Bloodbath and beyond

Well, it’s the end of the year, and I can post a quick update on stocks and finally boast about my investment achievements.
Also, must admit that this text is still written by me and not by ChatGPT, so typos and mistakes are all mine.

Let’s go.

Goodfood Market Inc. (TSX:FOOD)
In my opinion, things still look bad for FOOD, and they will go bankrupt in 2023.

• It seems that in Q1 2023, their cash is already down around C$8-C$9M:
  

  Jonathan Roiter
  …
  I think the way to kind of think about it would be that, for the quarter that’s effectively ending tomorrow, they will be comfortably under 50% of what the cash burn of the fourth quarter was.
  …

  Source: Goodfood Market Q4 2022 Earnings Call Transcript

• They are losing a lot of customers, not just on-demand but also mealkit subscriptions.
  
  Source: Goodfood Q4 2022 Presentation

  The total number of customers went from 211k to 157k, i.e. down 54k, while on-demand number decreased from 38k to 21k, so just 17k.
  So, FOOD lost 17k on-demand clients and 37k subscriptions in just 3 months.
  Without even the now-cancelled on-demand delivery service, Goodfood keeps losing customers.
  At the same time, 9% of sales are still incentivized.
  So much for “cult-like following.”

• Even management now warns about possible bankruptcy:
  

  The Company’s ability to continue as a going concern is dependent on initiatives, including Project Blue Ocean, being realized and/or its ability to secure additional financing to meet anticipated cash needs for working capital and capital expenditures as required. As a result and in the context of the Blue Ocean initiatives and current status of the Company’s credit facility and financing needs, there exists a material uncertainty about the Company’s ability to continue as a going concern.

  Source: Goodfood Market Q4 2022 Management Discussion and Analysis

• Management says that their way to grow at the moment is to annoy ex-clients (they do it a lot, I can confirm that) and squeeze more money from current clients. In my opinion, this is a dubious strategy, but what else can they do?
  

  Jonathan Ferrari
  Good morning, thanks for the question. What bringing us back to the start of the pandemic, we were at about 25% brand awareness across the country. And today in most markets we’re in the 80% plus range. And so, we’re pleased to see that the brand awareness has continued to grow steadily over the past few years. From our perspective we’re really looking for the most profitable growth that we can generate. And so, that’s why looking within our existing customer-base finding effective ways to engage reactivated customers and have them engage with new Goodfood products and larger baskets more frequently. That’s really where we’re focused.

  Source: Goodfood Market Q4 2022 Earnings Call Transcript

• And, of course, a negative C$11M of equity does not inspire optimism.
  
  Source: Goodfood Q4 2022 Presentation
• These guys now want to “create an authorized class of an unlimited number of preferred shares”. I hope it’s not going to work for them. How much money are they planning to burn before its over?

Ok, enough about FOOD, next.

Transalta Renewables (TSX:RNW)
It’s been almost a year since I wrote about RNW, and things are not good. The price fell from C$16 to C$11, and the foundation of the Kent Hill windmills is not their only issue here. 

The current rising interest rate environment and increasingly competitive landscape has made pursuing accretive transactions more challenging

The Company expects that it will allocate the majority of its cash available for distribution to dividends through 2023, which inherently limits the amount of capital it can allocate to growth opportunities

The Company currently projects that it will be cash taxable in both Canada and Australia in 2024 given the current projects under construction. The impact of cash taxes could increase by approximately $55 million, commencing in 2024 as compared to 2021

The Company has contract expiries in the near- to medium-term that will see a reduction in cash flow, which includes the expected 30 per cent reduction in gross margin from the Sarnia cogeneration facility as a result of the prices under the recently awarded contract with the Ontario Independent Electric System Operator
…
We expect the Company’s dividend payout ratio to be approximately 100 per cent based on the midpoint of our CAFD guidance.

Well, I’ll keep watching, not interested in buying the dip here.
Dividends have stopped growing since 2017, so 2023–2024 might be the time to cut them.

Next.

NFI Group Inc. (TSX:NFI)

• This company’s biggest liability is its management.
  Every quarter, they keep promising to fix logistics problems, and every quarter, it stays the same.
  
  Source: NFI 2022 Q3 Presentation

  China is reopening and it’s a mess, so I don’t expect Supply Chain Challenges to improve any time soon, which could lead to NFI bankruptcy if it takes too long. Who knows.

• The backlog, NFI management was bragging so much about is actually not so great.
  
  Source: NFI 2022 Q3 Presentation

  Paul Soubry
  …
  It also resulted in further growth of our offline work-in-process inventory, ending the third quarter with over 400 buses have been built, but missing certain critical components.

  Source: NFI Group Inc. Q3 2022 Earnings Call Transcript

  Now let’s do the math.
  9674 EUs (2022 Q2) – 8505 (2022 Q3) = 1169
  2022 Q3 does not include 1360 EUs pending, ok.
  1360 – 1169 = 191
  So, the backlog is up another 191 EUs in 3 months, but they couldn’t deliver 400 EUs.
  400 – 191 = 209
  They are actually down 209 EUs! What???
  Paul Soubry to the rescue:

  Paul Soubry
  …
  NFI’s total backlog was down slightly from Q2 2022, driven by the timing of new awards, and higher option expires with a number of older diesel options expiring in the quarter as agencies ramped up their plans to acquire zero-emissions.

  Source: NFI Group Inc. Q3 2022 Earnings Call Transcript

  How many of those older diesel optional EUs are in NFI‘s backlog? How many will expire? These are buses that are not going to be built and will not bring money.
  4352 optional EUs might disappear at any time.

Следующий.

SupremeX Inc. (TSX:SXP)
I was planning to write a separate post about SupremeX, but couldn’t get around to it. 🙂
Anyway, I bought some SXP shares at C$2.20 at the end of 2018, mostly because they were paying fat dividends, something around 10%, I believe.
Fast forward to 2020, the stock went down, and I bought even more. SXP is/was an essential business and never closed. Apparently, envelopes and packaging are very important for the economy.
In September 2022, I sold everything in the C$4.30-C$4.90 range just to see the stock shoot above C$5 in November.
Bad timing from my side, and maybe even not a good idea to sell, because SupremeX is a good company with good management.
Anyway, my average cost was around C$1.85, so I’ve made a beautiful ~132% profit, plus dividends.
I think I shouldn’t have sold the stock, but it is what it is.

Suivant.

Slate Office REIT (TSX:SOT.UN)
Clean the Slate?

• Divestor is pessimistic about SOT and this guy knows more than me. He won’t even own SOT debentures, not to mention common shares.
• RBC actually started covering Slate Office REIT, and they are not really optimistic either.
  
  Source: Slate Office REIT – A Differentiated Canadian Office REIT; Initiating at Sector Perform

   
  Usually, I’m not a big fan of all those fancy analysts with their useless ratings and targets.
  In the case of Cascades, I’ve actually used RBC’s “Outperform” rating to sell my CAS shares, which has worked pretty well so far. RBC gave a C$12 target price; I’ve sold for C$10, and the current price is below C$8.
  Thank you, RBC!

• Armoyan is still buying shares.

Considering everything above, I guess Armoyan is planning to sell SOT in pieces.
When one checks out his team, the same thoughts come. All candidates are from Montreal, by the way.
Atlantic portfolio goes to Armoyan.
Western/Ontario portfolio goes to Ben Vendittelli.
USA protfolio can be sold with the help of Sharon Stern.
And Jean-Charles Angers will help to sell Ireland protfolio.
Nice. I’m daydreaming here, but nice anyway. It’s hard to say if a small investor like me will gain anything in this scenario. 😀
So, I’m holding my shares and not buying more, but might buy if price falls low enough.

Neeeeeeeeext!

Conifex Timber Inc. (TSX:CFF)
I bought it, I sold it, and I bought it again. Buying second time was a mistake, but the company has good assets and is undervalued.
CFF needs to be sold and done with it, but it is not happening. 🙁
Management is trying to partner with some miners to sell them excess electricity from the power plant, but with shitcoins crashing and mining businesses going bankrupt, it feels like too little, too late.
Eleven Months After Going Public via SPAC, Texas-Based Bitcoin Miner Core Scientific Files for Bankruptcy.
At least C$0.20 in special dividends sweetened this pill. Still holding.

Moving on.

Vermilion Energy Inc. (TSX:VET)
Last, but not least, VET is a bright star in my portfolio, which I finally sold.
I absolutely have no idea what’s going to happen to oil and gas in 2023, but it feels like things are heading downhill for the global economy.
And stupid windfall taxes… I took my profits, a nice ~110% in total, plus dividends.

Bonus #1.
AT&T Inc (NYSE:T) and Warner Bros. Discovery Inc (NASDAQ:WBD)
I bought some AT&T stock before the Discovery/Warner announcement, but after the announcement I decided to buy even more.
It was a bad decision.
I like the idea of AT&T without Warner Bros. and Discovery with Warner Bros.; it totally made sense to me.
The only thing I didn’t take into account was the mess it would create in the process.
Now, I’m bagholding both stocks.
AT&T is down slightly, mostly because I averaged down, but I’m happily holding and collecting dividends, as T will be fine.
WBD is down big time, but it’s basically free shares for me. I still think Discovery/HBO/Warner/CNN is a very strong mix and will do great, just give them some time.

Bonus #2. 🙂
2022 was surprisingly profitable for me, especially compared to the market in general.
Can’t resist saying that this year is the first time I’ve made more money with stocks than with games.
Diversification! Being almost 100% dependent on Google/Apple/Amazon is no fun.
RBC showed me this nice table:

My TFSA account almost doubled thanks to VET.
Corporate account has good gains thanks to VET and SXP.
RRSP was up thanks to SXP.
Plus some sprinkles of dividends here and there.
Regular account, well, at least it’s positive, can’t say the same about NASDAQ or S&P 500.

OH-OH-OH, I mean HO-HO-HO.
Let’s hope next year will bring more “blood on the streets”.
My totally arbitrary market bottom indicator is when bitcoin hits pre-pandemic price of $3k and good amount of unprofitable businesses go belly up.
Not sure if it will ever happen.