Author: Consultant

Lightspeed Commerce Inc.LSPD-T +13.28%increase is officially up for sale, the latest in a series of Canadian tech companies to consider going private following a stock market slump after pandemic restrictions were lifted.

The board of the Montreal-based point-of-sale software vendor has hired U.S.-based investment bank JP Morgan Chase & Co. to run a strategic review of the business that includes a potential sale to a rival tech company or private equity fund, according to a source familiar with the situation.

Lightspeed is in the early stages of the strategic review and there are no assurances the company will be sold, the source said. The Globe and Mail agreed not to name the source because they are not permitted to speak for the company. Reuters first reported that Lightspeed is up for sale.

On Wednesday, Lightspeed’s Toronto Stock Exchange-listed shares jumped and closed up by 13 per cent on news of a possible takeover. The company’s market capitalization is $3.2-billion. Lightspeed sells transaction software to retailers, restaurants, golf courses and hotels.

The company is in the midst of a strategic shift, after the board replaced chief executive officer Jean Paul Chauvet in February with founder and former chief executive officer Dax Dasilva. After retaking control, Mr. Dasilva moved to increase Lightspeed’s sales at a sharper pace while still maintaining a commitment to improve its bottom line.

Despite posting higher revenue in recent years amid rising customer transactions, Lightspeed has failed to reach profitability, although it has lived up to its promises to achieve adjusted operating profitability, a non-GAAP measure that is followed more closely by analysts.

Lightspeed was founded in 2005 and serves customers at 163,000 locations in more than 100 countries. The company has been shifting its business to serve larger customers with US$500,000 or more in annual revenues, which has resulted in Lightspeed shedding many smaller companies – and the subscription revenue it earned from them for using its software.

But the company believes it can grow its business overall by serving the more complex needs of larger clients. The pace and progress of that shift and Lightspeed’s commitment to pursuing higher growth has spooked investors at times in recent years and prompted Mr. Chauvet’s exit early this year.

Shareholders in general have been frustrated with the drop in valuations for software companies that have tried to juggle the pursuit of profitability without sacrificing too much of the revenue growth that had driven investor excitement before that. With private equity firms willing to pay higher valuations than public market shareholders, the temptation has been strong for listed companies to sell out.

Kinaxis Inc. KXS-T +1.28%increase, an Ottawa-based software company that went public a decade ago, has faced public calls in recent weeks from two institutional investors to put itself up for sale. The activist fund managers targeted Kinaxis after its stock fell due to concerns about slowing growth and the sudden departure of chief executive officer John Sicard, announced recently. Kinaxis has a $4.4-billion market capitalization.

In March, Mr. Dasilva said in an interview with The Globe that Lightspeed’s board was considering offers to take the company private, after peers such as Nuvei Corp. announced takeovers. But he indicated his preference was for Lightspeed to stay the course as a public company.

“I think the return of Dax to the role of CEO was a clear sign that this is a board and a CEO that are very focused on ultimately unlocking shareholder value,” said analyst Thanos Moschopoulos at BMO Capital Markets in an interview on Wednesday.

“We’ve seen this play out before. It’s a cyclical dynamic,” said Mr. Moschopoulos. “We fluctuate between markets that are conducive to IPOs and markets that are more challenging, and when valuations are depressed, that in turn leads to privatization behaviour, prompting companies to put themselves up for sale.”

Lightspeed went public in 2019 by selling shares for $16 each and went on an acquisition spree in the following two years. The stock price hit $150 a share in 2021, when investors put premium valuations on digital businesses, then slumped below $20 in recent months. On Wednesday, Lightspeed stock closed at $21.15 on the TSX after the Reuters story broke. The company also lists its shares on the New York Stock Exchange.

Potential bidders for Lightspeed could include established U.S. rivals such as Global Payments Inc. and NCR Corp., which could expand its software product lines by acquiring the Canadian company, and private equity funds willing to back Mr. Dasilva’s turnaround strategy, said analyst Richard Tse at National Bank Financial Markets. “A potentially wide range of prospects could look at this,” he said.

If Lightspeed does get taken over, it will be the latest in a string of Canadian tech companies that raised money over the past five years only to go private when the sector fell out of favour. Nine of the 20 tech companies to launch initial public offerings on the Toronto Stock Exchange during the COVID-19-linked boom have already gone private.

In April, U.S. private equity firm Advent International Corp. acquired Montreal-based online payment company Nuvei NVEI-T +0.40%increasean US$6.3-billion transaction supported by Nuvei founder Phil Fayer and two major institutional shareholders, Novacap and Caisse de dépôt et placement du Québec.

TSX-listed tech companies Absolute Software Corp., mdf commerce 

N/Aand TrueContext Corp. 

N/A have also recently agreed to buyouts. This wave of privatizations of Canadian tech companies in the past year followed a crash in valuations in late 2021. Lightspeed stock is down more than 85 per cent from its high that year.

Lightspeed’s largest shareholder is the Montreal-based Caisse, with a 16-per-cent stake. Boston-based fund manager Fidelity Investments owns 11 per cent and Mr. Dasilva is also a major shareholder, but he owns less than 10 per cent of the company.

Ships are being forced to stay at anchor after a strike that began this week at six Vancouver grain terminals created bottlenecks in the supply chain from the Prairies to the West Coast.

There were 19 vessels waiting to load grain at the Port of Vancouver on Wednesday during what would normally be a busy autumn for exports. But instead of ships being assigned berths when they become vacant, the supply chain for grain is congested.

Port officials have asked ships en route to the West Coast to change to “slow steaming,” meaning to significantly reduce their pace of ocean travel whenever possible.

About 650 members of the Grain Workers Union Local 333 went on strike on Tuesday, after an impasse at the bargaining table with the Vancouver Terminal Elevators’ Association.

Sylvain Charlebois, a professor in food distribution and policy at Dalhousie University, said the bulk grain delays in Western Canada are part of what could be a disruptive autumn for North American logistics, including potential strikes at the Port of Montreal and cargo terminals in the U.S. East Coast and Gulf Coast.

“Even without a strike, the uncertainty is quite painful for companies that are trying to plan ahead,” Mr. Charlebois said in an interview on Wednesday from Halifax.

The strike by grain terminal workers follows shutdowns at Canada’s two largest railways that temporarily disrupted a wide range of freight deliveries for several days in August.

The Saskatchewan Wheat Development Commission and other agricultural groups are urging federal Labour Minister Steven MacKinnon to intervene during the busy harvest season.

“If grain companies are unable to ship grain to terminal elevators, in-country elevators will inevitably fill up, which will impact farmers’ ability to deliver grain,” Saskatchewan Wheat chair Jake Leguee said in a letter to Mr. MacKinnon.

Delays in exports of everything from canola and wheat to barley and oats from the six terminals could add up to $35-million a day, the Grain Growers of Canada said.

Employers at the six grain elevators along Burrard Inlet’s north and south shores said progress has been made on wages, but that there remain disagreements with the union over scheduling and benefits.

Wages vary depending on the job classification. An electrical technologist currently makes $48.80 an hour, for example, while a janitor earns $42.80 an hour. The employers have offered a four-year contact, with wage increases of 5 per cent in the first year, followed by annual hikes of 4 per cent, 4 per cent and 3 per cent.

The previous five-year collective agreement expired on Dec. 31, 2023.

One of the disagreements focuses on employers saying they are seeking flexibility to scale back the scheduling of workers on statutory holidays during slow periods in the spring and summer. But union leaders want to maintain the system of mandatory scheduling that allows for employees to earn double-time rates during shifts on statutory holidays.

After bargaining talks broke off late last week, the two sides in the dispute met on Wednesday in an effort to find common ground with the assistance of the Federal Mediation and Conciliation Service.

“Like any collective bargaining situation, we’re hoping for a positive outcome,” Mr. MacKinnon said in Ottawa.

Fraser Surrey Grain Terminal Ltd. at the Port of Vancouver and Prince Rupert Grain Ltd. in northwest B.C. have continued operating this week because workers there have different collective agreements and are not on strike.

Local 333 is a chartered local of the International Longshore & Warehouse Union Canada.

Meanwhile, Local 514 of the ILWU, representing about 730 ship and dock forepersons, is awaiting a ruling from the Canada Industrial Relations Board. In May, the BC Maritime Employers Association filed a complaint with the labour board, alleging bad-faith bargaining on the part of the local.

Members of the local are supervisors of the ILWU’s rank-and-file workers who went on strike in July, 2023, at B.C. ports. Those employees staged a 13-day strike, returned for several days to their posts and then walked out again for one more day.

Earlier this month, the Federal Court of Appeal confirmed the labour board’s decision that declared the one-day walkout to be illegal, noting the union did not issue the required 72-hour strike notice.

Statistics Canada says the population of the country reached an estimated 41,288,599 on July 1.

The agency says the total means 250,229 people were added in the second quarter of the year for a growth of 0.6 per cent.

The growth rate was slower than the same quarter of 2023 which saw a 0.8 per cent increase and the 0.7 per cent increase in the second quarter of 2022.

The increase in the population was almost entirely due to international migration which added 240,303 people.

https://www.ctvnews.ca/canada/statistics-canada-says-population-grew-0-6-per-cent-in-q2-to-41-288-599-1.7051227

What are we looking for?

The Bank of Canada is well into a cycle of interest-rate cuts, with the U.S. Fed expected to join it this week. In Canada we have had three reductions in the central bank rate since June. In the United States, the markets are pricing in a nearly 50-per-cent probability of a half-percentage-point cut on Wednesday with a total two-percentage-point reduction by March of next year. Lower interest rates weaken the underlying currency and strengthen the price of gold in that currency. In this environment, gold keeps setting new highs but are the gold stocks following? Let’s look at what are the stockcalc models are telling us for valuations here.

The screen

We used stockcalc’s screener to select the top 10 listed gold mining companies by market capitalization on the TSX. We then used stockcalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.

Overview of the techniques used:

• Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
• A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
• An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio.
• If we have analyst coverage, we may consider the consensus target price.

More about stockcalc

Stockcalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. Stockcalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to stockcalc using the promo code “Globe30,” which offers a 30-day free trial and special pricing for the second month.

What we found

Valuations in the gold sector

https://www.theglobeandmail.com/investing/investment-ideas/number-cruncher/article-hunting-for-value-in-gold-stocks-as-bullion-hits-record-highs/

You can see in the accompanying table the percentage difference between each stocks recent close price and its intrinsic value. The “stockcalc valuation” column is a weighted calculation derived from our models and analyst target data if used.

We expect gold stocks to have a high correlation to the price of gold. I wanted to look at this in more detail so I ran the correlation coefficients – or r2, a measure of fit ranging between minus-1 (no fit) and plus-1 {perfect fit) – between close price and the price of gold over the prior 60 months. Five of the 10 companies (AEM-T +0.65%increase, AGI-T +2.13%increase, K-T +2.23%increase, WPM-T +0.54%increase, LUG-T +1.60%increase) had correlations well above 0.8, meaning 80 per cent of the stock price movements are explained by the underlying movement in the price of gold. Two stocks (ABX-T +0.94%increase, DV-T) had limited correlations (0.2 range) and three (BTO-T +0.22%increase, FNV-T -0.07%decrease and NGT-T +1.71%increase ) were negative, telling us their stock prices and the price of gold were actually moving somewhat in opposite directions. I will go into more detail on BTO-T (B2Gold Corp.) below.

All stocks on this list are dividend payers, which is uncommon for any of the industries in the basic-materials sector. I see all of our adjusted book valuations are below current price, indicating historic price-to-book ratios were lower than today’s values (i.e. P/B ratios are rising for this group). Let’s look at a few of these companies:

Shares of B2Gold Corp. (BTO-T) moved up 20 per cent last week on the announcement they have agreed to terms with the state of Mali with respect to the continuing operation and governance of the Fekola Complex, which includes the Fekola Mine. The share price of B2Gold had diverged from the rising price of gold over the past 12 months on the back of lower-than-expected earnings, reduced guidance and uncertainty around Fekola. As noted above we saw a negative correlation between BTO-T stock price and the price of gold owng to these factors. Our models see a bit more upside in BTO-T after that 20-per-cent jump last week.

Kinross Gold Corp. (K-T) shareholders have been well rewarded in the past 12 months with the price of K-T doubling over the period. Kinross is a Canadian-based global senior gold mining company with operations and projects in the United States, Brazil, Mauritania, Chile and Canada. In its most recent quarterly report, the miner said: “Robust margins and significant free cash flow enable $200-million debt repayment.” Our models are showing Kinross with a bit more upside from here, with analyst consensus showing another 15-per-cent growth in share price expected. From our regression analysis above, Kinross has a 0.93 r2, indicting a very high correlation to the underlying price of gold.

Investing involves risk. Stockcalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis. Brian Donovan, CBV, is the president of stockcalc, a Canadian fintech based in Miramichi, N.B.Mr. Donovan holds positions in WPM, BTO and EDV-T +1.95%increase.

https://www.theglobeandmail.com/investing/investment-ideas/number-cruncher/article-hunting-for-value-in-gold-stocks-as-bullion-hits-record-highs

Monday September 23

Japan markets closed

Euro zone PMI

(8:30 a.m. ET) Canada’s new housing price index for August. Estimate is a rise of 0.1 per cent from July and 0.1 per cent year-over-year.

(9:30 a.m. ET) U.S. S&P Global PMIs for September.

—

Tuesday September 24

Japan PMI

Germany business climate

(8:30 a.m. ET) Canadian manufacturing sales for August.

(9 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for July. The Street expects an increase of 0.4 per cent from June and up 6.0 per cent year-over-year.

(9 a.m. ET) U.S. FHFA House Price Index for July. Consensus is a rise of 0.2 per cent month-over-month and 4.5 per cent year-over-year.

(10 a.m. ET) U.S. Conference Board Consumer Confidence Index for September.

(1:10 p.m. ET) Bank of Canada governor Tiff Macklem holds a fireside chat at the IIF/CBA Canada Forum in Toronto.

Earnings include: AutoZone Inc.

—

Wednesday September 25

Germany retail sales

(8:30 a.m. ET) Canada’s population estimates for Q1.

(10 a.m. ET) U.S. new home sales for August. Consensus is an annualized rate decline of 5.8 per cent.

Earnings include: AGF Management Ltd. Cintas Corp.; Micro Technology Inc.; Paychex Inc.

—

Thursday September 26

Japan machine tool orders

Germany consumer confidence

(8:30 a.m. ET) Canada’s payroll survey for June.

(8:30 a.m. ET) Canadian wholesale trade for August.

(8:30 a.m. ET) U.S. initial jobless claims for week of Sept. 21. Estimate is 225,000, up 6,000 from the previous week.

(8:30 a.m. ET) U.S. real GDP and price index for Q2. The Street expects annualized rate rises of 2.9 per cent and 2.5 per cent, respectively.

(8:30 a.m. ET) U.S. durable orders for August. Consensus is a decline of 2.7 per cent from July with core orders rising 0.1 per cent.

(9:20 a.m. ET) U.S. Fed chair Jerome Powell gives opening remarks at Treasury Conference.

(10 a.m. ET) U.S. pending home sales for August.

Earnings include: Accenture PLC; BlackBerry Ltd.; Carnival Corp.; Costco Wholesale Corp.

—

Friday September 27

China industrial profits

Japan CPI

Euro zone economic and consumer confidence

Germany employment

(8:30 a.m. ET) Canada’s monthly real GDP for July. The Street is forecasting a rise of 0.1 per cent from June.

(8:30 a.m. ET) U.S. personal spending and income for August. Consensus is month-over-month increases of 0.3 per cent and 0.4 per cent, respectively.

(8:30 a.m. ET) U.S. core PCE price index for August. Consensus is a rise of 0.2 per cent from July and up 2.7 per cent year-over-year.

(8:30 a.m. ET) U.S. goods trade deficit for August.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for September.

Also: Ottawa’s budget balance for July.

Earnings include: Aritzia Inc.

Statistics Canada says retail sales rose 0.9 per cent to $66.4-billion in July, helped by stronger new car sales.

The agency says sales were higher in seven of the nine subsectors it tracks with sales at motor vehicle and parts dealers up 2.2 per cent, boosted by a 2.3 per cent increase in sales at new car dealers.

Sales at gasoline stations and fuel vendors fell 0.6 per cent for the month as sales for the subsector in volume terms fell 1.7 per cent.

Core retail sales – which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers – rose 0.6 per cent in July.

In volume terms, Statistics Canada says retail sales increased 1.0 per cent in July.

Looking forward, the agency says its preliminary estimate for retail sales in August pointed to a gain of 0.5 per cent for the month, thought it cautioned the figure will be revised.

The Federal Reserve on Wednesday announced a long-awaited interest rate cut, lowering the benchmark rate by 50 basis points from what was the highest level in 23 years as the central bank eased borrowing costs following progress in the fight against inflation.

The Fed’s first interest rate cut since March 2020 lowers the benchmark federal funds rate to a range of 4.75% to 5%.

Interest rates had been at a range of 5.25% to 5.5% since July 2023, the highest level since 2001, as the central bank monitored economic data for signs that stubborn inflation was trending toward its 2% target. 

Recent months delivered signs of progress that inflation is heading toward the Fed’s target, although the latest data showed it isn’t quite there yet. Inflation slowed to 2.5% on an annual basis in August, down from 2.9% the month before and well below this inflationary cycle’s peak of 9.1% in June 2022.

Federal Reserve Chair Jerome Powell said in a press conference following the announcement that the central bank is focused on “achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people.”

“Our economy is strong overall and has made significant progress toward our goals over the past two years,” Powell said. “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”

“I would say, we don’t think we’re behind. We think this is timely, but I think you could take this as a sign of our commitment not to get behind,” Powell said of the decision to go with a 50-basis-point cut.

The chairman emphasized that the Fed will make decisions on a meeting-by-meeting basis going forward based on economic data and said, “We can go quicker if that’s appropriate, we can go slower if that’s appropriate, we can pause if that’s appropriate. That’s what we’re contemplating.”

He was also asked about the political implications of the interest rate cut given Election Day is less than two months away. Powell said the Fed’s policymakers focus on how to best “support the economy on behalf of the American people” and noted that the Fed’s actions mostly impact economic conditions with a lag after policy changes.

“I don’t see anything in the economy right now that suggests that the likelihood… of a downturn – is elevated,” Powell said in response to a question about whether the economy is vulnerable to recession. “I don’t see that. You see growth at a solid rate, you see inflation coming down, and you see a labor market that’s still at very solid levels.”

Powell previously signaled that the central bank didn’t plan to wait for inflation to reach 2% to cut interest rates. 

He explained in July that “if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.”

A slowdown in hiring has raised concerns about the labor market and the economy potentially slipping into a recession, prompting speculation that the Fed could opt for a 50 basis point cut to interest rates.

FED’S ACTIONS SPOKE LOUDER THAN WORDS TO MARKETS IN FIGHT AGAINST INFLATION, RESEARCH FINDS

The central bank typically chooses to move forward with a smaller 25-basis-point cut at the start of a rate-cutting cycle, though it has made larger cuts when there is a higher degree of economic uncertainty. 

It most recently opted for larger 50-basis-point cuts in March 2020 as the COVID-19 pandemic began, as well as in September 2007 amid the housing crisis and in January 2001 when the dot-com bubble burst.

Markets fully priced in a 25-basis-point rate reduction ahead of the Fed’s decision on Wednesday, although traders increasingly expected the Fed to cut rates by 50 basis points in the lead up to the announcement.

According to the CME FedWatch tool, the probability of a 50-basis-point cut rose from 25% a month ago to 64% the day before the Fed’s decision.

Wednesday’s rate cut decision is expected to be the first in a series of moves to lower interest rates. Prior to the Fed’s announcement, markets expected the Fed to announce further rate cuts at its meetings in the months ahead, as the CME FedWatch tool sees a slightly more than 50% probability rates will be lowered to a range of 4.5% to 4.75% in November.

“The markets got what they wanted – a big first cut by the Fed,” said Chris Larkin, managing director of trading and investing at E*TRADE from Morgan Stanley. “Beyond how hot or cold the economy runs, that may largely depend on what the Fed has to say about how fast and far it sees rates dropping from here.”

Stocks responded favorably to the Fed’s rate cut decision, with both the Dow Jones Industrial Average and the S&P 500 hitting all-time highs in the immediate aftermath of the announcement prior to Powell’s press conference.

The Federal Reserve’s next policy meeting will be held Nov. 6-7, right after Election Day on Nov. 5, while the final meeting of the year will be held Dec. 17-18.

Canada Mortgage and Housing Corp. says the annual pace of housing starts in August slowed 22 per cent compared with July.

The national housing agency says the seasonally adjusted annual rate of housing starts came in at 217,405 units in August, down from 279,804 a month earlier.

The drop came as the annual pace of urban starts fell 24 per cent to 199,478 units compared with 261,043 in July.

The annual rate of starts of multi-unit urban projects such as apartments, condominiums and townhouses dropped 29 per cent to 154,290 units, while the rate of single-detached urban starts rose three per cent to 45,188.

The annual pace of rural starts was estimated at 17,927 units.

CMHC says the six-month moving average of the seasonally adjusted annual rate of housing starts was 248,480 units in August, down 2.9 per cent from 255,794 in July.

Canada’s annual inflation rate(opens in a new tab) reached the central bank’s target in August at it cooled to 2 per cent, its lowest level since February 2021, data showed on Tuesday.

The closely watched core price measures also cooled to their lowest level in 40 months while month-on-month consumer prices deflated by 0.2 per cent, Statistics Canada said.

Analysts polled by Reuters had forecast the consumer price index (CPI) to cool to 2.1 per cent from 2.5 per cent in July on an annual basis, and expected it to be unchanged on a monthly basis.

The Canadian dollar weakened on the news, dipping 0.2 per cent to $1.1361 to the U.S. dollar, or 73.45 U.S. cents.

The easing of price pressures was primarily helped by a drop in prices of gasoline, telephone services and clothing and footwear, while shelter costs – mortgage and rents – continued to cool at a tepid pace as rents continued their relentless rise.

At the Bank of Canada’s monetary policy decision announcement earlier this month Governor Tiff Macklem said the bank had to increasingly guard against the risk that inflation could fall below its target as economic growth was weak.

The BoC has reduced its key policy rate three times in a row from June, cutting by a cumulative 75 basis point to 4.25 per cent.

Money markets are fully pricing in 25 basis point rate cuts twice in as many monetary policy meetings remaining in the year. Expectations of a jumbo 50 basis point cut next month rose to 47.5 per cent from 46 per cent before the data were released.

The BoC had predicted annual inflation to be at 2.6 per cent this year and fall to 2.4 per cent next year before coming down to its mid-point of the target range of 1-3 per cent in 2026.

CPI-median – or the price change located in the middle of the CPI basket – slowed to 2.3 per cent in August from 2.4 per cent in July annually. CPI-trim – which excludes the most and the least volatile price items – cooled to 2.4 per cent from 2.7 per cent.

Gasoline prices, which contributed the most to the fall in inflation, fell by 5.1 per cent and clothing and footwear fell by 4.4 per cent.

Shelter costs, which accounts for close to 30 per cent of the CPI basket, rose by 5.2 per cent in August, from 5.7 per cent in July, primarily led by rents which rose by 8.9 per cent from 8.5 per cent in July.