December 22, 2017, Christmas Update: Peanut Convertible Debentures Power Rankings

Merry Christmas!  This is the 23rd update of the Peanut Convertible Debentures Power Rankings, and is current to December 22, 2017.  Call this one a very quick update, as it's Christmas and I have a turkey to attend to. :) Thank you for your support during our inaugural year, and we all wish you a Merry Christmas, Happy New Year, and the best of the holiday season.  See you in 2018.
      
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For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here. 

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.


Public Service Message: the Financial Post Convertible Debentures List

We've received quite a few emails asking about the Financial Post's convertible debentures list, which has apparently vanished from the newspaper's website.  Unfortunately, we don't know of another complete list of Canadian convertible debentures that is available free to the public that has the same depth of information that was contained in the Financial Post list.  The stats and figures we use for the Peanut Power Rankings we collect from various public sources and calculate ourselves (it's a lot of work!); we don't have a complete list of convertible debentures either.

For those of you out there that are clients of a full-service brokerage firm with a research team that covers convertible debentures, you may be able to obtain a complete list if you ask your broker.  Also, as we announced on December 20, thanks to one our valued readers, we were informed that the TSX publishes a basic list on its website approximately monthly.  It's not the same as the old Financial Post list, but hopefully it can still be of use to some of you out there. 

Market Commentary - Quick Points (December 22, 2017)

• No real commentary this update, too busy with Christmas! 
• That said, just want to say that the cryptocurrency craze feels like bubbly tech stocks circa 1999, doesn't it? When your Uber driver brings up Bitcoin before you do, experience tells me it's time to take some money off the table.  Blockchain technology may well be the future, but picking winners and losers with our limited capital in a frenzied, opaque market is a risky proposition.  Yes, we couldn't imagine life without Internet today, but back in 1999, none us had any idea that the world would today be dominated by the likes of Google (what? a better search engine than Yahoo!?); Amazon (no one succeeds at being everything to everyone!); Apple (you couldn't even get Microsoft Office on a Mac!); Facebook (Mark Zuckerberg was just a nerdy 15-year old); and Netflix (they were selling DVDs through the mail!).  And if you're wondering, no, we don't have any financial interests in cryptopcurrencies at this time - we'll just sit this one out for now. 
• The US administration got their tax cut through.  We don't want to get too much into politics (and sorry for the times that we do), but let's face it, this is a thinly veiled reverse Robin Hood maneuver - blatant stealing from the poor to give to the rich.  The horrid bill also further cripples health care and green lights drilling in the Arctic National Wildlife Refuge.  Merry Christmas, America.
• Canadian economics figs including retail sales remain hot.  This will give Poloz, Wilkins, and crew at the Bank of Canada to raise rates in 2018.  Brace yourself. 
• Let's get to the Top-5.  

Peanut Power Rankings Top-5 Convertible Debentures and Additional Bonus Coverage (December 22, 2017)

1. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #1).  Up, up, and away! You know the drill here: Cargojet has approximately 90% market share of the overnight air cargo market in Canada, and remains a terrific growth story.   With the busy Christmas season upon us and more of us shopping online than every, it's ho-ho-ho all the way to the bank. The bottom line: Cargojet is effectively a play on the growth of online retail and continues to have a dominant market position in an area of long-term, secular growth.   Even at current prices, it's still decent entry point for CJT.DB.C.  There are still 3+ years to the hard call date and based on Friday's close of $114.00, the yield-to-hard-call-date is a positive 0.02% and the common shares only have to rise another 0.9% to hit the conversion price.  In effect, buying CJT.DB.C at $114.00 is an alternative to buying the common shares outright, participating in future gains but putting a floor on your downside (as represented by the yield-to-hard call).  We continue to believe it is a cornerstone holding of any diversified convertible debenture portfolio.  We've been long CJT.DB.C since it debuted at $100.00.

2. Diversified Royalty Corp, 5.25% 31-December-2022, Convertible Debentures.  (Ticker: DIV.DB), (Last update's ranking: #2).  Not much new here but it doesn't look like these guys will hit their previously announced target of closing another royalty acquisition before year's end.  However, the story is intact: with $88 million of cash ready to be deployed, the market is eagerly awaiting their next royalty acquisition.  The bottom line: this is an interesting royalty company, which currently owns the Sutton Realty, Mr. Lube, and AIR MILES® trademarks in Canada.  Management is highly regarded, and are aligned with shareholders through their own shareholdings.  Finally, the terms of the convertible debenture seem positive and this is a reasonable credit risk, in our view.  At Friday's close of $100.25, we have a yield-to-hard-call-date of 5.18%, and the common shares need to rise 30.0% to hit the conversion price.  We continue to think that the stock has the potential to pop at the announcement of the next royalty acquisition. We're long DIV.DB at an average price of $100.08, and patiently await.  We also have a position in DIV common shares.

3. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Ticker: DHX.DB), (Previous ranking: #6).  The underlying stock of DHX has moved significantly in the last two trading days, which is curious as the company got booted from the S&P/TSX Composite Index earlier in the month.  We continue like this company, which makes us contrarians on this unloved name. The bottom line:  Despite the market being very skittish on DHX right now, the company has attractive media content assets, its Peanuts IP assets (Charlie Brown and Snoopy!) have cash cow characteristics, and the company is currently undergoing a strategic review and could be sold at a premium (see our previous update on our theory as to why it could sell for $9.32 a share).  Nevertheless, there are considerable risks here.  The company is highly levered (outstanding net debt of about $1 billion), and the company has lost the confidence of Bay Street.  That said, we think the unique nature of the assets are potentially worth the risk if you can stomach the volatility.  The convertible debenture (DHX.DB) closed Friday at $94.30.  At this price, DHX.DB has a yield-to-maturity of 6.94% (note: there is no hard call provision for DHX.B, which is good for investors), and the common shares closed the week 80.6% away from DHX.DB's conversion price of $8.00.  Recovery may take awhile, but if it happens, investors could be very handsomely rewarded.  Management needs to execute, though.  We are long DHX.DB at an average price of $99.22.  We also have a position in DHX's Series B common shares (ticker: DHX.B).

4. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #4).  More insider buying! The CEO decided to buy another 164,000 units of the REIT, and has decided to take all of his 2018 compensation in the form of REIT units.  So while this one's been sleepier than one of the quiet rooms in AHIP REIT's growing portfolio of US hotels,  you can be confident that senior management at least believes in the value present.  The bottom line: HOT.DB.U has traded below par in the months since it hit the market.  With a yield-to-hard-call-date of 5.24% and over 3.5 years to the hard call date, we think it's great value here too.  The company just needs to continue executing.  It closed Friday at US$99.25 and we're long HOT.DB.U at US$98.00.

5. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #3). Not too much new here as the company puts a cap on a successful 2017.  The bottom line: this is a very good quality convertible debenture issue, and has a nice combination of potential upside, yield, and USD-denominated exposure.  At Friday's close of US$109.00, the yield-to-hard-call date is 2.85% and there are 3+ years left until the hard call date. The common shares need to rise only about 15.5% to hit the conversion price.  We've been long TCN.DB.U since it debuted at US$100.00.

Picture of the Day


Christmas on the water. Victoria, British Columbia. Copyright © 2012 Felix Choo / dingobear photography.  Picture is available for licensing at Alamy Images. Photo may not be reproduced without permission. 

Drop Us a Line

Thank you for reading this blog.  As always, if you have any comments or questions about convertible debentures or this blog, please leave us a comment at the bottom of the page or email us at convertibledebs@gmail.com. 

In addition, for media, sponsoring and/or financial institution inquiries, please email us at convertibledebs@gmail.com.  Thank you for your interest!

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Public Service Announcement: the TSX Convertible Debentures List

Christmas as the Alberta Legislature.  Edmonton, Alberta. Copyright © 2014 Felix Choo / dingobear photography.  Picture is available for licensing at Alamy Images. Photo may not be reproduced without permission. 

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In our most recently published Peanut Convertible Debentures Power Rankings post, we had mentioned that if we managed to stumble upon a complete list of outstanding Canadian convertible debentures, we would let you all know.  And, happily, thanks to one of our regular readers (thanks Mike!), we were recently informed that the TSX publishes a complete list, which looks to be updated monthly, on its website.  You can access it by clicking here.

Although the TSX list doesn't have near the same depth of information as the one that used to exist on the Financial Post website, we hope that it can still be useful for some of you out there.  And of course, you always still have our hand-made, home-cooked Peanut Power Rankings to help you in your convertible debenture investing adventures.

Merry Christmas!

Beyond Convertible Debentures: Guardian Capital Group (GCG.A)

A bird's eye view of the Financial District.  San Francisco, California. Copyright © 2016 Felix Choo / dingobear photography.  Picture is available for licensing from Alamy Images.  Photo may not be reproduced without permission. 

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I get that the Canadian convertible debenture market is what we're all here for, but of course there's a lot more out there in the investable universe.  And, if we're all building truly diversified portfolios (as we should be!), we ought to be looking at opportunities in other asset classes as well.

So, with that in mind, we thought that a new, semi-regular (or maybe occasional?) column for this blog might be fun, where we explore different and maybe somewhat less widely covered ideas that exist outside of our little world of convertible debentures.  As such, we present to you Beyond Convertible Debentures, a new semi-regular column here at The Canadian Convertible Debentures Project.

Important disclaimer: Like everything else on this website, content here is provided as information and opinions only and not intended to be a provision of investment advice or a recommendation of any investment action in any form. As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.


Beyond Convertible Debentures: Guardian Capital Group (GCG.A)

Ok, let's get started.  For our first Beyond Convertible Debentures column, we thought we would talk about Guardian Capital Group.  Here are some quick facts about the company:

• Founded in 1962, Guardian is one of the last, independent, publicly traded investment asset managers on the TSX.  Although Guardian invests assets in a number of different asset classes, it is perhaps best well-known for its growth-at-a-reasonable-price (GARP) approach in its equities mandates, and also as one of the country's leading fixed income managers. 
• The shares of Guardian have been listed on the TSX since 1969.  Today, there are two classes of shares that trade: the common voting shares (ticker: GCG) and the class 'A', non-voting common shares (ticker: GCG.A).  Neither of the two classes is particularly liquid, especially the voting shares.  As such, I consider the non-voting, class 'A' common shares (GCG.A) to be more investable for the average investor.
• Guardian Capital pays a quarterly dividend of $0.10 per share.  This dividend has increased annually for the last eight consecutive years.
• The company manages assets for institutional investors such as pension funds, endowment funds, third-party mutual funds, and ETFs, as well as high net worth individuals and charitable foundations.  As at September 30, 2017, Guardian had $26.3 billion in assets under management.
• In addition to the assets Guardian manages for third-parties, Guardian also manages its own proprietary investment portfolio.  This investment portfolio is an important part of Guardian's valuation as a whole, and we'll get to more details on this in short order. 

But first, a little bit of history.  Back in 2001, Guardian sold its retail mutual fund business (with assets under management of approximately $2 billion) to the Bank of Montreal (BMO) for consideration of approximately $180 million.  But instead of taking cash in return, Guardian opted to take 4.96 million shares of BMO as payment.  This was a good move - BMO shares have more or less tripled since 2001, plus Guardian has collected millions in dividends from its BMO holdings in the intervening period.

In the past few years, Guardian has been slowly selling down its initial BMO position and diversifying the proceeds into its other investment mandates, especially within the global equities asset class.  As at September 30, 2017, Guardian still holds 3.80 million shares of BMO, and the rest of its proprietary investment portfolio as at the same date had a market value of $239.0 million, according to its Q3 financial report.


As you can see, there is considerable value in Guardian's BMO shares and investment portfolio.  When I attempt to value the company, I therefore like to use a sum-of-the-parts type of approach, and there are three main parts to value here: (1) Guardian's asset management business, (2) the BMO shares, and (3) the rest of Guardian's proprietary investment portfolio.  Ok, let's crunch some numbers and take a closer look at the numbers behind these interesting parts (click the table below to view larger): 

Guardian Capital's class 'A' non-voting shares (GCG.A) closed Friday at $26.14 per share and its common voting shares (GCG) closed at $25.50 per share.  If we take a weighted average of the two classes of shares based on their market capitalization, we get a "combined" per share value of $26.07 per share.  Based on the numbers we've calculated, $12.83 of this $26.07 total value is comprised of Guardian's 3.80 million BMO shares, $8.02 of the $26.07 is made up of the rest of Guardian's proprietary investment portfolio, leaving $5.22 of per share value in what's left of the $26.07, which we would, by process of elimination, attribute to Guardian's main asset management business.

The crux of our investment thesis is that the $5.22 per value attributed to the asset management business is, quite frankly, cheap.  As at September 30, 2017, Guardian generated $47.5 million of operating earnings in the trailing 12 months; operating earnings includes the regular income from its fee-generating investment management activities, as well as dividends and interest from its BMO shares and the rest of its proprietary investment portfolio, while excluding any net capital gains (or losses) generated from trading of its BMO shares and/or proprietary investment portfolio.

Based on our figures, the market is currently valuing Guardian Capital's asset management business at a price-to-operating-earnings ratio of 3.28x.  Is this undervalued?  We tend to think so.  But I suppose it's an open question as to what multiple this business should be trading at, as we believe the market isn't fully appreciating the value of Guardian's three component parts.

Just for fun, we tinkered with the numbers to see what the shares of Guardian Capital would trade at if the market assigned, say, an 8.00x price-to-operating-earnings ratio on its shares:

As you can see, with an 8.00x multiple, we would get to a value of $33.59 per share, which is 28.8% higher than GCG.A's close price on Friday of $26.07.   Looks pretty good to us.
To recap, here are what we see as positives associated with Guardian Capital:

• Not widely followed by Bay Street, we believe that the market appears to be undervaluing Guardian Capital.  When we dive into the numbers and carve out the considerable value of its holding of BMO shares plus the rest of its proprietary investment portfolio, the "stub" asset management business is only currently trading at 3.28x price-to-operating-earnings ratio. 
• The company's asset management business has a long history of being consistently profitable.
• Guardian Capital has grown its dividend in each of the last eight years, and the current dividend yield of the stock is 1.53%. 
• Given that there are few publicly traded independent investment asset managers left trading on the TSX, there is definitely some scarcity value in Guardian.  It would almost certainly be a good acquisition target for any of the big Canadian banks (BMO, I'm looking a you), but this is, of course, just pure speculation on our part. 

There are also, of course, risks to investing in Guardian Capital.  Here are some of the more prominent risks, in our view:

• The value of Guardian Capital's shares are highly correlated to equity markets, and in the event of a broad market correction, they would almost certainly struggle.  In the depths of the 2008 financial crisis, GCG.A traded as low as $3.00 per share. 
• Since the company's position in BMO shares is such a large part of its overall valuation, Guardian's fortunes are therefore also tied to that of BMO's.  I tend to think that BMO is a pretty solid bank, but to the extent that BMO runs into any issues, then shares of Guardian would be negatively affected as well. 
• The shares of Guardian Capital are illiquid.  Even the more liquid class 'A' shares only trade on average about 7,000 shares a day, so bid-ask spreads can be quite wide at any given time.  Our view: know your price and set limit orders, not market orders.
• With the huge, widespread of acceptance of ETFs and other lower-fee investment options, pricing power for traditional investment asset managers can be argued to be eroding.  This may negatively affect Guardian's ability to generate the same level of fee income per dollar of assets under management going forward.

The bottom-line: in an expensive market, we're always on the lookout for potentially undervalued investments such as Guardian Capital.  This is an old, venerable investment firm that the market appears to be overlooking.  As such, we've initiated a position in GCG.A at an average price of $25.74 per share.

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Any thoughts, questions, or comments?  As per usual, please feel free to drop us a line through the comments form below or by sending us an email.  

December 8, 2017, Quick Update: Peanut Convertible Debentures Power Rankings

Hi, readers.  This is the 22nd update of the Peanut Convertible Debentures Power Rankings, and is current to December 8, 2017. As one of our quick updates, this article has abbreviated commentary.  Whether you're a retail investor or a research analyst from one of the big bank brokerages, we hope you continue to find value in reading The Canadian Convertible Debentures Project.      

For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here. 

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.


Public Service Message: the Financial Post Convertible Debentures List

We've received quite a few emails asking about the Financial Post's convertible debentures list, which has apparently vanished from the newspaper's website.  Unfortunately, we don't know of another complete list of Canadian convertible debentures that is available free to the public.  The stats and figures we use for the Peanut Power Rankings we collect from various public sources and calculate ourselves; we don't have a complete list of convertible debentures either.  For those of you out there that are clients of a full-service brokerage firm with a research team that covers convertible debentures, you may be able to obtain a complete list if you ask your broker.

If we manage to stumble upon a complete list or if the Financial Post list comes back online first, we will will report it here. 

Market Commentary - Quick Points (December 8, 2017)

• North American equity markets remain at lofty levels, as strong economic numbers and, quite frankly, a lack of other investable options leave investors with few places to go.  Interest rates on savings remain low, and bonds and real estate remain expensive.  By almost any measure, this bull market is positively ancient, and in our view, caution is warranted.  As always, diversification is your friend. 
• Since our last update, there have been several new convertible debentures issues of note that have been announced, including issues from Fiera Capital, Melcor REIT, Ag Growth International, and Exchange Income Corporation.  Due to time constraints, we haven't had a chance to extensively analyze any of these new issues in time for this update, but some or all of them may make it onto our Peanut Power Rankings in future updates.
• Speaking of the Peanut Power Rankings, let's get to our Top-5 convertible debentures (plus additional bonus coverage on other issues of interest) below. 

Peanut Power Rankings Top-5 Convertible Debentures and Additional Bonus Coverage (December 8, 2017)

1. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #1).  Not a whole lot new with Cargojet since our last update other than the company receiving some more positive comments from guests on BNN.  You know the drill here: Cargojet has approximately 90% market share of the overnight air cargo market in Canada, and remains a terrific growth story.   With the busy Christmas season upon us, we're looking forward to a nice quarter.  The bottom line: Cargojet is effectively a play on the growth of online retail and continues to have a dominant market position in an area of long-term, secular growth.   Even at current prices, it's still decent entry point for CJT.DB.C.  There are still 3+ years to the hard call date and based on Friday's close of $112.50, the yield-to-hard-call-date is a positive 0.53% and the common shares only have to rise another 6.7% to hit the conversion price.  We continue to believe it is a cornerstone holding of any diversified convertible debenture portfolio.  We've been long CJT.DB.C since it debuted at $100.00.

2. Diversified Royalty Corp, 5.25% 31-December-2022, Convertible Debentures.  (Ticker: DIV.DB), (Last update's ranking: #2).  Not much new for our #2 this update either.  The story is still the same: with $88 million of cash ready to be deployed, the market is eagerly awaiting their next royalty acquisition.  So far, their track record has been pretty good. The bottom line: this is an interesting royalty company, which currently owns the Sutton Realty, Mr. Lube, and AIR MILES® trademarks in Canada.  Management is highly regarded, and are aligned with shareholders through their own shareholdings.  Finally, the terms of the convertible debenture seem positive and this is a reasonable credit risk, in our view.  At Friday's close of $100.75, we have a yield-to-hard-call-date of 5.04%, and the common shares need to rise 30.4% to hit the conversion price.  We continue to think that the stock has the potential to pop at the announcement of the next royalty acquisition, which management had previously announced that it hoped it would happen before the year's end.  We're not sure if management will hit this target as it's getting pretty late in 2017, but we're long DIV.DB at an average price of $100.08, and patiently await.  We also have a position in DIV common shares.

3. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #4). Not too much new here either other than the announcement that Tricon had completed a securitization, which should lower the company's cost of capital.  Sounds good to us.  The bottom line: this is a very good quality convertible debenture issue, and has a nice combination of potential upside, yield, and USD-denominated exposure.  At Friday's close of US$107.61, the yield-to-hard-call date is 3.30% and there are 3+ years left until the hard call date. The common shares need to rise only about 16.7% to hit the conversion price.  We've been long TCN.DB.U since it debuted at US$100.00. 

4. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #3). It's been quiet too for American Hotel Income Properties REIT. This is a nice, pure play on the US secondary hotel market.  The bottom line: HOT.DB.U has traded below par in the months since it hit the market.  With a yield-to-hard-call-date of 5.41% and over 3.5 years to the hard call date, we think it's great value here and there is potential for future gains.  The company just needs to continue executing.  It closed Friday at US$98.70 and we're long HOT.DB.U at US$98.00.

5. Exchange Income Corporation, 6.00% 31-March-2021, Series 'G', Convertible Debentures. (Ticker: EIF.DB.G), (Last update's ranking: #5).  This volatile issue moved up $5.00 since our last update, but remains undervalued according to our quantitative models and stays in our top-5.  The underlying common shares of EIF are trading in-the-money and the convertible debenture issue closed Friday at $115.00, for a yield-to-hard call date of negative -4.93%.  At this price, consider EIF.DB.G somewhat equivalent to holding the common shares directly, except with an effective floor on the downside.  The price is not receiving any positive yield in the way of dividends or coupon.  As you probably already know, the Winnipeg-based company is a bit of an odd-duck conglomeration of northern-focused aviation businesses and manufacturing, and has a very acquisitive management team.  Recent quarterly results seemed strong but the company has also been a favourite target of aggressive US short sellers, including the infamous Marc Cohodes. In addition, Exchange Income Corp. is also a serial issuer of convertible debentures.  Lo and behold, they announced yet another new convertible debenture issue this week.  Moreover, the company has also developed kind of a negative reputation for aggressively redeeming its outstanding convertible debenture issues, much to the chagrin of investors.  And, hey, lo and behold, they did it again(!) this week. Maybe EIF.DB.G is good value for good reasons?  Good question.  The bottom line: our quantitative model says this issue is good value but as you can see, there is also a lot of noise here, which means you play this issue at your own risk.  We have no position in EIF.DB.G.


6. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Ticker: DHX.DB), (Previous ranking: #7).  As suffering DHX and DHX.DB investors are well-aware, the market has flat-out hated this company the last little while.  We continue like it, so I guess that makes us contrarians on this one.  Since our last update, DHX announced a streaming deal with Chinese giant, Tencent.  Financial details were not disclosed, but it does provide further evidence that DHX's content has value.  With DHX, our views (hopes?) continue to be buoyed by its decent fiscal first quarter and the potential of the Peanuts and Strawberry Shortcake acquisition. The bottom line:  Despite the market being very skittish on DHX right now, the company has attractive media content assets, its Peanuts IP assets (Charlie Brown and Snoopy!) have cash cow characteristics, and the company is currently undergoing a strategic review and could be sold at a premium (see our previous update on our theory as to why it could sell for $9.32 a share).  Nevertheless, there are considerable risks here.  The company is highly levered (outstanding net debt of about $1 billion), and the company has lost the confidence of Bay Street.  That said, we think the unique nature of the assets are potentially worth the risk if you can stomach the volatility.  The convertible debenture (DHX.DB) is making a slow comeback and closed Friday at $95.50.  At this price, DHX.DB has a yield-to-maturity of 6.71% (note: there is no hard call provision for DHX.B, which is good for investors), but the common shares closed the week 99.0% away from DHX.DB's conversion price of $8.00.  Recovery may take awhile, but if it happens, investors could be very handsomely rewarded.  We are long DHX.DB at an average price of $99.22.  We also have a position in DHX's Series B common shares (ticker: DHX.B).

7. Surge Energy, 5.75% 31-December-2022, Convertible Debentures. (Ticker: SGY.DB), (Previous ranking: #8).  This relatively new convertible debenture issue has mostly been trading below par since its debut.  Oil prices have been trending higher, and remains at two-year highs.  As we indicated last time, with the impending Saudi Aramco IPO still slated for next year, the Saudis have good incentive to keep OPEC production in line to fetch the best possible price in the biggest IPO there ever was.  I'm not going to go so far and say that we're back in a roaring bull market for oil since I think the groundswell for a cleaner, fossil fuel-free future is real and gaining momentum, but conditions are setting up for a possible positive trade for Canadian juniors like Surge. The bottom line: if you have a positive outlook on energy prices, SGY.DB is the top oil convertible debenture on our list.  At Friday's close of $98.50, the yield-to-hard-call of SGY.DB is 6.17%, and the common shares need to rise about 41.8% to hit the conversion price.  Surge seems to be sustainable at current oil prices, and this convertible debenture provides an opportunity for participation in the optionality of oil prices heading higher, but at lower relative risk to holding Surge common shares directly.  One word of caution: a lot of investors were badly burned in the long bear market in oil that began in mid-2014, and it may take some time before investors are willing to put money back into the beleaguered Canadian energy sector.  We have no position in SGY.DB.   

8. Liquor Stores, 4.70% 31-January-2022, Series 'B' Convertible Debentures.  (Ticker: LIQ.DB.B), (Last week's ranking: #9).  Will Liquor Stores be soon selling marijuana, too?  It might happen sooner than we think.  Cannabis will  hit the market in Alberta by July 1, 2018, and this past week, Liquor Stores decided to hire one of its directors to head up its cannabis strategy.  This news comes on the heels of the company announcing that it would be retreated from its ill-advised foray into the lower 48 US states.  The bottom line:  Long-suffering Liquor Stores investors have been eager for a new direction, and the new board and management at the helm seem ready to deliver it.  To boot, the underlying shares of the LIQ are more volatile than you'd expect, and this helps the valuation of the LIQ.DB.B convertible debenture.  At Friday's close of $102.25, LIQ.DB.B has yield-to-hard call date of 3.93% and the underlying common shares need to rise 42.4% to hit the conversion price.  We no longer have a position in LIQ.DB.B.

Picture of the Day


Winter wonder. Edmonton, Alberta. Copyright © 2016 Felix Choo / dingobear photography.  Picture is available for licensing at Alamy Images. Photo may not be reproduced without permission. 

Drop Us a Line

Thank you for reading this blog.  As always, if you have any comments or questions about convertible debentures or this blog, please leave us a comment at the bottom of the page or email us at convertibledebs@gmail.com. 

In addition, for media, sponsoring and/or financial institution inquiries, please email us at convertibledebs@gmail.com.  Thank you for your interest!

*** 

November 24, 2017, Quick Update: Peanut Convertible Debentures Power Rankings

Hi again, readers.  This is the 21st update of the Peanut Convertible Debentures Power Rankings, which is current to November 24, 2017. As one of our quick updates, this article has abbreviated commentary.  Whether you're a retail investor or a research analyst from one of the big bank brokerages, we hope you continue to find value in reading The Canadian Convertible Debentures Project.      

For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here. 

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.


Market Commentary - Quick Points (November 24, 2017)

• No market commentary (again) this week: no time (again)!
• Instead, we'll get right to the Top-5 convertible debentures (plus additional bonus coverage on issues of interest) below.   

Peanut Power Rankings Top-5 Convertible Debentures and Additional Bonus Coverage (November 24, 2017)

1. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #1).  A potential hiccup surfaced when it was brought to light that Cargojet's partnership with Air Canada Cargo on three international routes (two flights per week to Latin America, and one flight per week to Germany) would be terminated at the end of the year.  The expiration of this deal, which is good for about $9 million in revenue per year, seemed like a setback.  Well, no matter, but Cargojet management instead just coolly reassured the market by saying it expected to replace these flights and the associated revenue by operating the flights directly.  Cool.  They just keep executing.   The bottom line: Cargojet is effectively a play on the growth of online retail and continues to have a dominant market position in an area (i.e., air cargo services) of long-term, secular growth.   Even at current prices, it's still decent entry point for CJT.DB.C.  There are still 3+ years to the hard call date and based on Friday's close of $111.10, the yield-to-hard-call-date is a positive 1.00% and the common shares only have to rise another 10.3% to hit the conversion price.  We continue to really like it.  We've been long CJT.DB.C since it debuted at $100.00.

2. Diversified Royalty Corp, 5.25% 31-December-2022, Convertible Debentures.  (Ticker: DIV.DB), (Last update's ranking: #2).  This continues to trade solidly since its November 7 debut.  Not much in the way of new news for this company since the last update.  The story is still the same: with $88 million of cash ready to be deployed, the market is eagerly awaiting their next royalty acquisition.  So far, their track record has been pretty good. The bottom line: this is an interesting royalty company, which currently owns the Sutton Realty, Mr. Lube, and AIR MILES® trademarks in Canada.  Management is highly regarded, and are aligned with shareholders through their own shareholdings.  Finally, the terms of the convertible debenture seem positive and this is a reasonable credit risk, in our view.  At Friday's close of $101.45, we have a yield-to-hard-call-date of 4.85%, and the common shares need to rise 28.5% to hit the conversion price.  We continue to think that the stock has the potential to pop at the announcement of the next royalty acquisition.  We're long DIV.DB at an average price of $100.08.  We also have a position in DIV common shares.

3. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #3). It was also a quiet week for American Hotel Income Properties REIT, which has actually been quite active thus far in 2017.  The REIT has been very acquisitive, and now we will see how they digest the acquisitions.  In addition, we will see if a recent branding agreement with Wyndham on its rail portfolio will reap benefits.  Fun fact: the REIT now owns 115 hotels in 92 cities in 33 states.  This is a nice, pure play on the US secondary hotel market.  The bottom line: HOT.DB.U has traded below par in the months since it hit the market.  With a yield-to-hard-call-date of 5.38% and over 3.5 years to the hard call date, we think it's great value here and the potential is there for future gains.  It closed Friday at US$98.75 and we're long HOT.DB.U at US$98.00.

4. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #5). Another fun fact: this Tricon convertible debenture issue was this blog's inaugural #1 pick.  Obviously, we still like it as the company continues to execute nicely and its Silver Bay acquisition earlier in the year is already starting add to the top and bottom lines.  The bottom line: this is a very good quality convertible debenture issue, and has a nice combination of potential upside, yield, and USD-denominated exposure.  At today's close of US$108.32, the yield-to-hard-call date is 3.11% and there are 3+ years left until the hard call date. The common shares need to rise only about 14.9% to hit the conversion price.  We've been long TCN.DB.U since it debuted at US$100.00.

5. Exchange Income Corporation, 6.00% 31-March-2021, Series 'G', Convertible Debentures. (Ticker: EIF.DB.G), (Last update's ranking: #7).  Although we're not quite sure what to make of this one because of all of the moving parts, we can't ignore it in our Peanut Top-5 Power Rankings any longer: on a pure quantitative model basis, it's the most undervalued debenture in our coverage universe.  In fact, the underlying common shares of EIF are trading well in-the-money but the convertible debenture issue closed Friday only at $110.00, for a yield-to-hard call date of negative -1.35%.  The Winnipeg-based company is a bit of an odd-duck conglomeration of northern-focused aviation businesses and manufacturing, and has been a very acquisitive management team.  Recent quarterly results seemed strong but the company has also been a favourite target of aggressive US short sellers, including the infamous Marc Cohodes. In addition, Exchange Income Corp. is also a serial issuer of convertible debentures, usually putting out an issue on roughly an annual basis.  Moreover, the company has also developed kind of a negative reputation for aggressively redeeming its outstanding convertible debenture issues, much to the chagrin of investors.  Maybe EIF.DB.G is good value for good reasons?  Hmmm, good question.  The bottom line: if our Peanut Power Rankings were purely about our model prices and the quantitative, EIF.DB.G would be #1.  But there's also a lot of noise here, which means you play this issue at your own risk.  This week, #5 sounds about right.  We have no position in EIF.DB.G.


7. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Ticker: DHX.DB), (Previous ranking: #6). At least DHX is finally starting to show signs of stabilizing?  As suffering DHX and DHX.DB investors are well-aware, the market has flat-out hated the company the last little while.  We continue like it, so I guess that makes us contrarians on this one.  There wasn't much new with the company in the last week, but our views (hopes?) continue to be buoyed by it's decent fiscal first quarter and the potential of the Peanuts and Strawberry Shortcake acquisition. The bottom line:  Despite the market hating on DHX right now, the company has attractive media content assets, its Peanuts IP assets (Charlie Brown and Snoopy!) have cash cow characteristics, and the company is currently undergoing a strategic review and could be sold at a premium (see our previous update on our theory as to why it could sell for $9.32 a share).  Nevertheless, there are considerable risks here.  The company is highly levered (outstanding net debt of about $1 billion), and the company has lost the confidence of Bay Street.  That said, we think the unique nature of the assets are potentially worth the risk if you can stomach the volatility.  The convertible debenture (DHX.DB) closed Friday at $95.00, so the issue is showing signs of stabilization.  At this price, DHX.DB has a yield-to-maturity of 6.80% (note: there is no hard call provision for DHX.B, which is good for investors), but the common shares closed the week 98.0% away from DHX.DB's conversion price of $8.00.  Recovery may take awhile, but if it happens, investors could be very handsomely rewarded.  We are long DHX.DB at an average price of $99.22.  We also have a position in DHX's Series B common shares (ticker: DHX.B).

8. Surge Energy, 5.75% 31-December-2022, Convertible Debentures. (Ticker: SGY.DB), (Previous ranking: #8).  This relatively new convertible debenture issue has mostly been trading below par since its debut, but we're gonna assume that it's the underwriters who are still working through their over-allotment inventory as the reason for this.  Don't look now but oil prices have been trending higher, ending the week at two-year high levels.  Call us conspiracy theorists, but with the impending Saudi Aramco IPO still slated for next year, the Saudis have good incentive to keep OPEC production in line, to fetch the best possible price in the biggest IPO there ever was.  I'm not going to go so far and say that we're back in a roaring bull market for oil since I think the groundswell for a cleaner, fossil fuel-free future is real and gaining momentum, but conditions are setting up for a possible positive trade for Canadian juniors like Surge. The bottom line: if you have a positive outlook on energy prices, SGY.DB is the top oil convertible debenture on our list.  At Friday's close of $99.85, the yield-to-hard-call of SGY.DB is 5.78%, and the common shares need to rise about 32.2% to hit the conversion price.  These aren't bad figures.  Surge seems to be sustainable at current oil prices, and this convertible debenture provides an opportunity for participation in the optionality of oil prices heading higher, but at lower relative risk to holding Surge common shares directly.  We have no position in SGY.DB but we're thinking about it.  

9. Liquor Stores, 4.70% 31-January-2022, Series 'B' Convertible Debentures.  (Ticker: LIQ.DB.B), (Last week's ranking: #10).  Liquor Stores has had an active year, not the least of which was a full-out proxy fight where the dissidents won and sacked the previous board and management.  After releasing some pretty terrible quarterly results (why not also let the door hit the previous team on their way out?), the new regime announced that the company would be retreating from liquor retailing in the lower 48 US states.  The market liked this lots. Let's face it, those US stores have never performed as well as investors always hoped they would.  The bottom line:  Long-suffering Liquor Stores investors have been eager for a new direction, and the new board and management at the helm seem ready to deliver it.  To boot, the underlying shares of the LIQ are more volatile than you'd expect, and this helps the valuation of the LIQ.DB.B convertible debenture.  At Friday's close of $102.26, LIQ.DB.B has yield-to-hard call date of 3.94% and the underlying common shares need to rise 45.1% to hit the conversion price.  We no longer have a position in LIQ.DB.B.

17. Rogers Sugar, 5.00% 31-December-2024, Sixth Series (Series 'E') Extendible Convertible Debentures. (Ticker: RSI.DB.E), (Previous ranking: #19). This past week was a tale of two stories (wait, that sounds weird but I think you know what we mean).  On November 20, the company announced it was making its second acquisition in the maple syrup business in 2017, by buying Quebec-based Decacer for $40 million.  Maple syrup has a better growth profile than Rogers' traditional sugar business, and this acquisition increased Rogers' presence in a fragmented market.  Pro-forma, after the Decacer deal closes, maple is expected to contribute 20% of Rogers' top-line.  Investors likey.  However, on November 22, Rogers announced its fiscal fourth quarter results, and this wasn't as sweet as the maple syrup news.  In fact, the traditional sugar business struggled and declined from a year ago.  Needless to say, investors didn't like this so much. The bottom line: consolidating the fragmented maple syrup business provides a shot in the arm for a long-time sleepy company, though trade, consumer sentiment, and growth risks remain in Rogers' traditional sugar business.  At Friday's close of $105.50, RSI.DB.E has a yield-to-hard call of 3.80%, and the underlying shares of RSI need to rise 33.0% to hit the conversion price of $8.26.  We have no position in RSI.DB.E.

Picture of the Day


Even black bears enjoy Swedish waffles with Canadian maple syrup. Edmonton, Alberta. Copyright © 2017 Felix Choo / dingobear photography.  Picture is available for licensing with Alamy Images. Photo may not be reproduced without permission. 

Drop Us a Line

Thank you for reading this blog.  As always, if you have any comments or questions about convertible debentures or this blog, please leave us a comment at the bottom of the page or email us at convertibledebs@gmail.com. 

In addition, for media, sponsoring and/or financial institution inquiries, please email us at convertibledebs@gmail.com.  Thank you for your interest!

*** 

November 16, 2017, Quick Update: Peanut Convertible Debentures Power Rankings

Hi, readers.  This is the 20th update of the Peanut Convertible Debentures Power Rankings, which is current to November 16, 2017.  This is one of our quick updates, with abbreviated commentary.      

For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here. 

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.



Market Commentary - Quick Points (November 16, 2017)

• No market commentary this week: no time!
• Instead, we'll get right to the Top-5 convertible debentures below, as it's been a busy couple of weeks as we've passed through the thick of Q3 earnings season.   

Peanut Power Rankings Top-5 Convertible Debentures and Additional Bonus Coverage (November 16, 2017)

1. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #1).  Nary an air pocket in sight, Cargojet announced yet another very good quarter on November 13.  Revenues up 10.8%, gross margin up 18.8%.  The bottom line: Cargojet is effectively a play on the growth of online retail and continues to have a dominant market position in an area (i.e., air cargo services) of long-term, secular growth.   Even at current prices, it's still decent entry point for CJT.DB.C.  There are still 3+ years to the hard call date and based on today's close of $112.00, the yield-to-hard-call-date is a positive 0.75% and the common shares only have to rise another 8.4% to hit the conversion price.  We continue to really like it.  We've been long CJT.DB.C since it debuted at $100.00.

2. Diversified Royalty Corp, 5.25% 31-December-2022, Convertible Debentures.  (Ticker: DIV.DB), (Last update's ranking: #3).  This new issue hit the market on November 7, and has been solidly trading above par since its debut.  Quarterly earnings, which were announced on November 9, were largely in-line.  Importantly, with $88 million of cash ready to be deployed, the market is eagerly awaiting their next royalty acquisition.  So far, their track record has been pretty good. The bottom line: this is an interesting royalty company, which currently owns the Sutton Realty, Mr. Lube, and AIR MILES® trademarks in Canada.  Management is highly regarded, and are aligned with shareholders through their own shareholdings.  Finally, the terms of the convertible debenture seem positive and this is a reasonable credit risk, in our view.  At today's close of $100.75, we have a yield-to-hard-call-date of 5.04%, and the common shares need to rise 28.9% to hit the conversion price.  We think the stock has potential to pop at the announcement of the next royalty acquisition.  Since our last update, we have acquired a position in DIV.DB at an average price of $100.08.  We also have a position in DIV common shares.

3. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #2). American Hotel Income Properties announced their Q3 earnings on November 8, and the numbers came out somewhat mixed, but on the whole, okay.  Strength in some markets (Florida, Tennessee, Oklahoma) were offset by weakness in others (Pennsylvania, Texas, and Virginia).  The REIT has been very acquisitive the last year; we will see how they continue to digest the assets they've swallowed up.  The bottom line: HOT.DB.U has traded below par in the months since it hit the market.  With a yield-to-hard-call-date of 5.62% and over 3.5 years to the hard call date, we think it's great value here and the potential is there for future gains.  It closed today at US$98.00 and we're long HOT.DB.U at US$98.00.

4. Osisko Gold Royalties, 4.00% 31-December-2022, Convertible Debentures. (Presumed ticker: OR.DB), (Last update's ranking: #4).  The management team at Osisko Gold Royalties is known for their aggressiveness and deal-making in the precious metals space.  Since our last update, OR has made a US$65 million investment in Aquila Resources, which includes the acquisition of a gold stream from Aquila's Back Forty mining project in Michigan.   The bottom line: this is high quality, precious metals royalty company, with a superior growth profile.  We believe Osisko management will continue to be active in acquiring accretive royalties and streams in jurisdictions with low political risk.  We're long OR.DB as we subscribed to the issue at $100.00.  We also have a position in OR common shares.

5. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #5). Tricon stock (and convertible debentures) popped on the announcement of its third quarter earnings on November 8.  This is the kind of boffo quarter we've been expecting since we made TCN.DB.U the Peanut Power Rankings' inaugural #1 pick back on March 3.  The Silver Bay acquisition is starting to reap rewards.  The bottom line: this is a ver good quality convertible debenture issue, and has a nice combination of potential upside, yield, and USD-denominated exposure.  At today's close of US$109.67, the yield-to-hard-call date is 2.73% and there are about 3.4 years left until the hard call date. The common shares need to rise only about 15.7% to hit the conversion price.  We've been long TCN.DB.U since it debuted at US$100.00.


6. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Ticker: DHX.DB), (Previous ranking: #6). Wow, the market just hates this company right now.  We like it, so I guess that makes us contrarians on this one.  DHX's fiscal first quarter was announced on November 14, and lo and behold, it was pretty good.  Revenues were up 83%, management is trying to wrangle in costs, and fiscal 2018 adjusted EBITDA guidance remains at $125 million to $155 million.  By all accounts, Peanuts and Strawberry Shortcake appear to be performing as expected, and a deal was announced with Hulu earlier today, to boot.  Come on, market, give credit where credit is due.  The bottom line:  Despite the market hating on DHX right now, the company has attractive media content assets, its Peanuts IP assets (Charlie Brown and Snoopy!) have cash cow characteristics, and the company is currently undergoing a strategic review and could be sold at a premium (see our previous update on our theory as to why it could sell for $9.32 a share).  Nevertheless, there are considerable risks here.  The company is highly levered (outstanding net debt of about $1 billion), and the company has lost the confidence of Bay Street.  That said, we think the unique nature of the assets are potentially worth the risk if you can stomach the volatility.  The convertible debenture (DHX.DB) closed today at $94.00.  At this price, DHX.DB has a yield-to-maturity of 6.99% (note: there is no hard call provision for DHX.B, which is good for investors), but the struggling underlying common shares closed today 105.1% away from DHX.DB's conversion price of $8.00.  Recovery may take awhile, but if it happens, investors could be very handsomely rewarded.  We are long DHX.DB at an average price of $99.22.  We also have a position in DHX's Series B common shares (ticker: DHX.B).

8. Surge Energy, 5.75% 31-December-2022, Convertible Debentures. (Ticker: SGY.DB), (Previous ranking: unranked).  This $44.5 million new issue hit the market only yesterday, and had been announced on October 26 in conjunction with Surge's acquisition of crude oil producing assets in the Sparky area of central Alberta.  The bottom line: we're still a bit reticent about junior and mid-tier oil and gas at this stage, but as far as an oil-based convertible debenture goes, this new Surge issue does seem to have attractive aspects going for it .  At today's close of $99.60, the yield-to-hard-call of SGY.DB is 5.86%, and the common shares need to rise about 35.5% to hit the conversion price.   Surge seems to be sustainable at current oil prices, and this convertible debenture provides an opportunity for participation in the optionality of oil prices heading higher, but at lower relative risk to holding Surge common shares directly.  We have no position in SGY.DB.  

11. Innergex Renewable Energy, 4.25% 15-August-2020, Series 'A' Convertible Debentures. (Ticker: INE.DB.A), (Last week's ranking: #10). We're gonna say the exact same thing as we did last update on this particular issue.  Innergex made a splash on October 30 when it announced it was taking over Alterra Power for the price of $1.1 billion in cash and stock. Shares of INE traded down on the news but we're positive on the deal, as Alterra's Icelandic geothermal assets and US hydro assets represent an improved growth pipeline for the new Innergex, as well as the diversification of the new company into different geographies.  The bottom line: Cleaner, renewable energy is an important theme that we're bullish on over the medium to long-term.   We want to be in this space (and maybe you do too), and this convertible debenture is a way to play it.  At today's close of $105.99, INE.DB.A has a yield-to-hard-call date of 0.87% and is just under 2 years to hard call.  Also, INE is trading only 9.5% away from INE.DB.A being in the money.  We're long INE.DB.A at $102.75.

12. Algoma Central, 5.25% 30-June-2024, Series 'A' Convertible Debentures. (Ticker: ALC.DB.A), (Previous ranking: #13).  For as quiet as a company this is, its common shares have sort of been on fire the last few weeks.  The most recent news: the announcement of a substantial stock buyback, which will be executed in the form of Dutch auction.  Shiver my timbers, I like the cut of this jib! The bottom line: recent developments for Algoma Central are all positive, the company is gaining momentum, and the underlying common shares are starting to turn.  ALC.DB.A has mostly been on the expensive side since it hit the market in the summer, but our quantitative model now has the issue pretty close to fair value and this is a good quality credit.  ALC.DB.A closed Friday at $107.00, which gives it a yield-to-hard-call of 3.59%.  We have no position in ALC.DB.A but have a position in ALC common shares.

Picture of the Day


Norra hamnen, Helsingborg, Sweden. Copyright © 2009 Felix Choo / dingobear photography.  Picture is available for licensing with Alamy Images. Photo may not be reproduced without permission. 

Drop Us a Line

Thank you for reading this blog.  As always, if you have any comments or questions about convertible debentures or this blog, please leave us a comment at the bottom of the page or email us at convertibledebs@gmail.com. 

In addition, for media, sponsoring and/or financial institution inquiries, please email us at convertibledebs@gmail.com.  Thank you for your interest!

*** 

November 3, 2017, Quick Update: Peanut Convertible Debentures Power Rankings

This is the 19th update of the Peanut Convertible Debentures Power Rankings.  This update is current to November 3, 2017.  This is one of our quick updates, with abbreviated commentary.      

For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here. 

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.


Market Commentary - Quick Points (November 3, 2017)

• As we suspected, the Bank of Canada chose to hold the line on interest rates during its rate announcement on Wednesday.  This, in addition to some surprisingly weak GDP numbers helped to suppress the Canadian dollar, which ended the week at 78.35 US cents.
• Yields in the bond markets also declined across the yield curve.    
• It's been an active past two weeks in our convertible debentures coverage universe.  We'll get to the details below.       

Peanut Power Rankings Top-5 Convertible Debentures and Additional Bonus Coverage (November 3, 2017)

1. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #2).  And this long-time top-5 mainstay finally ascends to #1.  Cargojet announced on October 23 that it had extended its contract with Canada Post and Purolator Courier until March 31, 2025.  In our view, this is just another example of the company executing well in its business.  The bottom line: Cargojet continues to have a dominant market position in an area of long-term, secular growth, and even at current prices, it's still decent entry point for CJT.DB.C.  There are still 3+ years to the hard call date and based on Friday's close of $111.00, the yield-to-hard-call-date is a positive 1.10% and the common shares only have to rise another 9.0% to hit the conversion price.  We continue to really like it.  We've been long CJT.DB.C since it debuted at $100.00. 

2. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #1). On November 1, American Hotel Income Properties announced that it had signed a brand licensing agreement with the Wyndham Hotel Group for its entire rail hotel portfolio.  Furthermore, the REIT also announced that it had acquired two additional rail hotels, one in Fargo, North Dakota, and another in Whitefish, Montana.  Both bits of news can be viewed as positives, in our view. The bottom line: HOT.DB.U has traded below par in the months since it hit the market.  With a yield-to-hard-call-date of 5.31% and over 3.5 years to the hard call date, we think it's great value here and the potential is there for future gains.  It closed Friday at US$98.98 and we're long HOT.DB.U at US$98.00.

3. Diversified Royalty Corp, 5.25% 31-December-2022, Convertible Debentures.  (Presumed ticker: DIV.DB), (Last update's ranking: #4).  Note: this issue is not yet trading, but is expected to hit the market on November 7.  Earnings are expected November 9, and the numbers should be good.  The company pre-announced same stores sales growth at Mr. Lube of 4.7% for its fiscal third quarter, which is excellent performance.  In addition, DIV's royalty licensing agreement with Mr. Lube was amended to include sales from Mr. Lube's new incremental tire business, which is a positive looking forward.  Things are looking up.  The bottom line: this is an interesting royalty company, which currently owns the Sutton Realty, Mr. Lube, and AIR MILES® trademarks in Canada.  Management is highly regarded, and are aligned with shareholders through their own shareholdings.  Finally, the terms of the convertible debenture seem positive and this is a reasonable credit risk, in our view.  We did not successfully subscribe to the issue, but we are interested in acquiring one at the right price once it begins trading on the TSX.  We also have a position in DIV common shares.

4. Osisko Gold Royalties, 4.00% 31-December-2022, Convertible Debentures. (Presumed ticker: OR.DB), (Last update's ranking: #3).  This issue hit the market on November 3, and it was a smoking debut, with OR.DB ending the day at $104.80.  This high-quality issue is a welcome addition to the Canadian convertible debentures market.  The bottom line: this is top-shelf precious metals royalty company, with a superior growth profile.  Osisko is now cashed up and on the lookout for additional royalties to add to its growth profile.  We're long OR.DB, as we subscribed to the issue at $100.00.  We also have a position in OR common shares.

5. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #5). Tricon announced on October 24 that the company had sold 1,523 homes in non-core markets for a tidy sum of US$153 million.  Quarterly earnings will be announced November 9.  The bottom line: this is a good quality convertible debenture issue, and has a nice combination of potential upside, yield, and USD-denominated exposure.  At Friday's close of US$107.00, the yield-to-hard-call date is 3.55% and there are about 3.4 years left until the hard call date. The common shares need to rise about 22.2% to hit the conversion price.  We've been long TCN.DB.U since it debuted at US$100.00.


6. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Ticker: DHX.DB), (Previous ranking: #6). We asked last update if the worst was over, but unfortunately the Class 'B' common shares continued to sink even lower.  This has been an unwelcome white-knuckle ride, and the DHX.DB has been similarly sideswiped.  The bottom line:  Despite the market hating on DHX right now, the company has attractive media content assets, its Peanuts IP assets (Charlie Brown and Snoopy!) have cash cow characteristics, and the company is currently undergoing a strategic review and could be sold at a premium (see our previous update on our theory as to why it could sell for $9.32 a share).  Nevertheless, there are considerable risks here.  The company is highly levered (outstanding net debt of just over $1 billion), and the company has lost the confidence of the street.  That said,   However, we think the unique nature of the assets are potentially worth the risk if you can stomach the volatility.  The convertible debenture (DHX.DB) closed Friday at $93.00.  At this price, DHX.DB has a yield-to-maturity of 7.18% (note: there is no hard call provision for DHX.B, which is good for investors), but the struggling underlying common shares closed Friday 102.5% away from DHX.DB's conversion price of $8.00.  Recovery will take patience, but if it happens, investors could be very handsomely rewarded.  We are long DHX.DB at an average price of $99.22.  We also have a position in DHX's Series B common shares (ticker: DHX.B).

10. Innergex Renewable Energy, 4.25% 15-August-2020, Series 'A' Convertible Debentures. (Ticker: INE.DB.A), (Last week's ranking: #8). Innergex made a splash on October 30 when it announced it was taking over Alterra Power for the price of $1.1 billion in cash and stock. Shares of INE traded down on the news but we're positive on the deal, as Alterra's Icelandic geothermal assets and US hydro assets represent an improved growth pipeline for the new Innergex, as well as the diversification of the new company's into different geographies.    The bottom line: Cleaner, renewable energy is a an important theme that we're bullish on over the medium to long-term.  At Friday's close of $106.00, INE.DB.A has a yield-to-hard-call date of 0.93% and is just under 2 years to hard call.  INE is trading only 6.3% away from INE.DB.A being in the money.  We're long INE.DB.A at $102.75.

13. Algoma Central, 5.25% 30-June-2024, Series 'A' Convertible Debentures. (Ticker: ALC.DB.A), (Previous ranking: #16).  For what's a pretty sleepy company, there's actually been a bit of newsflow the last week or so.  First, on October 27, Algoma Central announced that it had reached a tentative agreement with the navigation and engineering officers in the company’s product tanker fleet, effectively ending a week-long strike. Second, on November 2, the company announced that its first Equinox Class self-unloader, the brand-new, seaway-max size Algoma Niagara, had arrived in Canada from a Chinese shipyard.  New technologically advanced ships like this will lower costs, improve emissions performance, and add to the bottom line.  Finally, after market close on November 3, Algoma Central announced what we perceive to be very good quarterly earnings, which included the treat of an increase in the company's quarterly dividend, to 9 cents a share.  The bottom line: recent developments for Algoma Central are all positive, the company is gaining momentum, and the underlying common shares are starting to turn.  ALC.DB.A has mostly been on the expensive side since it hit the market in the summer, but our quantitative model now has the issue at fair value.  ALC.DB.A closed Friday at $105.40, which gives it a yield-to-hard-call of 3.97%.  We have no position in ALC.DB.A but have a position in ALC common shares.

19. Aecon Group, 5.50% 31-December-2018, Series 'B' Convertible Debentures. (Ticker: ARE.DB.B), (Previous ranking: #24). The strategic review bore results - Aecon found a buyer! On October 26, Aecon announced that it had agreed to be acquired by Chinese construction giant CCCI for $20.37 per share.  (This valuation compares to the conversion price of ARE.DB.B of $20.00 per share).  However, there is real question as to whether this deal will go through, as given the political sensitivities related to selling to a Chinese company, the Investment Canada Act can be cited by the federal government to nix the deal.  ARE.DB.B's hard call date is December 31, 2017, so time is ticking.  We don't have a position in either ARE.DB.B or ARE, but this will be an interesting situation to watch from the sidelines. 

Picture of the Day


Market bears have been sleepy like this grizzly bear.  Calgary Zoo, Calgary, Alberta. Copyright © 2016 Felix Choo / dingobear photography.  Picture is available for licensing with Alamy Images.  Photo may not be reproduced without permission. 

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