For Some Weak Loonie Means Big Business
The tumbling loonie has sent food prices skyrocketing and ruined many vacation plans. According to RBC Capital Markets, our dollar has fallen 9 per cent against the U.S. greenback and 11 per cent against the euro since mid-November.
But the news is not all bad.
Some Canadian companies are reaping a bonanza from our weak currency and their share prices are reflecting that. These are firms that derive a significant part of their revenue from the U.S. and/or Europe but have a large percentage of their costs in Canadian dollars. For them, every time the loonie drops another tenth of a cent, their bottom line improves.
New Flyer Industries (TSX: NFI, OTC: NFYEF).
New Flyer is the leading manufacturer of heavy-duty transit buses in the United States and Canada and an industry leader in clean technology. The company also operates the industry’s most sophisticated aftermarket parts organization, sourcing parts from hundreds of different suppliers and providing support for all types of heavy-duty transit buses. The head office is in Winnipeg and the company has parts distribution and service centres in both Canada and the United States.
Most of the business flows from the growing demand for clean public transit vehicles in the U.S., which is heavily subsidized by Washington. Over the 52-week period to Sept. 27, 2015 New Flyer reported total revenue of just over US$1.5 billion, of which 89 per cent came from American bus sales and aftermarket operations. During that time the company delivered 274 buses to Canadian buyers compared to 2,197 sales in the U.S. Net earnings, expressed in U.S. dollars, increased 43 per cent to $47.2 million. Of course, in Canadian dollar terms those results would be even more dramatic.
Boyd Group Income Fund (TSX: BYD.UN, OTC: BFGIF). Boyd is the largest operator of non-franchised collision repair centres in North America in terms of number of locations and it is one of the largest in terms of sales. The company operates in five Canadian provinces under the trade name Boyd Autobody & Glass, as well as in 17 U.S. states. It has more than 300 locations in the States and about 80 per cent of the company’s business is in U.S. dollars although it is actually based in Winnipeg.
The company is displaying strong growth, with total sales increasing by 38.1 per cent in the third quarter, due largely to contributions from 23 new locations. Boyd had about $375 million in cash and available credit facilities and intends to draw on this money to continue to expand, especially in the U.S.
Alimentation Couche-Tard (TSX: ATD.B, OTC: ANCUF).
From its humble beginnings as a Quebec convenience store chain, Couch-Tard has grown into an international giant with extensive operations in the United States and Europe and is about to enter Mexico. Through a series of major acquisitions, the company now controls such brands a Circle K, The Pantry, and Statoil. For the first nine months of the 2015 fiscal year, the company generated about US$11.9 billion in revenue from its United States stores, representing almost 69 per cent of total revenue. Same store merchandise revenue from U.S. stores was up 5.2 per cent. Diluted earnings per share for nine months came in at $1.25, up 27.6 per cent from the year before.
Toronto-Dominion Bank (TSX, NYSE: TD). Owning shares in a Canadian bank may seem like an unlikely way to profit from the fall in the value of the loonie but in the case of TD it makes sense. The Green Machine has aggressively expanded in the U.S. where it now has more “stores” (1,300) than it does in Canada. The U.S. operation by itself qualifies as one of the 10 largest banks in that country, with a strong presence along the eastern seaboard from New England to Florida. It has some 25,000 employees and serves about eight million customers. Another major U.S. operation is the brokerage firm TD Ameritrade, which has a national branch system and provides a full range of services.
TD’s U.S. retail business generated adjusted net income of US$491 million in the fourth quarter of fiscal 2015. That represented about one-third of the company’s total profit for the quarter.
The bank continues to build its U.S. assets. In October, it acquired substantially all of department store giant Nordstrom Inc.’s U.S. Visa and private label consumer credit card portfolio, with a gross outstanding balance of US$2.2 billion. In addition, TD and Nordstrom entered into a long-term agreement under which the Bank became the exclusive U.S. issuer of Nordstrom-branded Visa and private label consumer credit cards.
CGI Group (TSX: GIB.A, NYSE: GIB). CGI is the fifth largest independent information technology and business process services firm in the world. It employs about 65,000 professionals in offices and delivery centres across the Americas, Europe, and the Asia Pacific region. The company offers a range of services including high-end business and IT consulting, systems integration, application development and maintenance, infrastructure management, as well as many proprietary solutions.
The company is managed through the following seven segments: the U.S., Nordics, Canada, France (including
Luxembourg and Morocco), the United Kingdom, Eastern, Central and Southern Europe (ECS, primarily Netherlands and Germany), and Asia Pacific (including Australia, India, and the Philippines).
In fiscal 2015 (CGI has a year-end of Sept. 30), the company recorded $11.6 billion in bookings. Of that, less than 30 per cent came from Canada. About 21 per cent of the business originated in the U.S. ($2.5 billion), while about 36 per cent ($4.2 billion) came from continental Europe.
RBC describes the foreign exchange gains as a “strong tailwind” that will enable the company to achieve or exceed its target for double-digits earnings per share growth in 2016. CGI earned $3.13 in 2015 and the brokerage firm is projecting $3.45 in the current fiscal year and $3.78 in 2017. RBC has a price target of $65 on the stock.