Mawer New Canada Fund Buys Birchcliff Energy

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Mar 31, 2015
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The Mawer New Canada Fund (Trades, Portfolio) is a five-star rated fund by Morningstar that invests primarily in smaller Canadian companies. Its investment strategy is a research-driven, bottom-up approach aimed at long-term holding.

Martin Ferguson serves as the fund’s portfolio manager and, in 2011, was awarded the Morningstar Domestic Equity Fund Manager of the Year award at the Canadian Investment Awards.

The fund has posted excellent returns compared to its index, the BMO Small Cap Index. Over the past five years, Mawer New Canada returned 19.6%, while the index returned 5.6%.

During the second half of the year, the fund purchased one new holding and sold out of five others.

New buy

Birchcliff Energy (TSX:BIR, Financial)

The fund’s only new addition to the portfolio in the fourth quarter was 249,235 shares of Birchcliff Energy, which traded for an average of $9.35 during the quarter. The stock has a 0.17% portfolio weighting.

Birchcliff explores for, develops and produces petroleum and natural gas reserves in Western Canada with operations focused in the Peace River Arch of Alberta. The stock has declined 37% over the past year and now trades at $6.74 with a P/E ratio of 8.8 and P/S ratio of 2.17.

Net income for FY 2014 was $114.3 million, up from $65.4 million the year before. The graph below shows the income trend over time.

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The company’s current ratio is 0.32, which indicates Birchcliff cannot cover its short-term obligations.

The Wintergreen Fund (Trades, Portfolio) also holds Birchcliff in its portfolio with 4.09% of shares outstanding.

Sold out

Uni-Select (TSX:UNS, Financial)

The fund sold out of 126,071 shares of Uni-Select, selling them for an average price of $28.65 per share.

Uni-Select is the parent company of a group of entities that distributes replacement parts, equipment, tools, accessories and paint for motor vehicles.

The stock has been up 47% over the past year and now trades at $43.68. The current P/E ratio is 17 and the P/S ratio is 0.42.

In FY 2014, EBIT per share was $3.89, up from $3.13 the previous year.

Uni-Select’s current dividend yield is 1.33%, which is close to the five-year low. The dividend payout ratio is 22%.

Element Financial (ELEEF, Financial)

Mawer also sold out of 66,740 shares of Element Financial for an average of $11.76 per share. The fund bought the shares for an average of $12.38 in the second quarter.

Element Financial is a Canadian equipment financing company that is traded on pink sheets in the U.S. Its four business segments are commercial and vendor finance, aviation finance, fleet management and rail finance.

The stock currently trades at $13.20 with a P/E ratio of 107.7 and P/S ratio of 7.9. EBIT per share for the trailing 12 months is $0.66.

03May20171131461493829106.png

While the company’s current ratio is comfortable, long-term debt on the balance sheet jumped from $1,780 in FY 2013 to $6,984 in FY 2014.

COM DEV International (TSX:CDV, Financial)

The fund also sold out of 176,217 shares of COM DEV, selling the shares for an average of $3.79 per share. The following graph shows Mawer’s holding history in the stock.

03May20171131471493829107.png

COM DEV designs and manufactures space-based wireless communications products as well as space science and optical instruments.

The stock price has increased 11% over the past year and now trades at $4.23. Net income for the trailing 12 months is -$3.6 million, the first time the company reported a loss in the past 10 years.

03May20171131471493829107.png

The current dividend yield is 2.84%, while the dividend payout ratio is 46%, indicating room for growth.

EGI Financial Holdings (TSX:EFH, Financial)

Mawer sold all 14,598 shares of its stake in EGI Financial for an average price of $12.91 per share.

EGI is a leading non-standard automobile insurer in Canada. It also has a growing international segment in Europe, which accounted for 35% of gross written premiums in 2013. The stock has increased 17% over the past year and currently trades at $15.50.

Net income for FY 2014 was $18.7 million, up from $4.7 million the year before. The following chart shows the long-term trend of the company’s income.

03May20171131471493829107.png

The current P/E ratio is 9.9, while the P/S ratio is 0.61.

Opta Minerals (TSX:OPM, Financial)

Mawer sold out of 42,759 shares of Opta Minerals for an average price of $2.04 per share.

Opta Minerals produces and manufactures industrial minerals, silica-free abrasives, specialty-sands, and other products for industries such as steel, roofing and industrial water filtration.

The stock has declined 33% over the past year and now trades at $1.30. In Q4 2014, Opta reported net income of -$3.3 million, down from $1 million in the year-ago quarter. The following chart shows the annual net income trend.

03May20171131481493829108.png

The company’s operating margin has been struggling and recorded at -0.96% in FY 2014.

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