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2014 Year In Review

|Includes: BLK, Issuer Direct Corp. (ISDR), LGLTF, MTYFF, PRAA, WIPKF

This is a summary of my portfolio in 2014. For the year, the portfolio returned 12.1%, which was ahead of the benchmark return of 9.6%. I will include what worked and what didn't work, the top five largest stock positions in my portfolio at year-end in reverse order, and what attracts me to them, and my top prospects for 2015. As of YE 2014 I have a total of 22 positions. The top five represent about 48% of my portfolio.

8 names were sold, which represented 18% of the portfolio as of YE 2013. Five of the smallest (by weight in the portfolio) six names were sold as I wanted to cut back on my smaller-cap lower conviction names. There were 10 new names added which represented about 30% of the portfolio as of YE 2014. Of these, six were US, three Canadian and one Israeli-based company. During the year, I added larger cap weight to the portfolio and decreased the volatile commodity exposure. Cash finished at 5%, which is much higher than what I usually have. This was largely due to contributing to my registered accounts in December and not yet deploying it.

What Worked

One big win this past year was Winpak. The stock price rose 49% in addition to paying a special dividend of $1/share, which was re-invested into more shares. I'm hoping for another special dividend in early 2015.

The Canadian/US dollar exchange rate also benefited my portfolio this year as the US dollar appreciated over 8% against the Canadian dollar, directly benefiting the 42% of the holdings priced in USD.

BlackRock, added this past May, is up 20% in USD (more in CAD) since the addition. Newalta and Cipher were both sold during 2014 for a nice profit.

What Didn't Work

Deans Knight at one time was my largest holding. I knew the manager fairly well and was eager for a way to invest in high yield bonds and opportunistic equities to diversify my portfolio and provide a monthly income stream. Unfortunately the Canada Revenue Agency disagreed with how DK set up their tax-efficient structure. DK is still in dispute with the CRA and has held back a portion of the NAV (~16%) in case they need to pay out money to the CRA. The remainder of the fund was liquidated due to the lack of attractive opportunities. The manager had originally set up the fund in 2009 when there were a lot of opportunities.

Loyalist Group has not yet achieved greatness and in fact lost 26% in 2014. The company has continued to make progress and recently made an acquisition, but the market is not as interested as they once were. I still see good things for Loyalist as they are now making a solid profit and will hopefully be rewarded by the market as they continue to grow.

Gold: The yellow metal continued to suffer in 2014. I sold my individual gold positions in Barrick and Semafo, although added more to XGD, the gold company tracking ETF. This ETF rallied in March and again in August, but has since fallen below the price it was trading at the end of last year.

5. BlackRock (NYSE:BLK)


BlackRock is the world's largest asset manager with $4.5 trillion of assets under management. The firm is diversified across geography and investment products and styles.

Why I like them:

- Diversified clients by geography and type (institutional/retail).

- Continue to increase dividends and buy back shares.

- Has shown they can continue to increase their AUM.

- The largest ETF investment manager. They should continue to benefit as ETFs gain in popularity.

- An added bonus is that the company is on the verge of making it to the S&P 100, allowing me to buy and sell without needing pre-approval.


- The company has a leveraged balance sheet (similar to a bank) that could get squeezed in another financial crisis. If we witness a bear market, BlackRock's AUM and therefore revenue and net income may be adversely affected.

4. Cymbria (NYSEARCA:CYB)

Cymbria is an exchange-traded fund run by EdgePoint Wealth. It is essentially EdgePoint's global equity strategy (which is offered in an open-end mutual fund) combined with a 20% stake in EdgePoint. EdgePoint now represents about 10% of Cymbria's NAV. This is how I get some global equity exposure while at the same time participate in the upside of money manager EdgePoint Wealth.

Why I like them:

- I like that EdgePoint is an all-cap GARP manager. They are not benchmark huggers. This matches my investment philosophy.

- EdgePoint has continued to grow, which has resulted in $4 million in dividends to Cymbria in 2014 alone and an increased valuation.

- The PMs are all equity holders in EdgePoint and Cymbria so their interests are aligned. They are also all relatively young, so I don't see anyone retiring any time soon.


- As the firm grows, there may be less ability to go into smaller cap stocks. Also, if there is a market correction, it will not just hurt the stocks in the portfolio, but also the valuation of EdgePoint.

3. MTY Food Group (NYSEARCA:MTY)


- With 37 restaurant banners and over 2,700 outlets, primarily in Canada, the firm is a leader in the quick-service restaurant market in Canada. The vast majority of locations are franchises.

Why I like them:

- The firm has grown revenue and net income every year for the past 12 years.

- Since most of the locations are franchises, MTY receives a recurring revenue stream from royalties and is able to generate a 25% net profit margin

- Stanley Ma, President and CEO, owns over 25% of the company. Over the past 6 years, the number of shares he owns has not changed, nor has the number of shares the company has issued.

- Conservative balance sheet, minimal debt and great cash flow that is used to make acquisitions instead of diluting shareholders with issuing new stock.

- A dividend was initiated at the end of 2010. Since then, it has been increased three times and I expect another increase for the next quarter. With a relatively low payout ratio, there is still a lot of room for the company to use cash flow to make strategic acquisitions.

- The company is gradually expanding into other countries. This is an opportunity for growth but can also be a risk.


MTY has had 9 consecutive quarters of negative same store sales growth. Part of this is due to the acquisitions of Country Style and Mr. Sub. These are two long-time and well-known brands in Canada, but have faced hard times due to Tim Horton's and Subway, respectively. Extreme Brandz, a recent acquisition and owner of the Extreme Pita and Mucho Burrito banners, should help MTY turn same store sales around. Unlike Country Style and Mr. Sub, which have both been contracting for years, Extreme Brandz is a relatively new company that has grown aggressively and is gaining brand recognition in the marketplace. Overall 8 brands have had positive same store growth on a YTD basis.

2. Issuer Direct (NYSEMKT:ISDR)


ISDR provides disclosure management solutions and cloud based compliance technologies in Canada, the United States and Europe. The company offers products and services that enable companies' to produce and distribute their financial and business communications online and in print.

Why I like them:

- This past year ISDR has achieved a lot, but this has not yet been reflected in the stock price. They successfully integrated the PrecisionIR acquisition, which gave them exposure to new clients and helped expand their market into Europe; they listed on the NYSE; and they recently acquired AccessWire, an emerging newswire service.

- In my opinion, ISDR is one of the best run and most transparent micro cap firms. The firm has a majority of independent directors, which I don't think I've seen with any other sub $50 million firm. They also hold quarterly investor calls.

- ISDR has a history of making strategic acquisitions and most recently acquired AccessWire, mainly using cash on the balance sheet.

- Although net income and hence EPS does not look attractive due to non-cash and cash interest expense and depreciation from the PrecisionIR deal, free cash flow has exploded. Reinstating the dividend may be a possibility by the end of 2015.

- Brian Balbirnie, founder and CEO, owns over 30% of the company. Wes Pollard, CFO, owns 5%.

- ISDR may be an acquisition target.


The company has to show that they are able to leverage off of their acquisitions to grow organically in a competitive environment. The market is looking for GAAP earnings.

1. Winpak (WPK)


Winpak Ltd. manufactures and distributes packaging materials and related packaging machines primarily for the packaging of perishable foods, beverages, and for use in health care applications in North America.

Why I like them:

- The firm had revenue of $506 million in 2009 and has a goal of reaching $1 billion by 2015. To achieve this, they have undertaken a large capital project to expand capacity at their existing locations. They have been able to fund this entirely from cash flow.

- Winpak continues to maintain a rock solid balance sheet with over $130 million in cash and no debt. This is after paying a special dividend of $1/share early in 2014 and doing significant capital expenditures to increase capacity/efficiency. Winpak could easily pay another special dividend or greatly increase their existing regular dividend if they don't see an attractive acquisition.

- Once this extra capacity is used and capex decreases, free cash flow should take off.

- Given a payout ratio of around 10%, there is a lot of room to increase the dividend in the future.

- An experienced management team that has been working together for a number of years.


- The current P/E of 27.7 is now looking quite steep. The market is expecting significant earnings growth to materialize from the capital expansion. If this doesn't happen or takes longer than the market has patience for, we could see a 20%+ drop in the stock price.

Top Prospects for 2015

These are the names I believe have the biggest upside potential and which I will be looking to add to in 2015.

- Issuer Direct: The stock price is not properly reflecting the growth the company has achieved.

- Loyalist: This company will start looking really cheap once a couple more quarterly earnings are behind them.

- PRA Group: The market is under appreciating the EPS they can generate from their latest acquisition.

- Pacific Health Care Org: Attractive valuation and good growth even after losing a client worth 14% of revenue.

- Calvalley Petroleum: Only because it's so cheap right now as it is trading at the cash per share they have on their balance sheet. This is a low cost producer which should be able to manage through the current oil price.