The Mawer New Canada Fund (Trades, Portfolio) revealed its equity portfolio for the second half of 2021 earlier this week.
The fund, which is part of Mawer Investment Management, invests primarily in a diverse number of smaller Canada-based companies with excellent management teams that are trading at a discount. To achieve its objective of long-term, above-average growth, portfolio managers Jeff Mo and Samir Taghiyev follow a highly disciplined, research-driven, bottom-up process.
For the six months ended Dec. 31, the fund’s annual filing shows it entered two new positions, sold out of five stocks and added to or trimmed a number of other existing holdings. The most notable trades included a new position in Goeasy Ltd. (TSX:GSY, Financial), a boost to the Parkland Corp. (TSX:PKI, Financial) stake, a reduction to its Kinaxis Inc. (TSX:KXS, Financial) holding and the divestment of FirstService Corp. (TSX:FSV, Financial) and Absolute Software Corp. (TSX:ABST, Financial).
Goeasy
The fund invested in 253,289 shares of Goeasy (TSX:GSY, Financial), dedicating 2.38% of the equity portfolio to the holding. The stock traded for an average price of 185.07 Canadian dollars ($147.92) per share.
The Mississauga, Ontario-based credit services company, which provides non-prime leasing and lending services through its easyhome, easyfinancial and LendCare brands, has a CA$2.18 billion market cap; its shares closed at CA$134.31 on Thursday with a price-earnings ratio of 9.05, a price-book ratio of 2.76 and a price-sales ratio of 2.73.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past financial performance and future earnings projections.
GuruFocus rated Goeasy’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past several years, it is still at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.49, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared better with a 10 out of 10 rating, driven by an expanding operating margin as well as strong returns on equity, assets and capital that outperform a majority of competitors. Goeasy is also supported by a moderate Piotroski F-Score of 5 out of 9, which indicates conditions are typical for a stable company. Consistent earnings and revenue growth have also contributed to a predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank return an average of 9.3% annually over a 10-year period.
The fund holds 1.57% of Goeasy’s outstanding shares currently.
Parkland
With an impact of 1.53% on the equity portfolio, the New Canada Fund increased its Parkland (TSX:PKI, Financial) stake by 232.17%, buying 840,553 shares. Shares traded for an average price of CA$35.27 each.
Mawer now holds a total of 1.2 million shares, which represent 2.19% of the equity portfolio. GuruFocus data shows the fund has gained an estimated 28.36% on the investment since establishing it in 2014.
The operator of convenience store and gas station chains, which is headquartered in Calgary, Alberta, has a market cap of CA$5.30 billion; its shares closed at CA$34.39 on Thursday with a price-earnings ratio of 55.47, a price-book ratio of 2.69 and a price-sales ratio of 0.23.
According to the GF Value Line, the stock is significantly overvalued currently.
Parkland’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately CA$2.1 billion in new long-term debt over that past three years, the company has weak interest coverage. The Altman Z-Score of 2.37 indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The company is also struggling to create value as the WACC eclipses the ROIC.
The company’ s profitability fared better, scoring a 9 out of 10 rating on the back of an expanding operating margin and returns that outperform over half of its industry peers. Parkland also has a moderate Piotroski F-Score of 6 and a one-star predictability rank that is on watch. GuruFocus says companies with this rank return an average of 1.1% annually.
The fund holds 0.78% of Parkland’s outstanding shares. The iShares MSCI ACWI ex. U.S. ETF also owns the stock.
Kinaxis
Impacting the equity portfolio by -1.70%, Mawer curbed its position in Kinaxis (TSX:KXS, Financial) by 64.85%, selling 194,300 shares. The stock traded for an average per-share price of CA$186.62 during the period.
The fund now holds a total of 105,327 shares, accounting for 0.98% of the equity portfolio. GuruFocus estimates the fund has gained 64.30% on the investment since establishing it in 2016.
The Ottowa, Ontario-based software company, which provides supply chain management and sales and operation planning solutions, has a CA$4.57 billion market cap; its shares closed at CA$166.28 on Thursday with a price-book ratio of 11.13 and a price-sales ratio of 14.62.
Based on the GF Value Line, the stock appears to be fairly valued currently.
GuruFocus rated Kinaxis’ financial strength 7 out of 10, boosted by adequate interest coverage and a robust Altman Z-Score of 10.38 that indicates it is in good standing even though assets are building up faster than revenue is growing.
The company’s profitability scored an 8 out of 10 rating even though the operating margin is in decline and its negative returns underperform over half of its competitors. Kinaxis is also being weighed down by a low Piotroski F-Score of 3, indicating business conditions are in poor shape.
The Wasatch International Growth (Trades, Portfolio) Fund has the largest position in Kinaxis with 0.46% of its outstanding shares. Mawer holds 0.38%.
FirstService
The fund exited its 157,258-share holding of FirstService (TSX:FSV, Financial), impacting the equity portfolio by -1.79%. The stock traded for an average price of CA$35.36 per share during the six-month period.
GuruFocus estimates Mawer gained 127.72% on the long-held investment.
The real estate services company headquartered in Toronto has a market cap of CA$7.86 billion; its shares closed at CA$177.93 on Thursday with a price-earnings ratio of 46.30, a price-book ratio of 7.65 and a price-sales ratio of 1.94.
The GF Value Line suggests the stock is fairly valued currently.
FirstService’s financial strength was rated 6 out of 10 by GuruFocus. Despite the company issuing new long-term debt over the past several years, it is still manageable due to a comfortable level of interest coverage. The high Altman Z-Score of 4.16 indicates the company is in good standing even though assets are building up. Value creation is also occurring since the ROIC exceeds the WACC.
The company’s profitability scored a 9 out of 10 rating. While margins are underperforming versus other players, returns top a majority of industry peers. FirstService is also supported by a moderate Piotroski F-Score of 6 and a one-star predictability rank, though it has recorded losses in operating income.
The iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio) currently holds 0.01% of its outstanding shares.
Absolute Software
Mawer dumped its 1.55 million remaining shares of Absolute Software (TSX:ABST, Financial). The transaction had an impact of -1.49% on the equity portfolio. Shares traded for an average price of CA$12.67 each during the period.
GuruFocus data shows the fund gained 19.93% on the investment over its lifetime.
The Vancouver, British Columbia-based cybersecurity company has a CA$532.38 million market cap; its shares closed at CA$10.55 on Thursday with a price-book ratio of 28.51 and a price-sales ratio of 2.72.
The GF Value Line warns the stock may be a possible value trap currently. As such, potential investors should do thorough research before making a decision.
GuruFocus rated Absolute Software’s financial strength 3 out of 10. The weak Altman Z-Score of 0.12 warns the company could be at risk of bankruptcy if it does not improve its liquidity.
The company’s profitability fared better with an 8 out of 10 rating despite having negative margins and returns that underperform a majority of competitors. Absolute Software also has a low Piotroski F-Score of 3 and the one-star predictability rank is on watch as a result of revenue per share declining over the past several years.
No gurus currently hold the stock.
Additional trades and portfolio performance
Other significant changes to the portfolio included a new bet on StorageVault Canada Inc. (TSX:SVI, Financial) as well as additions to its positions in Andlauer Healthcare Group Inc. (TSX:AND, Financial), Jamieson Wellness Inc. (TSX:JWEL, Financial), Element Fleet Management Corp. (TSX:EFN, Financial), Winpak Ltd. (TSX:WPK, Financial) and MTY Food Group Inc. (TSX:MTY, Financial).
The New Canada Fund’s $1.91 billion equity portfolio, which is composed of 44 stocks, is most heavily invested in the technology, consumer cyclical and industrials sectors.
According to Mawer’s website, the fund posted an 18.1% return for 2021, slightly underperforming the S&P/TSX Composite Index’s return of 20.3%.
