Constellation Software and MTY Food Group’s blowout quarter 2

How is everyone?

Did anyone take advantage of the correction?

While Jim Cramer has been getting really loud and shouting that “A group of morons” traded leveraged products such as XIV caused this correction (XIV dropped 96% by the way) I am quietly ignoring the noise and thought about what to buy during this correction.

Crazy 95% drop Haha. Why would anyone ever invest in these kinda junk?

Unfortunately, I could not buy anything as my bid did not get executed then moments later everything just got more expensive.

Valuation wise, the markets still seem expensive. I was hoping for market crash but you know the fundamentals of companies are very strong lately that almost everyone is beating quarter after quarter. Boeing, Facebook, Nvidia, Apple………. then here comes my favorite Canadian companies’ amazing quarter- Constellation Software and MTY Food Group.

Constellation Software earnings were released last night.

A quick tip on whether a company has solid internal controls and processes?

Check when the earnings are released. TSX traded companies get 3 months of deadline (TSX Venture- 4 months) to release audited financial statements after its fiscal year end. So early release (CSU on Feb 14 ) would likely indicate that they have very strong internal controls and processes. Because they would have completed its 4th quarter end process and audits very timely to release it within 45 days from yearend.

Q4 revenue grew 22%. Adj. EBITDA grew 15%. Adjusted net income grew 15%, cash flow grew by 22% and it acquired $320M worth of businesses for last 1.5 months. (Never a dull moment!) What else can a happy shareholder ask for? My kinda growth company- Constellation Software.

Investing in Constellation Software never made me lose sleep. I never worried about its short term stock price fluctuation and I actually have added more lately whenever I get a dip for whatever reasons. Still no options are issued and # of shares has not changed for many years while constantly increasing cash flows and net earnings.

Its share just hit all time high of $840 per share… after daily increase of 3.1%. Good stuff but too bad I did not buy more…….. 

I am going to CSU’s AGM this year so if any other fellow shareholders who want to join me, you can register it here.

http://www.123formbuilder.com/form-3349889/CSIAGM

What about MTY Food Group?

Well, this morning the dealmaker Stanley Ma acquired another company. MTY released a news stating they are buying Timothy Coffee for $1.675M. I have seen several Timothy Coffee shops  in Toronto and I have seen quite a lot of people drinking their coffee; mostly grey haired folks in Manulife Centre but still I am quite happy about the transaction. Total network generated sales is $15.6M so $1.675M of purchase price is easily justified. 35 locations for $1.675M means each location is like less than $50,000. 

Maybe Timothy was under bankruptcy pressure? Not too sure what happened but I like their coffee and k-cups so I don’t mind this fire sale price deal. Hopefully the deal closes.

I am sure you have seen this k-cups at least.

Don’t forget about Imvescor Deal!

Today is also final day for Imvescor shareholder voting to decide its fate of the company whether it will be acquired by MTY or as a stand alone.

I am feeling that more than 2/3 of shareholders voted in favour of the deal and Imvescor would be acquired but who knows…

We will see… I trust you Stanley!

MTY’s quarterly update

MTY did well this quarter. Again!

First of all, their same store sale for the quarter has been increased by 1.2% which is a great news for MTY because due to its brands without really strong brand power (Mcdonald, KFC, Domido Pizza etc…), same store sale increase is quite rare (At least last several years…) so I am quite happy about that.

Secondly, their revenue increase for the quarter is 3%. EBITDA increased by 20% and operating cash flow grew by 41%. Its cash flow for 2017 was $90M… Can you believe that? It just made $90M in 2017.

In 2014, it only made $32M, then $51M in 2015 then $52M in 2016. 2017???? $90M!

That’s 73% growth… Sharecount only has increased by 10% (when MTY acquired Kahala) during the same period so 73% growth is pretty awesome.

Kahala’s biggest cash cow-Cold Stone Creamery

It ended its quarter with more than $50M cash on hands. Less than 2.5 times debt to cash flow. 

It will only get better because of # of prudent acquisitions the company has been making… 

Stanley Ma is close to 70 years old now but age is just a number for this ass-kicking sexy old immigrant from Hongkong.

Liberal Goverment’s minimum wage push in Ontario ($11 to $14 overnight…. and soon to be $15) has created some headwinds to the company but that could mean higher royalty paid to MTY through increased price of food offering. People will be realizing the price increase but they will still have no choice but eat cheaper food court meals instead of even more expensive full restaurant meals. People will soon forget that price of food has gone up and get used to the higher price.

That’s it for today!

CSU, MTY. I love them both and I will probably love them as long as they continue to perform like this. I don’t see them stopping anytime soon but you never know in this fast-changing world so let’s focus on enjoying them while it lasts.

Cheers!

I just realized that I have written about MTY 4 times dedicating 4 different articles. CSU 2 times as well… I must really like the stocks…