The Mawer Canadian Equity Fund (Trades, Portfolio) invests primarily in large-cap Canadian companies. As of the fourth quarter ended Dec. 31, the top three holdings in the portfolio are Brookfield Asset Management, Canadian National Railway, and The Toronto-Dominion Bank.
Financial stocks comprise the majority of the portfolio at 36%, followed by industrials at 16%, and energy at 13%.
The fund has handily beaten the S&P/TSX Composite Index over the years. Over the past three, five, and 10-year periods, Mawer returned 17.9%, 13.7%, and 10.2% respectively. Over the same time periods, the index returned 10.2%, 7.5%, and 7.6%.
During the fourth quarter, Mawer bought stakes in two new companies, and sold out of eight others.
New buys
Shaw Communications (TSX:SJR.B, Financial)
Mawer’s largest purchase was 792,785 shares of Shaw Communications, which traded for an average price of C$29.56 per share during the period. The holding has a 1.3% portfolio weighting.
Shaw is a diversified communications and media company. It provides consumers with broadband cable, internet, home phone, and telecommunication services.
The stock price has increased 10% over the past year and is currently priced at C$28.74 with a P/E ratio of 20.8 and P/S ratio of 2.52.
GuruFocus rates the business predictability as an excellent 4.5 out of 5 stars. The DCF model estimates a fair value of C$26.85, giving a -7% margin of safety.
In FY 2014, net income was C$857 million, up from C$746 million the year before. Over the past five years, net income has increased consistently at 15.65%.
Shaw’s dividend yield is 3.85%, which is near the company’s five-year low, while the payout ratio is 60%.
Canadian Energy Services & Technology (TSX:CEU, Financial)
The fund’s second purchase of the quarter was 933,000 shares of Canadian Energy Services & Technology, for an average price of C$7.91 per share. The stock has a 0.31% portfolio weighting.
The company designs and manufactures technically advanced consumable fluids and specialty chemicals for the oil and gas industry. It operates in the Western Canadian Sedimentary Basin and in several basins in the U.S.
Over the past year, the stock has declined 32% and is currently priced at C$6.50. The current P/E ratio is 18.4, while the P/S ratio is 1.44.
Net income has been steadily increasing over the years, growing by more than 13% over the past five years. In 2014, net income was C$67.7 million.
The dividend yield is 5.26%, which is close to the five-year high. A high payout ratio of 97% indicates the dividend may not be sustainable, or there is limited room for growth in the future.
Sold out
Mawer sold all 515,070 shares of its position in Metro for an average price of C$27.63. The fund had held the position since Q2 2011.
Metro is a food retailer and distributor which operates or supplies to a total of 659 food stores in Quebec and Ontario.
The stock price has increased 68% over the past year, giving Mawer an opportunity to cash out of the position with a profit. The stock currently trades at C$36.10 with a P/E ratio of 19.9 and P/S ratio of 0.8.
In 2014, net income was C$447 million, down from C$695 million the year before.
Looking at the balance sheet, the current ratio is 1.11, which indicates Metro is able to cover its short-term obligations. However, long-term debt increased from C$650 million in 2013 to C$1,045 million in 2014.
The fund also sold out of its stake in Newalta, selling 356,406 shares for an average price of C$19.16 per share. Newalta is an environmental waste management company that operates in three segments: new markets, oilfield, and industrial.
The stock has declined 25% over the past year and is currently priced at C$15.65. The P/E ratio is 13.99 and the P/S ratio is 1.79.
The company has struggled to improve its EBIT per share over the past five years, with earnings declining by 13% over the period. In 2014, EBIT per share was C$0.68.
Indeed, last year was tough for Newalta, as indicated by its loss in net income of C$-142.7 million.
The current payout ratio is 3.19%, and the earnings loss has skyrocketed the payout ratio to 578%, indicated a dividend decrease is almost certain.
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