lundi 6 avril 2020

MTY Food Group: ouch!

I have a confession: I'm no longer a MTY Food Group Shareholder.

I'd like to convince everybody that I'm a genius, but I've been simply lucky on that one: I sold all my MTY shares on march 11th (selling price: 42,72$)

On march 16th, the price dropped to 23$.

On march 18th, the price dropped below 15$, a price similar to the price you could pay in 2011 for a share of MTY. If I still had my shares, I would have feel the horror of a loss of about 66% on a single week.

The company said today that the dividend was suspended. Plus, half of the employees are momentary fired and the income of executives is lowered. Today, you would have to pay 16-17$ to buy a share of MTY.

It only begins. You will see that more and more often. Because a lot of businesses are poorly managed. And I don't think that MTY is badly managed. It's only not a good business model for a plague.

At current level, I wonder if it would be a good idea to buy some MTY shares. Perhaps a very small position. But one thing is sure, investors should look much more at companies that haven't been hurt that much.

9 commentaires:

  1. I tip my hat to you, sir. I am still holding all of my portfolio holdings, including MTY (total MTY loss 67.41%).

    Do you think MTY will remain depressed at these or lower levels until January 2021?

    If MTY's ice-cream stores (~1/3 of network) will remain closed during the summer, it will be truly horrific year for them. I have not bought any MTY shares since last fall but would like to average down in my TFSA once I can contribute new money there.

  2. From $68 to $17. Is this a pot stock? Congratulations on selling before the real carnage.

  3. Penetrator, you very stable genius, you are so right.

    I sold two-thirds of my MTY position in early March at 52, and sold the rest recently at 21. I believed that MTY was still a good company over the long term despite what will happen over the next year or so, but in the end realized that, for the moment, the risk-reward is not there anymore. MTY will probably weather the storm, but they may have to issue some equity or accept dilution in the form of warrants. Their lenders will be patient as long as they can see a return to normal. Speaking of which, I read this transcript of a Bill Gates interview yesterday, very sobering for those that think that a return to normal is coming in the near future :

    The reality is that for businesses that require people to go out, such as tourism, theme parks, malls, restaurants, etc., the return to normal may take quite some time. Some companies are solid enough to weather this, while others will suffer greatly. MTY's franchise base is not too solid, and it only matters to a degree as long as the royalties come in during normal times, but the impact of this crisis on MTY will be material and is difficult to quantify. Companies like MCD are solid enough to support their franchisees through this. MTY will have a much harder time: royalty delays will not be enough, and given their situation, I don't think that they can support franchisees in the way that MCD does. I will re-assess MTY when we have more visibility on their future state.

    A lot of great compounders that I like such as TJX and ROST are also hurt because they still have fixed costs to a degree (not to mention unsaleable inventory given that they have little to no online presence), so I bailed out on them too. In their case, it is very possible that I will be back at some point.

    While I believe that we will get through this, the situation will create a lot of public and private debt, and deleveraging will act as a drag for a while. Time to chase quality and low-debt companies that will be able to capitalize on the situation.

    1. I've done tons of stupid things. Please, don't qualify me as a genius.

  4. I sold half my BAM today because of worries about debt and exposure to shopping malls. It fell hard then recovered somewhat after a reassuring letter from the CEO. But I hate it when a stock I own needs a reassuring letter from the CEO.

    In my experience the market is much more honest than CEOs.

    1. I hold a little BAM and I always thought it would be more counter-cyclical or at least making good recovery after a depression compared to other business models.

      My understanding was that BAM held only relatively little debt and its subsidiaries had debt on their own books, isolating the core business from potential defaults. BAM is a confusing mess of many companies so it is not probably the easiest one to make sense of (also since their "earnings" and book value are mixed up with carry and AFFO disbursements / return of capital etc.).

      Please, correct me, if I am wrong in my limited understanding.

  5. I deciced to keep going down from 5% of to portfolio to 2% of my portfolio. From this point, it just must rebound. I don't think that la Caisse and the tandem Legault/Fitzgibbon will let drown this fleuron of Quebec inc. My wich

  6. Did anyone buy the mid-March big dip in MTY price?

  7. Yikes! Interesting read:

    "In his new model, Mr. Glen [analyst] expects 1,000 closings within a year, the equivalent of 14% of the group..." "forcing MTY to take over the management of several of them, as well as paying penalties for around 30% of leases canceled."

    "Mr. Glen cuts his forecast for free cash flow... from 4.42 to 1.39 per share for 2020 and from 4.53 to 2.29 per share for 2021"

    "MTY's share price [on 26 March, 2020 @ $23.90] trades at a multiple of 20.9 times the 2020 profit of 1.15 (instead of 3.42) and 16.9 times the profit of 1.42 projected for 2021 (instead of 3.60)."

    "Mr. Glen estimates that the debt will [rise] from 3 times to 5.4 times operating profit by the first quarter of 2021."