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With the holiday on Monday, we’ll be back in your inbox on Wednesday. Have a great thanksgiving! 🍻🦃
WHAT'S ON TAP
HOT OFF THE PRESS
Fairfax & Wittington buy Boots for $9B
Fairfax (FFH) and Wittington (Weston family) announced an $8.9B acquisition of Boots, a major UK retailer with ~13% market share in pharmacy and ~30% in beauty…
… which has been the dominant driver of retail revenue growth in recent years…
… and could drive margin expansion as Boots ramps up investment in the category.
With the Weston family at the helm, Boots could look to replicate Shoppers Drug Mart’s beauty retail strategy (dominant in high-end cosmetics)…
… beauty is an amazing category. It's a big category. It would usually outgrow GDP. It's not particularly cyclical. So there would be a little bit of trading down in bad times and a lot of trading up in good times.
… which has been very profitable in Canada.
While beauty is the growth strategy, Boots’ pharmacy operations should be a steady compounder if Loblaw is any indication…
… underpinned by growth in prescription prices and an aging population, which drives relatively inelastic demand for medication.
These two businesses have driven earnings consistency at Loblaw, resulting in significant multiple expansion…
… and similar value creation is possible at Boots, though it will be embedded within Fairfax’s broader portfolio of companies.
Aritzia’s Q2 comes with another beat & raise
Aritzia (ATZ) reported another huge quarter after market close, with results landing above the top end of guidance…
… on the back of 44% revenue growth (35% same-store growth).
Combined with a tenth straight quarter of margin expansion…
… management raised its already ambitious guidance again, calling for an additional 4% on the top line and 50 bps of margin at the midpoint.
With the multiple normalizing to the long-term average after some weakness heading into the print, we wouldn’t be surprised to see the stock rebound at the open…
… though the durability of any rally likely depends on investor perception, if new economic data suggests the consumer continues to weaken.
ON OUR RADAR
GAINERS & LOSERS
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Firan Technology (FTG) ripped over 25% after a big Q3 beat on the back of 40% growth in circuits…
… which translated to margin expansion and record EBITDA. The main driver was the start of classified defence programs…
… which showed up in the order book too, with $90M of bookings driving the backlog to a record $221M. With 85% of it set to convert over the next year…
… the near-term growth profile is strong, which is reflected in FTG’s current multiple - something management could take advantage of soon…
… as they look at potential acquisitions to expand the company’s geo/tech footprint.
We have a few areas of interest, including establishing a footprint in Europe, growing our presence in India on the Circuits side of the business, or expanding our technology in a few areas. We are evaluating both acquisitions and greenfield construction to accomplish the above ideas.
Richelieu Hardware (RCH) closed up 11% on a solid Q3 print, which delivered accelerating revenue growth thanks to price increases (40% of organic growth) and higher volumes…
… across both Canada and the US.
While EBITDA margin compressed 30 bps Y/Y on the back of US tariffs, the drag is expected to cycle in Q4 - with management targeting ~11% margins through 2027…
… which provided a modest boost to the multiple, though investor caution on the macro backdrop is keeping a lid on valuation in the near-term.
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