Earnings Season Complete

Michael Rudd, CFA | President, CEO and Portfolio Manager

As regular readers of the Investment Outlook know, our writing follows the calendar of quarterly earnings reports. The companies that we invest in report financial data and management commentary on a regular basis, which is colloquially called “earnings season”. This is an important part of our investment process because we are able to check in on the progress of the companies that we own, as well as management’s expectations for the future of the business operation. Internally, we informally declare the “end-of-earnings season” when the results of the Canadian banks are published. The quarter “ended” this week with bank earnings, which were quite good. Overall strong performance through the year was driven by impressive loan balance growth and wealth management related fees. We also think rising interest rates will lift profitability into 2022. After what was a record year, we are starting to see capital market related revenues return to more normalized levels, notably revenues related to trading. Furthermore, the Big 6 Canadian banks are showing strong performance in their credit, as companies come out of the pandemic. It appears there is also more room for loan growth expansion. Although we see some headwinds in expenses related to the salaries of employees, the Canadian banks have done quite well in keeping their costs under control, despite the high inflationary environment.

Readers will also recognize the aggregate sales data for North American companies noted in Figure 1.

  • So far, 85% of companies have reported their results this quarter and on aggregate sales have grown 17.6% from last year.
  • All sectors are positive once again. This is something that we have noted in the data for the past three quarters now. It is impressive, as we have not seen such broad sustained growth before. It solidifies for us that the recovery and economy in North America continue to be strong.

“This means that” the North American economy continues to improve, and the recovery remains robust. We remain concerned about inflation and the current geopolitical events in Europe are a new material variable with respect to our view on inflation, but so far, the economy remains strong. We have also mindfully focused this week’s note on business performance, rather than the dramatic headlines that have pushed markets lower today. It is important to remain focused on the business that we own and remind ourselves that we own faction portions of cash flow and not quoted market prices.

Pathfinder Asset Management Ltd. | Equally Invested™
1450-1066 W. Hastings Street, Vancouver, BC V6E 3X1
E info@paml.ca | T 604 682 7312 | www.paml.ca
Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.