MATCO MARKET INSIGHTS - FIRST QUARTER 2021: MATCO EARNINGS SEASON RECAP

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The first quarter earnings session of 2021 is behind us and all three Matco equity funds have performed admirably to kick off the year. In the context of the broad market within Canadian equities, over the past few quarters, we have gradually seen companies start to ease the fears of those concerned with potential asset bubbles and lofty valuations by producing strong and growing earnings metrics.

As of March, the Price-Earnings (P/E) ratio of the S&P/TSX Composite was 23.7x. Over the past few months, after the bulk of Canadian companies reported their first quarter earnings, this number shrank to 20.6x (as of May 2021) a significant drop in the relative price per dollar of earnings. We know this is due to an increase in the “E” number and not a decrease in the “P”, as the TSX continues to climb to new all-time highs almost daily. The P/E ratios across the Matco fund platform remain significantly lower than that of the broad market, ranging from 22% to 65% to that of the indexes, depending on the fund. This means Matco’s portfolio companies are significantly less expensive compared to their counterparts while still growing their earnings.

See graphs below for a summary of the Fund company’s earnings season. Note: “Earnings Beat Ratio” is the percentage of companies that reported that beat consensus earnings expectations.

In terms of the Matco Fund Platform, 81% of the companies held in the Matco Canadian Equity Income Fund beat consensus earnings expectations, with an average 21% earnings growth year-over-year. A main highlight was retail giant Canadian Tire (which blew away analyst expectations with earnings beat of 283% and year-over-year earnings growth of a whopping 2,077%). Other notable earnings reports were AltaGas, Loblaws, and West Fraser Timber.

Within the Matco Small Cap Fund, 71% of the companies in our portfolio beat consensus earnings expectations and grew their underlying earnings by an average of 76% year-over-year. General construction contractor Bird Construction stood out, beating earnings expectations by 66% and growing earnings 540% on a year-over-year basis. Other notable earnings reported were Corus Entertainment, Information Services Corp, and Chesswood Group.

On the Matco U.S. Equity Portfolio front (the top holding in the Matco Global Equity Fund), 82% of the companies held in the portfolio beat earnings expectations and grew earnings by an average of 34% year-over-year. Apple delivered another impressive quarter, beating analyst expectations by 42% and more than doubling their earnings year-over-year. Other notable earnings reports include investment banking firm Evercore, Garmin and Logitech.

With interest rates pinned to the floor and significant monetary and fiscal policy measures in place since the COVID-19 pandemic hit the world in 2020, it was merely a matter of time once the vaccine administration program began to gain steam and economies began reopening that these effects would trickle down to corporate earnings. Matco has remained invested in equity markets and disciplined to our investment process, and the Funds continue to reap the benefit of returns derived from solid company fundamentals and growing earnings. Year-to-date and as of May 31st, the Matco Canadian Equity Income Fund (Series F) is up 14.2%, the Matco Small Cap Fund (Series F) is up 15.5% and the Matco Global Equity Fund (Series F) is up 10.3%.

We invite you to call or email us if you would like more information on the Matco funds. 

Jordan Beckett, CFA
Analyst

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