Colin Stewart, CEO and portfolio manager at JC Clark Limited
FOCUS: North American Large Caps
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MARKET OUTLOOK
We are growing increasingly cautious with respect to equity markets and continue to reduce our market exposure. Narrow leadership, elevated equity market valuations, and low levels of volatility (implying investor complacency) collectively suggest added caution is warranted at the current time. We plan to maintain a defensive posture and focus our attention on only the highest quality businesses. While we continue to believe the U.S. economic backdrop is reasonably positive, we suspect much of this good news is now priced into equities and investors will have opportunities to deploy cash at better prices in the months ahead.

TOP PICKS

POLLARD BANKNOTE (PBL.TO)

• Most recent purchase at $12.98 a share, approximately the week of August 21.
• Pollard is the second largest producer of instant scratch lottery tickets in the world.
• Industry is an oligopoly – very high barriers to entry, stable and defensible market share for Pollard in its core markets.
• Pollard installed a new printing press last year which will expand ticket production capacity by 35 per cent and lower costs – starting to see margin improvement.
• Including the recent acquisition of Innova, see a pathway for EBITDA to reach $55M-$60M annually over the next few years – this implies Pollard is currently trading at only 7x EV/EBITDA which is far too low for this type of business.  A 9x multiple would imply an $18 a share target price (38 per cent upside).

WESTSHORE TERMINALS (WTE.TO)

• Most recent purchase at $24.75 a share in last couple of days.
• Westshore operates a coal storage and loading terminal on the west coast of British Columbia.
• Recent concerns over a potential ban on thermal coal exports by the previous provincial government caused a selloff in WTE’s shares, which we believe has created a buying opportunity.
• Westshore enjoys very high barriers to entry, has relatively predictable cash flow (due to the nature of its customer contracts), and is not directly exposed to the fluctuations in coal pricing.
• WTE’s valuation is attractive at only 9x EV/EBITDA, pays a 2.6 per cent dividend yield (with potential for future increases), and will see free cash flow improve over the next few years.

CLEARWATER SEAFOODS (CLR.TO)

• Most recent purchase at $10.50 a share in last couple of days.
• Clearwater harvests, processes and distributes seafood products worldwide and is one of Canada’s largest holders of shellfish quota.
• Attractive industry dynamics – growing demand for seafood, limited supply growth, pricing continues to improve, high barriers to entry.
• Temporary challenges during 2016 (shrimp quota cut, weak clam sales) caused a decline in the share price and has created a buying opportunity.
• Valuation multiple attractive at 8.5x EV/EBITDA, accelerating free cash flow, balance sheet will de-lever over next few years.
• Company continues to focus on M&A – could be a catalyst for share price.
   

PAST PICKS: AUGUST 17, 2016

MAPLE LEAF FOODS (MFI.TO)
Sold fund position earlier this year at approximately $33 a share, as we believed shares became fully valued.

• Then: $28.88
• Now: $34.24
• Return: 18.55%
• Total return: 20.09%

SERVICE CORPORATION INTERNATIONAL (SCI.N)
Sold fund position earlier this year at approximately $32 a share, as we believed shares became fully valued.

• Then: $26.68
• Now: $35.20
• Return: 31.93%
• Total return: 34.40%

CAPITAL SENIOR LIVING (CSU.N)
Sold fund position earlier this year at approximately $14 a share, due to concerns over excess industry supply.

• Then: $15.91
• Now: $11.74
• Return: -26.20%
• Total return: -26.20%

TOTAL RETURN AVERAGE: 9.43%
 

FUND PROFILE

JC Clark Preservation Trust
Performance as of: July, 2017

1 year: Fund 8.17%, Index 8.69%
3 year: Fund 2.85%, Index 4.03%
5 year: Fund 9.07%, Index 8.87%
* Index: SP500, S&P/TSX
 

WEBSITE: www.jcclark.com