Sunday, September 24, 2017

September 22, 2017, Quick Update: Peanut Convertible Debentures Power Rankings

This is the 15th update of the Peanut Convertible Debentures Power Rankings.  Similar to the last update, consider this particular iteration a "skinny update", without the usual market commentary, as life continues to be very busy.  This update is current to September 22, 2017 and we'll likely get back to regular long-form updates in October.      

For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.

The Top-5 picks in the Power Rankings are also described with a little more detail in the corresponding section below.

For background information on the Peanut Power Rankings, please see our FAQs by clicking here

Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form.  As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.

Market Commentary - Quick Points (September 22, 2017)
  • (Oops), they did it again: the Bank of Canada raised the the overnight target rate another 25 basis points, to 1.0%, on September 6.  Experts are divided as to whether there'll be another increase by year's end. 
  • For a change, the Canadian equity markets have actually outperformed American markets in the last three weeks.  Since our last update, the S&P/TSX Composite is up 1.73%, the S&P 500 is up 1.04%, and the NASDAQ has been relatively flat at -0.13%.
  • We have a new #1 and one re-entry in our Peanut Top-5 this update.  See below for more details.

Peanut Power Rankings Top-5 Convertible Debentures (September 22, 2017)
  1. American Hotel Income Properties REIT LP, 5.00% 30-June-2022, Series 'U' Convertible Debentures. (Ticker: HOT.DB.U), (Last update's ranking: #2). The bottom line: there are economic, interest rate, and currency risks with this one, but at these levels, it's a bargain and we've gotten aboard this train.  Insiders think it's a bargain too.  On September 21, the hotel REIT announced in a press release that insiders had bought a total of 225,620 units in the last five weeks.  I take this as a good sign. We're long HOT.DB.U at US$98.00.     

  2. Tricon Capital, 5.75% 31-March-2022, Series 'U' Extendible US Dollar Convertible Debentures. (Ticker: TCN.DB.U), (Previous ranking: #1).  Bottom line: organic growth in TCN, scale in its US single family rental portfolio, good management, a decent US-dollar denominated coupon, and a reasonable valuation suggest that it's an opportunity to get into TCN.DB.U, if you aren't already in it.  Risks: a stronger Canadian dollar and higher interest rates.  TCN seems to have been dragged down with the rest of the REITs and real estate opco's on the TSX. The beauty of quality convertible debentures like this one is we wait and clip coupons while we wait for the common shares to go up. We've been long TCN.DB.U since it debuted at US$100.00.  

  3. DHX Media, 5.875% 30-September-2024, Convertible Debentures. (Presumed ticker: DHX.DB), (Previous ranking: #3). The bottom line: DHX is a unique media content company that would probably make a nice acquisition target for someone else (Disney? Rogers? Bell? Shaw?), Peanuts is a once-in-generation type of asset with valuable IP, and the terms of the convertible debenture itself are excellent.  If you've been reading this blog for awhile, you know that this issue was issued as a private placement and is not yet trading.  However, finally(!) we have some news on when it will begin trading - around or shortly after September 30.  We have no position in DHX.DB, but would be interested in acquiring one once it becomes available for trading on the TSX.  For the purposes of our modelling, we have nominally priced the convertible debenture at $100.00 (par), but if and when it hits the market, it'll probably trade considerably higher than $100.00 because it'd be way undervalued there.  Note we have a position in DHX's Series B common shares (ticker: DHX.B). 

  4. Cargojet, 4.65% 31-December-2021, Series 'C' Convertible Debentures. (Ticker: CJT.DB.C), (Last update's ranking: #3).  The bottom line: Cargojet continues to have a superb market position in an area of long-term, secular growth, and even at current prices, it's not a bad entry point for CJT.DB.C. Cargojet shares have been very resilient the last few weeks.  We've been long CJT.DB.C since it debuted at $100.00.    

  5. Innergex Renewable Energy, 4.25% 15-August-2020, Series 'A' Convertible Debentures. (Ticker: INE.DB.A), (Last week's ranking: #6). Bottom line: renewable energy is a good theme for any portfolio, and Innergex is a solid company in this space.  Since our last update, Innergex common shares briefly traded in-the-money for INE.DB.A before falling back to current levels.  We're long INE.DB.A at $102.75.

Picture of the Day
Twenty houses at the end of a sugarbeet field. Hjarup, Sweden. Copyright © 2009 Felix Choo / dingobear photography.  Photo is available for licensing at Alamy Images. All rights reserved. Photo may not be reproduced without permission. 

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