In the Money: 5 things to know
Tariffs hit auto sector hard, futures mixed, Dollarama goes down under, Lightspeed downgraded
I’ve had to be both mom and dad the last few days while husband was on his golf trip. Yesterday, I had to be tooth fairy as well. Child 1 is very annoyed with her. First, she’s late. The tooth fairy didn’t come on the first night. Second, my eldest is wondering why she has the same handwriting as her mother. Third, there is a question about how much this tooth is worth “because a kid in my class says they got $100 for their teeth.” In this economy?!?
A new episode of In the Money with Amber Kanwar is out! We speak with small-cap wunderkind Jordan Zinberg of Bedford Park Capital. His fund was up early 60% last year. No one really runs money the way Jordan does. He focuses on just Canadian small caps excluding resources. And he finds great results in this ignored pocket of the market. Find out what he’s buying and what he’s avoiding! Tune in! Listen on Apple, Spotify or here.
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Full throttle: Remember yesterday when Bloomberg and the Wall Street Journal reported the White House would refrain from industry specific tariffs? You can throw that in the bin now. The US announced a 25% tariff on vehicles and some auto parts coming from abroad with Trump explicitly saying these tariffs would be permanent. The White House said that only 25% of cars are made in America and tariffs aim to incentivize domestic production. Shares of automakers like Porsche (-3%), Volkswagen (-2%), BMW (-2%), General Motors (-6%) are all under pressure in the pre-market. Interestingly, Ford just turned higher in the pre-market. American consumers will feel this almost immediately. “Consumers could see new vehicle prices increase by thousands of dollars if these tariffs remain in place,” wrote BMO’s senior economist Erik Johnson, “At just under 4% of U.S. personal consumption expenditures last quarter, motor vehicle and parts spending is likely to take a hit, possibly clipping GDP growth before considering the larger indirect effects from these and additional tariffs coming into effect on April 2nd.” However, the hit to Canada could be even larger given the auto sector is a larger share of our GDP and almost all vehicle production is sent to the United States. Motor vehicle and parts exports were equivalent to 2.6% of Canadian GDP last year, compared to only 0.5% for the United States says Johnson. Auto part makers like Linamar, Martinrea and Magna could come under pressure this morning. “Ontario would take the biggest hit from this round,” wrote Johnson, “Ontario has also yet to table a FY25/26 budget, and a weaker economic outlook under these tariffs would have a meaningful revenue impact. At the same, there will be a big role for the province to play with respect to support/stimulus, in addition to any federal measures.” So what is the country to do? Noted economist David Rosenberg says Canada needs to become a tax haven. “The best way for Canada to respond without triggering a new chapter in the trade war is to embark on a massive cut to top marginal tax rates on incomes of all sorts: personal, corporate, and capital gains. Take a feather out of Ireland’s cap and make Canada a global tax haven - one way to not just prevent capital flight but trigger an investment boom. Make the business sector think twice about relocating without hurting consumers, which is what tariff retaliation would do,” wrote Rosenberg in a post on X.
Ear muff: Futures are indicating a mixed open despite the tariffs on autos this morning. We will see if this holds as yesterday’s pre-market action was a poor indicator for how the session would unfold with the S&P 500 (-1.12%) and NASDAQ (-2.04%) closing sharply lower. The TSX fared a little better (-0.70%) but still in the red as base metals fell on the back of reports of tariffs on copper. Today we get a third reading of Q4 GDP in the US which is unlikely to be market moving. Keep in mind the Atlanta Fed GDP now indicator for Q1 suggests the US economy is contracting. Lululemon reports after the bell today.
Cell towers: Telus is putting a stake in its cellphone towers up for sale which was first reported by the Globe & Mail. The CFO confirmed the news saying they are shopping around a 49.9% stake in an effort to raise $1 billion. Analysts project it could fetch more than that with estimates as high as $3 billion. This could bring relief to investors who may be worried about the dividend which is now yielding nearly 8%. “A sale of a minority stake in the towers would help the company achieve its deleveraging objective (3.0x by 2027, from 3.9x in 4Q24),” wrote Desjardin’s Jerome Dubreuil. He notes that Telus has identified about $7 billion worth of assets to sell so they don’t necessarily need this deal to make that happen.
G’day mate: Dollarama is buying Australia’s largest discount retailer, The Reject Shop, for a 108% premium in a $233 million deal. “This transaction is not a total surprise as Dollarama had been rumored in the past to be in discussions with The Reject Shop,” wrote Stifel’s Martin Landry. This is the largest deal ever by Dollarama and only the second transaction after buying a stake in Latin America’s Dollarcity. Shares of Dollarama have been a tremendous outperformer with the stock up more than 40% in the last year and trading near all-time highs. While they paid a hefty premium, the deal has strategic merits says Landry. “The Australian discount segment is under-penetrated compared to Canada with one store per 52,000 vs one store per 18,000 people in Canada. (The Reject Store) has no national direct competitor and there are no major pure-play dollar chains similar to Dollarama in Australia,” he wrote.
Notable calls: Lightspeed is catching a downgrade from Martin Toner at ATB Capital following it’s investor day yesterday. While Lightspeed laid out plans to grow profit 20-25% for the next three years, Toner says their plan lacks visibility given macro headwinds. “(We) downgrade the stock to Sector Perform (from Outperform) given the lack of visibility into the viability of management’s new strategic focus,” he wrote. Imperial Oil was cut to sell at Goldman Sachs following an 18% rally from the December lows. The downgrade seems to be just a call on valuation with the analyst calling it “less compelling” and warning of 14% downside. AMD was downgraded at Jefferies citing eroding competitive position relative to Nvidia. This is the the eighth downgrade on the stock so far this year. Jefferies warns that even with those downgrades, estimates are still too high and there is downside risk if the chip maker misses their numbers. The analyst says the company has “limited traction” in AI and has “significant” ground to make up before their products can compete with Nvidia.
