The Canadian Investor - Canadian Stocks Unlocking Value - Earnings Roundup

Episode Date: May 19, 2022

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: US April CPI release WSP Global earnings Nuvei earnings Unity earnings Is the Musk-Twitter deal now on hold? Brookfield Asset Management earnings DCBO earnings Equitable Group earnings Suncor earnings Terra USD de-pegging from the US dollar   Tickers of stocks discussed: WSP.TO, NVEI.TO, U, TWTR, BAM-A.TO, DCBO.TO, EQB.TO, SU.TO   Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital   Check out our portfolio by going to Jointci.com 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. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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My name is Brayden Dennis, as always joined by Simon Belanger. Simon, how you doing, buddy? We have lots to talk about. Earnings seasons now kind of slowing down, but it was another busy week last week. So we got lots to talk about, lots of Canadian names, tons of Canadian names in here. I think almost all of mine are. Yeah, I think we're almost all exclusively Canadian names this week. A few news items that are not Canadian, but that's right. I have Unity. I think that's probably the only one. It's just weird because prior to this,

there's been obviously lots of earnings, but I think all the Canadian companies I care about and hold reported in the last five days. I think it's just cool. Let's get started. We do have the busy show. So first thing I wanted to talk about is obviously the big macro in the US figures coming out for CPI. So consumer price index, the big US macro is important here because obviously it's been very high for the last couple of months. So CPI came in at 8.3% year over year. It was slightly lower than the March figures, which were 8.5%, but still very high. A lot of people were hoping that inflation had peaked, but it seems like it may have. But again, I think we're going to need a few more months of data to be able to say

it's peaked or not at this point. The Fed even said last week that they can't guarantee a soft landing in the economy and they are now focusing on controlling inflation. A soft landing in Fed speak really means that they have really no control at this point whether their actions will create a recession potentially and they're definitely acknowledging that they're focusing on inflation and it may cause a recession. So it'll be interesting what happens going forward. But I've mentioned it before. I would not want to be in the shoes of Jerome Powell, the chairman of the Fed, because they're really stuck between a rock and a hard place here. This is the worst job ever in this situation.

And you know what? We obviously don't get political on this show whatsoever, but I did see a tweet that now has 165,000 likes, 27,000 retweets from Jeff Bezos, 7,000 retweets from Jeff Bezos, chairman, CEO of amazon.com. He retweeted a Joe Biden tweet that said, you want to bring down inflation? Let's make sure the wealthiest corporations pay their fair share. Jeff Bezos retweeted it with a quote saying, the newly created disinformation board should review this tweet, or maybe they need to form a new board instead. Raising corporate taxes is fine to discuss. Taming inflation is critical to discuss. Mushing them together is just misdirection. And you know what? I believe that to be true. I don't get political on this show at all, but I do think that it is irresponsible for someone like the President of the United States people on earth going directly after the president for misinformation.

What's more 2022 than this tweet right here? It's got to mix everything. Misinformation, Twitter, and inflation. This is literally the 2022 tweet. Yeah, and the reality is the inflation question and the causes is a lot more nuanced. It's very easy to try for politicians to try and put blame on their rivals or anything like that. But I think the reality is it's very nuanced and there's a lot of different causes here. It's not just one thing.

So it's important, I think, for people to keep that in mind. And the last thing here, I don't know if you saw, but Ben Bernanke, who used to be the Fed chairman during the great financial crisis, took a shot at the Fed for being too slow to react when they saw inflation. So I didn't see the whole thing. I just saw it as a glance. But I'm assuming it was probably taking a shot at the transitory segment that we had for a few months where the Fed was just like, oh, things were just get back to normal. It's transitory. Obviously, they're not saying that anymore. But I thought that was interesting, too. Macro, something that's always important in so many conversations, but just so far out of my circle of competence and circle of influence and things

that I can control. The important thing here to touch on is when you are in an inflationary environment, let's not kid ourselves. I think it's much higher than the CPI will tell you. I know for a fact actually that it's way higher than what the CPI will tell you. And you got to own businesses that can have pricing power, that can raise their prices over time. And that's going to be really important. All right. WSP Global, the engineering firm only listed on TSX WSP. So their first quarter of the year here, revenue at 2.7 billion, which was up 28.8%. Really nice top line growth there. Now, the real standout bright spot here is organic net rev growth of

12.7% for an engineering firm of this size is phenomenal. This is a mostly grow by acquisition roll-up of engineering firms across the world. I like roll ups of professional services. I'm very vocal on that because it introduces cross selling, especially when you have a company like WSP that focuses on the built environment. If you're doing ground sampling, you can also do the engineering for designing the actual structural civil engineering as well. And so it kind of rolls all up into each other really well. So that almost 13% organic rev growth is really nice.

Earnings per share was only up 4%. And I'm going to talk about why the profitability here, free cash flow is actually negative. And they said on the press release, the main contributor to the variance is an additional period of payroll. So a full 15 days, which will reverse and have the opposite effect in the second quarter. I was like, okay, I wanted to do some math on how much SG&A selling, which is for those who don't know, selling general and administrative, a line item on their income statement. I wanted to see what percentage of that compared to total expenses for the company. Because it's a consulting firm, right? So it's going to be... I figured obviously quite high. So I went to Stratosphere. I typed in WSP. It's Canadian listings. So WSP semicolon CA.

And then on the financial summary, you can select SG&A and total expenses and see them year by year and how they're changing. SG&A is 62% of total expenses, which makes sense. I mean, it's an engineering firm. Their costs are human resources in the consulting game. And so that obviously has a huge impact on profitability. Adjusted EBITDA was $325 million, which is up 35%. I mean, there's a lot of adjustments in there, but that's probably a more important profitability metric. Their backlog is now $11 billion of bookings that they have work to do, which was up 31%. This know, describes their entire pipeline of business. Now, Simon, I have the CEO's name here because before I say it, I just want to hear you correctly say it. And then me attempt to say the CEO's name and butcher it. But give me what I should say.

Yeah. So his name is pronounced Alexandre J. Leroux. Or Alexandre Leroux if you want to take out the J. Leroux. Leroux. Okay. Wow. Okay. There's so many.

It's a fairly common name. Definitely not the first time I've seen that last name. Yeah, I've seen it in Alexandria. I mean, that's very French Canadian. So the quarter also marked the one-year anniversary of the Golder acquisition, which is what the CEO had a big segment on that here. Today, Golder is fully embedded in our business, allowing us to further capitalize on the thriving environmental sector.

With our healthy balance sheet, we are now well-positioned. Simon, I see snow out. Oh, no. Oh, no. Is that snow? Oh boy. Oh no. It's falling too slow. Oh no. After the weekend, we just had 30 degrees. What is this? Okay. Back on track here. So they said that with our healthy balance sheet, we are now well positioned to execute our 2022 to 2024 global strategic action plan. Now I'm talking about this gold acquisition because it was a $2 billion acquisition. There's a huge outlay of cash for them. This is a stock I've owned personally since 2018. I actually deployed a lot of capital in late 2018.

No one remembers because every drawdown, they forget so quick. The S&P actually fell 18% in the fourth quarter of 2018. But everyone has a short memory. Once the stock market's back at all-time highs. So remember that during the stretches of poor market performance, these are gifts for long-term investors. Some of that capital deployment is my best, best work in late 2018 there because it was just such a sharp random drawdown for pretty much no good reason. Now, I recognize that it sucks if you need to withdraw money or if you have a shorter time horizon for drawdowns. I understand that. But if you have a longer time horizon, this is a gift for new investors. If it's the case that you need to pull out money or whatever, again, none of this

is financial advice, but you probably shouldn't be all in on equities if that's the case in the first place. So you either need to ride it out or not. I'll be in equities, one of the two. But just to reiterate that every single market decline seems so bad when it's happening. And then when it's good again, you completely forgot all about it. Just like 2018 all over again. Yeah. And most of the time you also think, man, I should have invested more money when it was down. Exactly.

It was so obvious. Here's the thing. I think we talked about this last week too, right? Is if I deploy a lot of money this month, like I have been, because I think that there's some really good opportunities. I finally bought S&P Global down on a 30% drawdown. It can keep falling. You can feel like an absolute idiot in the short term, but then you'll look back and you go, wow, that was a pretty good entry point. And so, yeah, that's all I have to say about that. Yeah. Yeah. I mean, I've been deploying capital too,

and probably not as much as you, because one thing I'm realizing, babies are expensive. So there's been a lot of my capital going to that as well. I don't know, man. I literally don't pay myself. So I don't think it's as much as you think it might be. I mean, little humans cost quite a bit. I'm sure we'll get some people tweeting at us that are parents and they'll probably agree with you. No, no, no, no, no. Don't hear what I'm not saying. I'm not saying kids are not expensive. I have no insight on that. I'm saying that I'm not deploying as much as you think. Sounds good. Okay. 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. Calling all DIY, do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there.

I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store, and I'll see you there. Now moving on to our next company, Anoeve, released Q1 2022.

These figures will be in US dollars because they are dual listed and they report in USD. Total payment volume, they do say total volume, but the way they talk, it's just total payment volume, increased 42% to $29.2 billion. Revenues increased 43% to $215 million. They had some negative impacts from foreign exchange rates. They did mention that. Europe was definitely the bright spot here with revenues increasing 73% to $125 million. North America, their second largest market by geography, increased 13% to 81 million. Net income decreased 84% in large part due to stock-based compensation. Free cash flow increased 36% to 82.5 million. They added several new customers during the quarter, including some

well-known ones like FanDuel and the score again in the gambling space but I think it's important to keep in mind there were other customers that were added that are not within that ecosystem the guidance remained unchanged for Nuve for 2022 I did have a look to their Q4 of last year release just to make sure it aligns and everything, all the guidance for the full year remain the same. So total payment volume of $127 billion to $132 billion for the year. Revenues between $940 million and $980 million. Guidance of 30% compound annual growth rate in the medium term. They do not define medium term. So let's take that with a grain of salt.

That 30% is for the revenue growth. I did have someone that asked me on Twitter, a wear investor asked me why Nueve failed so sharply when the earnings were released because everything looked pretty good. I don't follow Nueive that closely, personally, but if I were to venture a guess, I mean, most growth stocks were just hammered last week. And Noive, even though the valuation has calmed down quite a bit, and it's only trading around

six, seven times sales, I think they're just in that bucket. So regardless of, you know, having a good quarter or not, short of increasing guidance, I think most stocks are either not reacting or reacting negatively when it comes to growth stocks if they're basically not increasing guidance. This is going to sound so controversial to everything I ever say on this podcast, which is basically in the year of 2022 so far, your stock picking skill has absolutely zero to do with fundamentals and has entirely to do with factor rotations. So like you just said, it's in that bucket. And you're right, it is in that bucket. How well you've done this year has entirely to do with sector and factor rotations.

And so I don't know how long that doesn't persist forever, though. And so you got to focus on the business quality after. I mean, overall, though, you're right. It's about guidance. Right now, it seems to be anyways. At least for growth stocks, right? I think people... At least for growth stocks, right? I think people – At least for growth. Yeah, definitely if you're more heavily invested in value or anything that's more perceived as value name, less emphasis put on the growth for those companies.

For the most part, they fared pretty well. I think they're still, I think as a whole, down as well, but definitely not as much as growth stocks. So I think it's across the board with the exception of a few sectors, but it's mostly across the board and obviously growth stocks are getting completely hammered for the reasons you mentioned. Yeah. Speaking of that, speaking of that, next up on the slate, Unity, ticker U. Good transition. Well done.

Yeah. Not my first rodeo here. I guess one of the, maybe the only non-Canadian listing we're talking about here today, which is rare. If you're new to the show, we talk about, I want to say like half and half, probably more U.S. names than Canadian names, just because there's so many more names to talk about. They reported revenue of 320 million, which was up 36%. Free cashflow, that's for the quarter, by the way, free cashflow of 86.3 million. But if you do some work and if you have some accounting genius geniuses like I do, Adrian, I think God, he's in my corner and working for Stratus here full-time shortly. You realize that most of it's stock-based compensation and deferred revenues that are not recurring. Pre-cash flow is actually pretty

negative if you do those adjustments. But they had 1,083 customers. That's their list of customers that pay more than 100K of recurring revenue in the trailing 12 months. So they've crossed that 1,000 customers paying 100K a year. And so we like tracking this number. They like tracking this number because it's those enterprise clients, right? It's these big game studio businesses that subscribe to Unity. Now, that number was only 837 last year. So, it's growing nicely. Dollar-based net expansion rate was 135%. Again, that's nice to see customers are spending more and more on the platform. Year over year, the current customers, that's the beauty of SaaS and usage-based model. The stock fell 30% on this news, even though they beat the revenue line.

How often does a stock fall 30% and beat the top line sales expectations? That is pretty rare. I mean, sure, a stock might fall while beating sales expectations for reasons X, Y, and Z, but 30%, holy smokes. And those KPIs looked solid, but they guided for some pretty slow growth, like single digits. And that's the theme for Q1 for tech. Decent results and weak guidance will crush the stock. Even good, and weak guidance will crush the stock. Even good, great results, but weak to poor guidance will crush the stock. Now, Unity can be bought today now for $11 billion in market cap. And look, I'll be the first to tell you here, it was so overvalued. Most of these names were.

I think I was drinking a little bit of Kool-Aid with the SaaS names that were trading too high, even though I kept saying they're too expensive. I'm like, oh, but they're such good businesses. And they are such good businesses, but they're overvalued. However, it's a lot more interesting to own some of these important pieces of technology, like a gaming engine for the next decade plus at today's prices than three months ago's prices. I was disappointed on the call that analysts aren't asking about the Unreal Engine 5 coming out and if that's presented any challenges from a competition landscape because the Unreal Engine and the Unity Gaming Engine are the duopolies in creating video games and creating virtual environments. Unreal 5 is probably the

superior technology from my hundred feet view, looking at both, using both, not from a technical perspective, but seeing them both in action and creating these unbelievably stunning virtual environments. Unreal 5's newest version is ridiculous. It's incredible. Unity also noted the challenges with Apple and their targeting ads tool, which is big business for them in the operate solution segment, especially for mobile games, right? Like they offer the ability for people to run and deploy free games and then monetize via ads. And so I could go on and on about the different segments, the opportunities ahead, the challenges. But overall, the thesis really hasn't changed much.

However, the multiple has compressed in a major way. Just as a disclosure, I don't like pumping my own book without saying it. I did double my position on the release of this news of Wednesday, May 11th, the day these results came out. So not much has changed other than the valuation. Yeah, not much to add there. Obviously, we were, I think, texting a little bit after the news came out after the earnings release and how the stock got hit. I think it was down with 35% on the news, something like that. And it's part of holding high growth companies. And clearly you believe in this one and you double down on it. So I do hope that it works out for you. And I know some of our listeners, you know, I like this company as well. So I do hope it works out for me. I think, you

know, I don't have that much capital to deploy right now. So I've been deploying on other things, but it's definitely a name that I find intriguing at the very least. Yeah. And just again, important to note, doubling my position, put it to like two and a half, 3%. It's not like, you know, it's something huge. And if you want to see exactly what it is, go to join TCI.com, join the community, join TCI.com brings you to our Patreon where Simone and I do our monthly portfolio updates. And you can see exactly what we're holding, what we're thinking, what we're buying, and just provide some additional disclosures as well. And see how we do not panic. And keep buying things that are getting shattered.

Exactly. Moving on to the next set of big news that came out last week. So the Twitter master himself, Elon Musk news that came out last week so the twitter master himself elon musk made news again last week he tweeted he can't keep out of these show notes oh man he just uh he loves tweeting uh it's like it's it's almost like he truly does love the platform he does love so i mean i don't think i can recall someone or like, let's say an owner or prospectus owner of a company loving the product so much or using it so much other than Elon. Which is probably good because just from afar watching how bad they are at rolling out new

features, it seems like none of the product managers seem to use the product. So it can be good to see someone at the top using the product. Yeah. And he made news again because he tweeted that the deal was temporarily on hold pending details of spam slash fake accounts. That's because Twitter estimated in their, I think, their latest release that less than 5% of their accounts were spam or fake accounts. So you'll probably, if you're on Twitter, you'll be familiar with these. They're the type of accounts that will kind of respond or reply to your tweet just based on keywords for the most part. That's the one I've encountered the most. Usually, for me, if I tweet something about Bitcoin, sometimes I'll have one trying to sell this scam crypto project or something like that. But of course, after Elon tweeted that, the stock price of Twitter went down sharply.

It finished Friday being down just shy of 10%. I still haven't seen news if there's any updates on this. And apparently you would be on the hook for a billion dollar breakup fee if the deal failed through because of this. So I don't know if you would contest that. If it does get to that, I have no idea whether it's just on hold and then everything will be fine once they release the detail. But something to keep an eye, especially if you own Twitter and you were holding on to the share still. And, you know, let's not kid ourselves.

You've got to think in the background here that Tesla stock falling 33% since April 1st definitely affects financing. Yeah. Of this deal. Yeah. It must, right? It has to. I mean, I'm sure it is. I mean, at the same time i know

they got a bunch of partners as well for financing so it's just it's not just musk yeah i saw andreessen horowitz is joining in there yeah yeah so there's a bunch of you know it's not obviously they're not going to be putting the same amount of money that musk will be but yeah it'll be interesting i don't think he's too worried. I think he's really wanting to know what the actual amount of accounts are because it does impact how he views the business. So I do get it from that perspective. Yeah, I get that too. All right, let's talk about Brookfield Asset Management. Bam! I'm just going to quickly gloss over the results for the quarter. It was a great quarter.

It's more Brookfield doing Brookfield things, but I want to talk about the spinoff in a little bit more detail. Total revenues hit 21.8 billion, up 33%. Not bad for a boring infrastructure and asset management business, right? This is the real growth stock right here, Brookfield Asset Management. The growth these guys are pulling off continues to be mind-bending at their scale and size, to be honest. Fee-bearing capital was up 19% north of $700 billion in assets under management, press release said an estimated $725. That number hits $1 trillion really soon, at 725. That number hits 1 trillion really soon, which is wow. Incredible to think about. All right. So I told you guys this would be happening soon that they did mention in their Q4 call, Brucie Flatt mentioned that it was going to be, that they were thinking about spinning off the asset management business as its own listing. And I said here on the show,

I thought it would happen within a quarter or two at the max. And it was a quarter. And Bruce has officially made the call to list the asset management businesses as its own listing. Quote here from Bruce Flatt, we decided to move forward with separately listing our asset management business by distributing a 25% interest to our shareholders. Based on our estimates of value, shareholders will receive a special distribution of 20 billion of shares, which is somewhere around $12 per share at that time, end quote. So 20 billion and 25%. So 25% is the spinoff that they will list as a separate entity spinning out of into its own listing to own a pure play on the asset management business. This is something that we knew was going to happen. He went on to talk more later about how, as we know, they're doing

it to unlock shareholder value for shareholders faster. Basically, the idea being that eventually, over a long enough time horizon, that share value is unlocked, but they can just do it and unlock it for investors in one day, basically, when the listing happens. And so again, these are the people you want in your corner. These are the people you want managing your money is the partners like Bruce flat and managing the cash for you. And I tweeted out a little, another quote here from the CFO. I'm just going to pull it up here right now. Yeah. He's so on the call and I was listening to the call today and this was Nick

Goodman, the CFO. He goes, over the last 20 years, we have successfully grown two businesses, our capital investments and our alternative asset management franchise side by side. The combination of the two has been a significant competitive advantage for us. And while they are different in nature, they've worked very well together. We have used our capital to create alignment with our clients and provide them with flexibility and leverage our deep investing and operating expertise to deliver excellent results over a period of time. Our business has been built around our core competencies of acquiring, owning, and operating real assets, which provide essential

services and form the backbone of the global economy. So that was a kind of a profound little segment there because it talks about two things. One, that their assets are actually very important in the global economy. Like we're talking about things that move goods, move people, house people, move raw materials, like the actual built environment, and how the synergies between them managing capital and operating real assets have worked so well hand in hand over the past 20 years for them and more. And that's really their competitive advantage and why I think they're different and why they have such insight around investing and operating. There's not many other companies in the world that have any sort of insight like that. I can't think of many. And so, that gives them a really interesting

look at the world. And I plan on being a shareholder for a long, long time. Yeah. And they're definitely a business for me that has that contrarian mindset to find value. Because I'm thinking just the interpipeline acquisition. Remember, they started getting very interested when a lot of oil stocks and pipeline stocks were out of favor. Now it's a bit different because obviously oil prices are higher and they did have to give a bit more of a premium than they originally intended to, but paid a very fair price for it. And then the other one I'm thinking about is BEP when they bought Terraform Power. I think if I remember correctly, they bought them when they were in bankruptcy hearing or something like that. And they created some efficiencies and then they

loved the business so much that they- B-P-Y. Think of B-P-Y. Yeah, exactly. Exact same thing. So that's what they do. They find businesses that are undervalued. Maybe the market doesn't like that sector. Maybe the market doesn't like that business. Whatever it is, if they target it and they see value in it, they'll definitely pounce on it.

And they're not afraid to sit back a little longer if they need to. I mean, they're, yeah, I only have good things to say about Brookfield. Yeah. And I like how you said that. And they're contrary and almost to my own biases, which I like as a shareholder, because look at inner pipeline, something I would never buy on my own, but absolutely unlock value by buying it when the market hated it. Brookfield property partners, when the entire world thought that their real estate business, people are like, oh, people are never going to a shopping mall again. People are never going into the office ever again. And they go, okay, that's fine with us. We will take some of the best real estate assets in the

world, tuck them in private, buy them for a bag of hockey pucks and see you later. They're so contrarian against my own biases as well. And there's just no one really better at doing it than them. Well said. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage

account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I'll see you there. Now moving on to another Canadian company, surprise, surprise, it's almost exclusively Canadian today, which, you know, Canadian

investor podcast. Dude, the listeners love that though. When I see our analytics, they love the Canadian Co's and it makes sense. So this one, it's a dual listed one as well. So the Shibo ticker DCBO Q1 2022 earnings. Again, this will be mostly in US dollars because their figures are released in US. And I think it's always a better thing, especially when you're looking at market cap to look at the value compared to the actual currency that's being listed in their financials. This is another Canadian growth name. This one is also massively down over the last six months. Shibo is down more than 50% during that time span. Their quarter was pretty good. I don't follow the Shibo all that much. I do know a bit about it. Their revenues were up 47% to $32 million. Subscription revenue now represents 91% of total revenue at $29.1 million.

Just a side note here, it's always been pretty high in terms of subscription revenue because it is their business. Gross margins were down 300 basis point to 79.4%. Net loss of $7 million, which was definitely slightly higher than last year, but not by much. Free cash flow negative of $2.3 million, which is almost exactly in line with last year. And their customer's base has increased 26% to $2,947. One very interesting item I saw here was that their outstanding shares have been almost flat over the past two years, which is very encouraging for a growth company like Decibo because usually growth companies, like we've talked about it, especially stock-based compensation, tends to be pretty high for

attracting talent. Therefore, you see that share count going up usually, not staying pretty stable. So that's something I was interested in looking at and the company trades at about eight times sales currently they've been growing their sales at 40 plus over the last five years i'm not sure if it's going to continue like this but clearly their revenues were in line with this for the quarter this is a still a very small company for those who may have heard us talk about it before on the podcast. It only is about $1 billion in market cap, $1 billion USD. And again, I'm using those figures just because everything I mentioned was in US dollars in terms of revenues and financials. I don't have anything more to add other than Claudio,

the CEO, unfollowed me on twitter which was a tough scene really tough scene what did you say pull one out pull one out no i don't i don't know i don't think he follows many people but all his tweets are like biotechnology ai space like cool really cool shit and then he's like who's this guy just tweeting financial graphs like not interesting unfollow so you know what i back the unfollow he's doing way cooler stuff than me that's fine all right let's move on to equitable group ticker eq, they reported probably their best quarter ever. Coincidence, Simone? Coincidence. I don't know. I don't think so. I don't think it's possibly a coincidence. They started sponsoring this podcast and look what happens. Good work, EQ Bank.

And help out the show as well by going to eqbank.ca forward slash TCI, because they do sponsor this show and they're a great partner. All right. So the business. Now, they reported revenue of almost $188 million, which was up 25% year over year for the quarter, earning per share of $2.51 on undiluted EPS number, up 27%. Assets under management of $43 billion, up 18%. The EQ Bank, the digital bank reported deposits of $7.3 billion, which was up 25%. Dude, the deposits are still growing so fast. They hiked the dividend 4% from last quarter, from Q4, which is awesome. They're now like doing this like pretty steady sequential quarter over quarter dividend hikes. Those are

becoming pretty common. So that represents now a 57% increase on the dividend year over year from the first quarter of last year. Then quote here from the press release about the dividend hike. The latest increase reflects Equitable's philosophy of growing the dividend while maintaining a payout ratio that is much lower than the other Canadian banks and using an incremental capital to fuel asset expansion with high future ROE as well as recent lifting of a pandemic-related regulatory moratorium. What is that word? Moratorium. Moratorium.

Restricting Canadian banks from raising dividends. I was going to mention that as well. All Canadian banks were told, no div hikes. No div hikes until we figure this out related to the pandemic. And then it was an absolute avalanche of dividend hikes. And EQ Bank is at the top of that list. They're hiking this thing in a major way. And the payout ratio is still really low.

Yeah. And EQ Bank is usually one of the first banks to increase their interest rates that they give on deposits, if not the first one. So that's always something to keep an eye on if you're a customer or looking to be a customer with them. And on that deposit front, I wonder, just curious, how much is potential business being stolen from other banks from of the big banks? And how much is people potentially saving a bit more because they have to rein in their expenses a little bit because things are too expensive, or they're just pushing off certain purchases because price have gone up too much. I wonder, like, I don't know, I see those numbers and I get curious to understand what the cause is.

Yeah, like, how do you gain this much? Like, where's the market share coming from? Because Canadian banking is not like a super fast growing pie. And they call themselves the challenger bank because you're right. I think what it comes down to, man, is especially over the last few years with the branches, they were closed for a long time too. And then it's like, why do I need the branch? I don't need the branch. So why am I paying for that? Okay. branch. I don't need the branch. So why am I paying for that? Okay. So one, don't need the branch. Or two, you try to contact them because they went from being like a branch first in-person organization to having to pivot. And I have had some questionable, highly questionable interactions with other banks during that time. I'm like, how do you, like, these should be core

competencies for you guys. And so I think that the fact that they're like digital first, I'm not just pumping their tires because they're a supporter of the podcast. I think being digital first is a big advantage compared to trying to pivot like a lot of these other banks were. And I think that that has really helped them over the last few years. Yeah. My experience with the big banks on the phone has not always been great. Honestly, like recently, just to tell you how unimpressed I've been at times, I've had way better service from calling Service Canada and the CRA. Oh, wow.

That's a tough scene. Well, I mean, actually, Service Canada, I waited for 15 minutes to get someone, but the guy was great. He knew exactly, like, my questions, and they weren't, like, very, you know, standard questions, so he had to check, like, his processes and stuff. But super nice guy. I expected, I went in thinking I would have to wait, like, an hour and probably have to call back because

the person was confused about my question but i'll give them props pleasantly surprised hey i like that i like that a lot now moving on to the last name i think we have here a couple more items so the last you're going to talk about the luna implosion for the uh yeah but before we have some earnings last earnings suncor earnings obviously as suncor a well-known name before we get into the earnings though i wanted to mention a quick thing about suncor and elliot investment management the firm has taken a position in suncor and has been pushing suncor to improve its operation but also sell their Petro-Canada chain of gas station. Greta actually sent me a LaPrice article. LaPrice is a Quebec-based French newspaper a few weeks ago because they were talking about Suncor potentially exploring a sale

of their Petro-Canada station and essentially essentially, it was just saying that if Suncor decided to sell Petro-Canada, Alimanta et Saint-Costant would probably have interest in acquiring the gas station's chain. Suncor's CEO, Mark Little, said during once this was released, their latest earnings release, that Petro Canada is currently not for sale, even though there is some investor pressure for them to put it up for sale. Now onto the actual Q1 2022 earnings. Revenues were up 56% to $13.5 billion.

Most of their revenues come from two segments, the refining and marketing segment and oil and sands. Net earnings were $2.9 billion, which was more than triple last year's earning and by quite a bit. Earnings per share quadrupled to $2.06. Free cash flow increased 33% to $2 billion. They used their free cash flow to reduce their debt by $728 million. They also repurchased $827 million worth of shares during the quarter. They are paying a $0.42 a share quarterly dividend. And they had increased their dividend last year. They actually doubled

their dividend in Q4 of last year. Clearly, they had lowered the dividend because of some of the headwinds that they experienced during the pandemic. But the dividend does currently yield about 4%. So first thing here is don't be surprised if they increase their dividend significantly or increase buybacks at some point this year. I would not be surprised that they return more money to shareholders, especially given that Elliott Management is there and they will surely be pushing them to return money to shareholders if they're not selling their Petro Canada gas stations. And second thing I wanted

to mention here is how far multiples can actually expand for companies like Suncor and Canadian Natural Resources who have significant operation in the oil sands. Because the reason I'm mentioning this, recently BlackRock has been, I would say for the past year or two, they've really been pushing the ESG discussion and especially for their investments. discussion and especially for their investments and with a an asset manager as powerful as black rock and we've talked about this time and time again they are close to 10 trillion dollars in assets under management i say close because the markets have been down a little bit so it might be a bit under that at this point but clearly if they're starting to push and offer some funds that have a ESG focus, I think it could really impact Suncor and CNQ in terms of, and CNQ, it's Canadian National Resources, in terms of their prices and multiples.

Because if an asset manager as big as BlackRock doesn't offer a lot of option with these name in the funds, well, definitely it will impact demand. So just for food for thought here, especially for those who think it's amazing value, and I'm not saying that it isn't. I'm just saying keep in mind that it might look like great value, but don't necessarily assume that multiples will expand for these kind of businesses. assume that multiples will expand for these kinds of businesses? Yeah. Hoping for multiple expansion is a tough investment thesis that I no longer like to include in my thesis whatsoever for the reasons that you've mentioned among a bunch of other ones. So, Elliot being a pretty big activist in their style. And thank you for, by the way,

you're like generating alpha by just being bilingual because I wouldn't be able to figure out what any of that article said. But yeah, interesting. I think that CouchTard could definitely do a better job than Suncor on the petro-biz, but that's just my opinion. Well, yeah. And it would also raise some question marks as to like, people are already casting some doubts on the business of Kushtal down the line, right? How are they going to evolve once we move past the gas station model? And just doubling down on that would be a little bit of a head scratcher. But anyways, we'll see. Maybe they will go up for sale and Kushtal will be one of the interested parties. I think that they would definitely be throwing their hat in the ring.

I would be shocked if they don't. All right, last on the slate. Tell me, explain like I'm five what the heck UST is. Terra, Luna Luna stable coins dude what the hell is going on here okay so I'll try to keep it as simple as possible and this is not a deep dive because I could talk about this for probably like 45 minutes to really get in the weeds of things but yes there was a lot of news pretty much everywhere. So, UST, which is also known as Terra USD, which is a stable coin. And we saw what's also known as the Great Unpegging. So, this made a lot of... So, it's an unstable stable coin. You got it. So, unstable stable coin. It made a lot of headlines. So, first, a stable coin

is a cryptocurrency that is meant to keep the value of a currency it tracks. The most common ones are around the US dollar. So the three most well-known ones are USDT, also known as Tether. Tether. Tether. Sorry. Tether. Tether.

There you go. USDC. That's a hard one for you. It's a hard one for me. Better. There you go. USDC. That's a hard one for you. It's a hard one for me. USDC, which is basically owned by or the main company behind it is Circle. And now let's just say it, the defunct UST or Terra USD. So we saw the unpegging of the stable coin UST from the value of the US dollar. It went from a price of a dollar per UST, which is what it's supposed

to be as a stable coin to 18 cents as of Saturday when I did the research. I think it's still around that price as we're recording might be even lower. The TLDR on this is that UST was based on an algorithm whereas the other two USDT and USDC are backed by actual US dollars or commercial paper. So UST on the other hand was backed by the algorithm that failed last week. So the algorithm was working fine but they never accounted for a bank run or a sharp drop in the overall cryptocurrency market, which obviously showed that the algorithm was not prepared to deal with that. Unfortunately, there are stories of people having huge amounts of their life savings in it because USD was very commonly used as part of decentralized finance protocols and people could yield up to 20% if not more in some cases. A lot of people did not do the research and trusted USD when they clearly shouldn't have. I won't go into

too much more detail. The last type of stable coin that is also I guess another category here would be CBDCs, so central bank digital currencies. And I'm sure I'll have the opportunity to talk about at some point just to go into more detail. CBDCs are currently looked at by, they're being viewed at by pretty much all the central banks around the world. Some are already in circulation. The most prominent one is the digital yuan in China. So there is a use for that. The reason why a lot of people may say like, oh, stablecoin, like, why would you even have that when you can just, you know, send money electronically or something like that? Well, the speed of transaction with these stablecoins is still way faster than the traditional

financial system. So that's why a lot of central banks are looking at this as a possible option as well. But again, the last thing here is the fall of USD has definitely brought stable coins to the forefront of regulators in the US with US Treasury Secretary Janet Yellen now pushing for stable coin regulation before the end of the year but i think it's important here to not panic if you do own some stablecoin like usdc or usdt these you know are backed for the most part by us dollars or commercial paper so they are definitely safer than what we saw with ust which was completely different animal and with US regulators having an interest in regulating these even,

well, regulating these period, I think it's good news for retail investors at the very least because I think there's going to be more transparency when it comes to that. If it all falls apart in a little bit of a drawdown volatility, this is no different in my view than a Ponzi. It's very similar in its structure, I think. Yeah, well, it gets pretty complex. So, UST, I can definitely do a segment at some point. It was just something where the mechanism in place failed. It basically just failed. I don't think there was necessarily any, and I could be wrong here. And who knows knows the founder of the

protocol would probably the one i can't remember his name would be the one to know kwan something yeah exactly and he's been i think a bit too active on twitter as well but i think he basically never considered the situation that we saw and what essentially he's sketchy he he is he is sketchy but essentially what ended up happening is people could exchange their ust for another token called luna and they could always exchange it one for one but by doing so and people basically there was a bank run going on and what ended up happening is people kept wanting to exchange it because they were seeing ust falling falling, falling and falling. And then that demand just kept pushing down the price of the other token that's

tied to it. And the supply of that other token went from a few hundred million to multiple billion in a few days. So that gives you an idea. So essentially just diluted immensely the token in place. So that's just a simplified version. I find it pretty fascinating just to look into that. But they are different. I think that's the main thing here is that, you know, there are different stable coins. They're not, they don't all work the same way. Their purpose is the same to have a stable value.

But I think it's important to understand that they work in very different ways in the background. You called this segment, the great unpegging of the stable coin. Netflix will have to now give you a ton of money. Yeah, that's pretty good. Because there's going to be something about it. They're loving these. I mean- They're loving these. I'm eating them up, dude. Yeah. Everyone that they make, they're loving these i mean they're loving these i'm eating them up dude yeah everyone that they make they're like brayden this is recommended for you it's a financial fraud give me some more of that inject this in your veins and they're gonna have to give you some money for this title you know some people probably put their life savings into that too and that's a sad story

right i have a buddy of mine who had like a little bit of money put in that. It was like 0.5%. And I think that's the right way to approach it. If you want to take shots as these things that you may not fully understand, okay. But keep it small if you're going to do that. Don't put your life savings into that. Yeah. Just any time you can get a yield of 20% plus. Yeah, you should alarm nails. And then, wee-oo, wee-oo, red flag, red flag. If the same, just generically, okay, if the same word stable and 20% yield are ever on the same realm,

if they can see each other from an arm's length reach, run. Those are two ironic statements, stable and 20% yields should never be used in the same sentence. Yeah. No, it's definitely, I mean, there's risk. I think whenever you get that high of a yield, I mean, there's going to be some increased risk to it. And these DeFi protocols are very, a lot of them are very interesting, but there has been quite a few issues with a lot of them, whether there's, you know, some of them being hacked or some that have codes where there's some issues with the code and so on. So that's why I tend to stay, you know, I just invest in Bitcoin. I have some Ethereum as well. I'm confident in the protocols there, especially Bitcoin. I don't have to deal with any of this.

That does it for today's show, guys. Thanks so much for listening. If you want to join the Patreon, join the community, follow our portfolio updates for our own cash. That is join tci.com. Lots of new updates to stratosphere lately and go check that out. stratosphereinvesting.com, even if you've been on the site many times and you haven't been on recently per se, maybe that's a chance. It looks a lot different these days with more analytics, more tools, more customizability. If you want to see the news specifically for your own watch list, you can do that now, which is really nice. So go ahead and check that out, stratosphereinvesting.com. We'll see you in a few days.

Bye-bye, guys. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.