentially buying back shares too. Yeah. And I think regardless, they'll be doing a lot of that. All right. Let's talk about Accenture. Thank God for these companies that have these different fiscals. These earnings shows, what would we talk about?

different fiscals. This show, these earnings shows, like what would we talk about? Accenture, dude, I love this company. I love this company. I'm going off notes right now. Accenture is a beast, okay? This is a great business. I would buy shares here for just telling you right now. Revenue was 15 billion for the quarter, and this is their second quarter fiscal 2022. This was up 24% in constant currency USD. It's actually a increase on revenues on the top line of 28%. If you use local currencies, remember this is a global business. So there's lots of currency math going on. Through the first half of their first fiscal year, they have done 30 billion in revenue. This company is a beast. $2 billion of free cash flow for the quarter.

They spent $1.7 billion on buying back shares, paying that modest but growing dividend. Earnings per share up 14%. New bookings of $19.6 billion in new bookings. What the? An increase of 22%. So the scale of this business is crazy for a services business. I love services businesses. As you know, it's like free cashflow compounding out the Wahoo. Now their services, their core strategies and their core revenue basis is

strategy and consulting technology and operations. They see strong double-digit growth across all of those. And they see very strong double-digit growth across cloud, their interactive and security platforms. So those are big businesses moving forward. They're big businesses now, but they're going to be big businesses moving forward. And they're going to be bigger businesses moving forward. Not really a lot to dislike here. The stock is on a rare 20% drawdown for this super consistent, profitable compounder.

There's some nice tailwinds in their services, especially helping companies transform their operations on the cloud, get them up to speed on security, have this interactive component to the business. I suspect from this point forward march 21st recording this the 24th when you hear this i suspect you do real well on a century moving forward not investment advice do your own research i just i think the business is a bit of an easy one here for me so the new bookings of 19.6 billion, that's essentially just a pipeline, right? That they have? Yeah, that's right.

Yep. Makes me. Yeah. Reminds me of Boeing and Airbus always talking about their pipeline. Yeah. Yeah. Like all services businesses, like when I talk about WSP as well, like the bookings numbers basically, or like service backlog is really typical for construction businesses. And so it's kind of like future wins.

And it makes it easy actually to do projections, which is nice. And it's a services business too that like has these kind of recurring revenue models kind of built into them as well, which are obviously ideal. Yeah. No, it seems like it was a very good quarter. Moving on to UD8 mining. It's their 2021 full year result. So I spoke about UTAID.

I did a review of them late last year. And I will add that to the show notes in case some people are looking to get a bit more context on their financials because it is a bit wonky. I'll give a little bit of an overview why I do this, but it is a bit different than most companies. So they had a great year. It's no surprise because Bitcoin was up 66% for 2021. It might not feel like that if you bought Bitcoin around the peak, but if you bought Bitcoin before the start of 2021, you had some nice gains for the year. start of 2021 you had some nice gains for the year on december 3rd they were the first crypto mining company to be added to the snptsx index so i think that's a pretty noteworthy milestone for them the company purchased just shy of 32 000 mining rig from micro bt mining rigs are essentially

computers that are used to perform complex mathematical problems to mine Bitcoin. So when they solve those problems, they get rewarded in Bitcoin, but also Ethereum when it comes to hot eight mining. Approximately 10,000 of these machines have still not been delivered and will be delivered throughout 2022. Revenues more than quadrupled to $173 million. It sounds like a lot, but again, it has a lot to do with the price of Bitcoin that was way up last year. The total Bitcoins held in custody or in lending agreements was $5,518, which more than doubled compared to the end of 2020. There was 3,518 in custody and 2,000 were in lending agreements. So lending agreements are essentially them lending Bitcoin and then receiving a yield in exchange. So the yield varied between 2% and 2.25 percent they were free cash flow negative for 162 million for the year compared to

only 6 million the year before so it would be really easy to look at these number and panic if you're not familiar with ud hate and their operation that's because their free cash flow is really negative since they convert most of their revenues which are in bitcoin that are being mined to digital assets to their balance sheets which they don't convert to cash so because of that because they're being converted to digital asset they're not producing free cash flow or cash flow out of those bitcoins that are being mined so that's why it looks so wonky in their operating activities, in their cash flow statement. For 2021, that accounted for $165 million removed from that cash flow statement. So that gives you a bit more context why they lost so much cash or free cash

flow. But it's nothing to be concerned about because that's just the way that their business is in the previous year they had sold a bit more bitcoin it was more like a 50 50 split from them mining bitcoin and selling them and keeping them on their balance sheet but in 2021 they actually shift the strategy where they are trying to keep as much Bitcoin as they can on their balance sheet and sell as little as possible. Their strategy is essentially to fund their operation with share issuance. So through equity, which made their share price increase 74% for the year. So it's quite a bit. Yeah. Their outstanding outstanding shares. Yeah. This is remember when I was you were talking about miners like as stock equity plays like like crypto Bitcoin miners.

And I was like, you really got to believe in the price action because you are going to be diluted so heavily because that's the bet is that it's cheaper cost of capital to dilute shareholders than sell assets on the balance sheet right like that's the thesis and you have to believe in that or else this is a shit show because that outstanding share count is gonna balloon yeah yeah exactly so essentially the you know the thesis here is you believe that the price of Bitcoin and the amount that they're actually mining in Bitcoin will outpace in a pretty good margin the share dilution that they're doing because that you know, they're self-financing, they would actually be selling a lot more Bitcoin for cash to cover their expenses and their expansion. And then they want to have a lot less on the balance sheet. So like you just said here, if you're interested in this company, you have to really believe in Bitcoin because they're essentially using fiat or cash to finance their operation to then store it into Bitcoin. That's the simplest way to do it.

Yeah. Yeah. It's a really interesting model. I don't know if I like it. I don't know if it'll work. But it is interesting. Yeah. And throw everything about accounting out the door.

Like their income statement is pretty much useless. Maybe not like the expenses line item. i mean top line's useless for the cash flow statements useless you're basically you're basically just monitoring balance sheet right like yeah pretty much yeah i mean there's a couple of metrics i would keep an eye on for them so you want their hash rate to increase over time so hash rate is just a computing power but again you're not going to find that on that's true income statement no that's true. I mean, obviously, you want to see how much you want to keep an eye out the amount of Bitcoin that they have on the balance sheet, the price or the value of Bitcoin is less important. In my opinion, you want to know how much natural Bitcoin they have,

because the value that will fluctuate, obviously, you want it to increase long term. So that's the one thing I think will be important to look at on the balance sheet. And you also want the share price to increase as well because it'll make them dilute less when they do issue equity. So I think those are probably the two main things I'd look at. But yeah, it's I mean, just know what you're getting into if you invest in Huttade. I know a lot of people on Twitter that are Bitcoin bulls believe in this company a lot because they have this huddle strategy. I know Courtney Stephen that's been on the podcast a few times. I've interviewed before.

I know he's a big believer in Huttade, but something to keep an eye on if you want almost a pure play Bitcoin company. this would probably be it. I can't really think of any other one. Well, there's other miners out there. Yeah, there are. There is, but especially listed in Canada and that has that specific strategy. I think a lot of them are not necessarily using equity to cover their expenses, for example. Like they'll sell it and self-fund it.

Yeah, they'll sell a bigger portion so they don't have to issue debt or equity to fund their operations. Yeah. It's definitely a levered to the nines play. Like, I mean, like you got to really, you got to really believe it. 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

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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. All right, dude, I was making this segment and I was like, didn't you make your bold prediction that the tsx beats the snp by like 10 what was the amount man i don't remember i i think it was

one of my it was 10 i don't know we've done so much content since i can't even remember like when we do our review i have to actually go back and listen to them because i don't really remember dude you made a bold prediction just like no you know we make these stupid bold predictions for the year that are just like hey you know this is kind of interesting this makes for good content and you're like yeah the tsx is going to lap the s&p by 10 i'm pretty sure that's what your thing was you You have to go back and listen. The TSX is currently beating the S&P 500 by 10% year to date. Almost exactly. Now, this is going somewhere different than you'd think, which is, sure, it might be cool to take some victory laps if you own a bunch of TSX names. You own energy, you own the banks. I hear you. Congratulations. I hear you. I love it. That's amazing. I'm not hating. I believe in it. I love it.

I'm just saying, keep in mind that the TSX minus Shopify, you know how these things work. They're market cap weighted. You basically have banks, energy, telcos, materials, which are mostly all at all-time highs. I don't follow telcos. The other ones for sure are at all-time highs. However, zoom out a little bit. I'm tired of the energy victory laps. This is me saying, I'm tired of the energy victory laps. I, you know, congratulations, have your time here. But, you know, a lot of these things are trading at the prices they traded at like 2008. So, you know, let's back up a little bit here. Not banks. Banks are good. No beef with banks. Over the past five years, the TSX has performed 42%, 90% for the S&P 500. And this includes this recent huge change in performance.

Year to date, the S&P is down like 7% and the S&P is up like 3.5% as of recording. Still including that, you have basically double the performance on the S&P. So in the short term, it's been good for Canadian stocks, but keep in mind, this is a normal reminder from me to not limit yourself to Canadian companies. Invest in public securities. You're completely unconstrained. As a generalization, many of the best businesses in the world are south of the border. So keep an open mind to that. Your biggest superpower as a self-directed investor, completely unconstrained is you have no mandate, no one telling you what you can and cannot invest in terms of like geography. So do not have Canadian home bias and limit yourself

to TSX names, especially with this recent outperformance. This is just my like rational reminder that, you you know there's some of the best businesses in the world south of the border so just keep an open mind to that that's all i'll just say if you invested in energy and nutrient in summer of 2020 you're like crushing oh for sure oh for sure. Which I didn't. Yeah, I did not do that, obviously. If you can time every commodity, hit me up and let me know. However, I'm going to reply with, no, you can't. Like, it's just luck.

Like, timing commodities, I swear to God, like, if it works, it works. It really works. Don't get me wrong. It's just like, do it consistently for a long time. I just have yet to be convinced that anyone, any human in the history can reliably do that. It's just requires knowing the future. And we all know that. We all know about that. You can't know the future. And if you could, you'd be a billionaire. You wouldn't be listening to a podcast.

You'd be on beach somewhere nice with your billions of dollars. Yeah. Now, moving on to a bit of a dumpster fire when it comes to Canadian equities. EXO, they had their Q2 2022 earnings. So I'll start with the good here. So I had previously mentioned in one of our earnings and news releases that new management had taken over. The good news is they seem to have a plan going forward. Whether it will work or not, I guess that remains to be seen. The highlights of their new path forward is as follow, to continue reducing manufacturing and production costs, streamline and simplify the organizational structure, realize cost synergies from acquisition and recent plant closures, focus on revenue

management, including more disciplined pricing, accelerate growth through organic market share gains, and capture misrevenue opportunity. I mean, I don't know about you, but a lot of this seems pretty optimistic. That's just my view here. It's putting a spin, a positive spin on bad things. It's like, realize synergies from recent plant closures. Yeah, I know. synergies from recent plant closures it's like yeah i know you know what i mean like the recent plant closures is not a good thing but hey we can realize some cost synergies it's like really you know painting a positive picture on what is a pretty grim picture in my view yeah and obviously i do hope that they turn things around because a lot of people are employed by them. But I'm just saying that.

Yeah, for sure. Yeah. These are still like, I mean, it's pretty, it's not very specific. It's kind of the big lines. I'm sure they go a bit more into the details of it. But whether it will work or not, I think these are pretty obvious things that you'd want to do. But whether it'll actually, you know, work going forward, we'll have to see. But they believe that their new plan will generate $37.5 million in cash for 2022 and $135 million for 2023.

And here in cash flow, I forgot, wrote the wrong word, cash floor, but it's actually cash flow. Continuing on the good news here, revenues increased 61% to 53 million year over year. But again, they are still burning a lot of cash. Now the not so good, they were free cash flow negative for 90 million for the quarter, which was five times more than last year. They were in a breach of a senior convertible note, which the holder could have passed for accelerated payment because they did not meet some requirements. However, the holder of this convertible note agreed to postpone this until May of this year, so a few months. So we'll see if that goes

beyond May. They've also been approached for a $180 million equity agreement over a 36 month period this was non-binding so it remains to be seen if it goes through and they did mention that the company does not have sufficient funds to fund all aspects of operation which means the company is dependent on this agreement going through if not there are some going concerns. There are questions whether they can meet their going concerns going forward, which just means to meet their obligations going forward. Let's remember here that Exxon received a warning as well from NASDAQ saying that they were not compliant and that their shares could be delisted. The warning was issued on January 31st of this year.

They were given until July 25th for a minimum, to have a minimum of 10 days to be compliant. So the requirement is that they be over, if I remember correctly, I didn't put this on the note, but I believe it's a dollar per share. And right now their shares currently trade at 60 cents on the note, but I believe it's a dollar per share. And right now their shares currently trade at 60 cents on the NASDAQ. So they are very far from meeting that requirement. And if they don't meet that by July 25th, NASDAQ could extend a period to give them more time, but they could also get them delisted from the NASDAQ. This is what happens when you have a strange market cycle where a new

thing, a new hot thing hits the market, in this case, cannabis legalization, where investors treat not only the public investors, the private investors that have given them the cash to get to where they are, to get manufacturing capacity, to do what they have done, requires a lot of believing. And they were addressed like they were given these infinite total addressable markets. You know how this goes. It's just crazy. 60 cents on the NASDAQ. I am so glad I do not run this business. That's all I have to say. Yeah. Yeah. And the 180 million equity agreement that they're very dependent on, what it sounds like. And I took that information straight out of their financial statement. Keep in mind, that's going to dilute even more, right? So I think-

Yeah, because what's the market cap? I think it's in the millions now. It was in the billions before. I don't have it in front of me, but still it's going to dilute- 275, I just got it. There you go. So it's-

275 mil. So, I mean, the company is clearly dependent on it, yet, you know, I guess it's a good thing if they do get it, but at the same time, it will dilute shareholders even more. So damned if you do, damned if you don't i wish there was a canadian company when this whole like remember when they were going into full-on like acquisition spree like it was then canopy afria

what's the last one i'm kind of till right did you say till right no i didn't say till right i think they were one of the aurora aurora cannabis was aurora yeah so they were going like paying these ridiculous premiums just for like future production capacity it would have been nice to see one of those big players to just kind of sit back a little bit just say we're not sure what the market will be. We're going to sit back, we're going to produce a good amount, but we'll see how the market develops. And now, if there would have been a player like this, they would be able to pounce and get so much production at just a fraction of the cost. Two thoughts here on just looking at super, super beat up stock charts on the TSX.

Two things come to mind. One, let's dunk on FaceDrive, which is down 98%. We bashed that company into obliteration on the very peak of that company. So check, please. And just looking here, down 50% since its IPO, Q4 Inc. I'm going to do a segment on this podcast very soon on Q4 Inc. It is a Toronto-based company that does investor relations software. So literally Visa, MasterCard, these companies use Q4 for their investor relations. They have over half of the S&P 500 on their platform. Been a terrible

performance since IPO, and it trades at 215 million in market cap. Way less than this shit show dumpster fire of Hexo, which trades for 60 more million in market cap on the TSX. Just for a small cap idea on a beaten up chart that is very, very small in micro cap land, or I guess small cap land. Q4 Inc. It's a software company. Really promising, honestly, to be honest. I like the business here. It just reminded me of it and i

should probably do a pitch on it soon yeah yeah i think our plan is probably to do one with one of our recordings this week which will be released in the next probably by the time this airs in the next like seven to ten days i would say just a rough guess a rough guess because we still have to figure out the the release schedule but in that episode I'm looking to do a review of Aritzia as well. So I think it'll be a fun one. Okay, so we got a good couple of Canadian names coming up that are like reasonably low in market cap. And, you know, it's interesting to try to find small cap ideas

because there's just no one covering them. You have to do your own research. So here we do your research for you well let me yeah not investment advice let me rephrase that let me rephrase that we provide our thoughts and it's very useful research for you let's do last topic here on the slate which which is the U.S. Fed raised rates and the market celebrated. What's that about? Yeah. So the U.S. Fed raised the interest rates in the U.S. So the FOMC, so that's for the Federal Open Market Committee, which consists of 12 members approved to raise the interest benchmark rate in the U.S. 25 basis point to 0.50%. There was only one member that did not agree with the move, and the member actually wanted a raise of 50 basis points. The Fed

indicated they're most likely to increase rates six more times this year, which means they could increase for the total. The total increase for the year could be as much as 175 basis points. It could even be more than that. I've seen some reference now on Twitter, some reporters asking Jerome Powell, so the chair of the Fed. And, you know, they're not against even raising the rates by 50 basis points in some upcoming meetings. It will depend where inflation mostly is going. They also revised

their inflation outlook significantly for 2022 to 4.1%. That's the core CPI that I was talking about a bit earlier, excluding energy and food. All of this, obviously not surprising with inflation picking up. And this is also in line with what the Bank of Canada is doing. Inflation really has taken a front seat here and the central banks are really trying to get that in check. I mean, will it be enough? I really don't know. But the banks around the world are raising rates pretty rapidly. This is not an exception to the rule. That's pretty much happening around the world are raising rates pretty rapidly. This is not an exception to the rule. That's pretty much happening around the world here.

If that continues happening, bond funds will have a rough year because bond funds will actually go down when interest rates go up because the bond fund has to get a higher interest to match what is currently demanded by the market. Therefore, the value of existing bonds actually goes down. It might also place a damper on the housing market. However,

typically there is a delay with that and we'll see how aggressive they are with increases. If they start increasing for the full year, let's say the rates end up being like close to 2.53%, it could put a damper on the housing market in a couple of years from now. One of the questions I get the most on the Stratosphere Community Forum is what are going to happen with rates and how does rate hikes affect stock X, stock Y, stock Z? My answer is always, one, you cannot predict it or even waste any time predicting it. And two, I'm hoping to own companies that have excellent business performance, excellent fundamental performance, regardless of what happens with the Fed. And so when you see these rate hikes happen, it's fine. It's okay. It's

normal. This is literally part of credit cycles. It's part of credit cycles. And so just take a step back and remind ourselves that they've been basically at zero, right? And so they're still so low, right? Rates are, we're going to have, you know, I'm going to be replying to your segment about rates three hikes from now. And I'm still going to be like, they're still really low. Like rates are still like build in all the right hikes you now, and I'm still going to be like, they're still really low. Rates are still like, build in all the right hikes you want in your model. It's going to take a lot to change my sentiment on it. Yeah. No, that's definitely a fair take. Well, it's almost impossible to

predict where central banks will go with rates. It's also very difficult to predict what impact it will have on the economy as a whole. To what extent will they raise rates? Will they create a recession? If they see a recession is starting, will they stop raising rates? There's a lot of questions that, you know, once you start thinking about it, you have about 15 other questions. So like you said, oftentimes it's just better to not worry about it. The Fed or the Bank of Canada will do what they do. That's their job of worrying about it. Your job is just to make sure you invest in good businesses that are fairly valued,

that have good long-term prospects. And if you have that approach and you do a good due diligence and you pick the right businesses, you should do well in the long term. I know I just mentioned that I really am glad I'm not the CEO of Hexo. I'm also super glad I don't work for the Fed or the chair of the Fed. It's such a thankless and damned if you do, damned if you don't job, isn't it? In what scenario is it not that like in what scenario does you know the market go great great job claps all around like it is such a thankless position yeah yeah no matter what you do it's wrong like you know what i mean well remember what like what was it about like seven

eight months ago they were still talking about like inflation being transitory. Okay. Well, yeah, that was stupid. That was really stupid. I mean, maybe at first, but then it kept persisting and they just stuck by it. Eventually, they just changed their tone. And now, obviously, they've removed the word transitory. But the last thing... Well, if their job is to provide stability in the financial markets, which is one of their mandates, if I understand their job correctly, then what they're saying is important too.

Yeah. Oh, yeah. So they're saying things to provide more stability, which is saying things that maybe don't make sense, but give the market what it wants to hear. And so maybe that's the correct thing to do. You know what I mean? Yeah. And I think probably the biggest takeaway from me here is make sure that your debt is manageable, especially if you have variable debt. If it's variable. Exactly. And even if you don't, even if you have a fixed mortgage or you're thinking of buying a house

on a fixed mortgage, well, we don't have 30 years fixed mortgage in Canada so you have five years I think sometimes you might be able to get like six or seven years I'm not sure but it's not for extremely long periods of time so make sure you do have a margin of safety if those rates do go up and you have to refinance when they are higher, give yourself a little, you know, some wiggle room because the banks are not looking at that. The banks have their own stress test, but they're not. I've mentioned it before. They're not looking at you maintaining your lifestyle. They just want to make sure you can do your mortgage payment. If you have to eat crap dinner to do it, they don't care as long as you pay your mortgage payment.

Take a page out of my book yeah take a page out of my book girt and ramen baby as long as they get their payments yeah no i think that's true all right thanks for listening guys we really appreciate you if you have not rated the podcast or shared it with a friend please please help please help us and do that. It's literally like we don't ask for a whole lot and we grind out this show for all of you and we really appreciate you. Number one podcast in the investing chart for in Canada. Did you know in Canada, our podcast is more listened to than Tim Ferriss? did not know that that's crazy dude yeah pretty sweet it's pretty sweet that is dope I don't know if his figures are affected by like

he has like some like patreon where people listen to exclusive stuff as well I don't care I just feed me the number I want to know which is more listened to the Tim Ferriss put that on the on the resume. That's awesome. And we appreciate all of you. And like Brayden said, give us a like, give us a review. It's always appreciated. And you can always reach out to us on Twitter. We try to interact as much as we can. We have busy schedules, but we do try to interact with our listeners as much as we can there. If you have not checked out Stratosphere, stratosphereinvesting.com or getstockmarket.com, completely free to use the

most powerful analytics platform for self-directed research in the world. I straight up believe that the feature we just launched is ridiculous. Data visualizations for every single company. I literally, like my devs literally just merged the code after I've been testing it all weekend. It's there. You can check it out. Literally every company, you type in a ticker right from the website. You don't have to be logged in and you will get data visualizations for every metric that me and Simone find super important right on the front cover. And you'll get every single metric right there graphed on a 10-year view because these trends are important and looking at data in a nice way. It makes my brain feel nice. I really like that. So check that out,

stratosphereinvesting.com. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Braden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.