October 10, 2023
Commentary: NCM Income Growth Class
On October 10, 2023, Portfolio Manager Alex Sasso, CFA provided details on a new holding in the fund an update on portfolio’s superior profitability, growth and valuation stats compared to the TSX.
Today is October 10th, 2023. My name is Alex Sasso and I'm the manager of the NCM Income Growth fund. I'm here to talk to you about some of the changes in the fund. We've added one new name. It's a company called Tecsys. This is a name that we've owned in some of our other funds, and I’ve recently added it to the fund.
So what does Tecsys do? They’re a supply chain software management company. We think it's a gem of a company. Despite its small size, it's often overlooked because of it being a Canadian small cap. The company has approximately $160 million in revenue. There are a thousand customers, 800 employees, and 20% of the stock is owned by insiders.
We think they're becoming the dominant provider of supply chain solutions to hospital networks, particularly in the U.S., where they have a 15% market share. And we think that their market share is increasing. It's one of the reasons why we're quite excited about this company. And one of the lessons that we learned as we went through the COVID pandemic is the importance of supply chains, particularly for hospitals and the need for current up to date data, which many of the hospitals didn't have. And that's exactly the solution that Tecsys provides. And now that COVID has passed, these hospitals are starting to implement some of these supply chain solutions that make them more efficient. So quite excited about that company. Again, new to the portfolio.
We currently have about 15% cash in the fund. There are 28 equity holdings in the fund. There are 14 fixed income holdings and the fixed income component of the fund makes up about 11% of the fund. We always kind of hug that ten, 11, 12%. And the equity component is about 74% of the fund right now.
In terms of metrics, again, very strong attributes. The trailing price earnings ratio is 11 times against the TSX at 14. Our estimated price earnings ratio is less than ten. It's about nine and a half times versus just over 12 times for the TSX. Our price to cash flow is 5.6 versus eight for the TSX. Our return on equity is slightly better than the TSX at 17.3 versus 16.5, and our earnings surprise continues to be quite strong relative to the TSX earning surprise numbers. That is when a company reports if they report better than analysts expectations and earnings surprise numbers are positive 3.5 versus just slightly greater than zero for the TSX.
Our estimate revisions are up 4.2, that’s analysts revising up their numbers versus flat for the TSX, and our quarterly earnings momentum is still a positive 3.6 despite the GDP struggling in Canada. And to give you a sense of how good that is, that plus 3.6 is relative to a -1.8, meaning that estimates are being revised down for the market, but the companies that we own in the fund, estimates are still being revised upwards.
Our expected yield in the fund, this is the yield coming into the fund vis-a-vis the companies that we own, is a plus 4.8% and then our free cash flow yield is just over 7% versus 3.7% for the TSX. Again, emphasizing the point that you're getting a group of businesses that are growing faster, less expensive and much more profitable.
If you have any other questions, please contact your NCM salesperson at firstname.lastname@example.org. Thank you.
The information in this video is current as of October 10, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Alex Sasso, CFA
Chief Executive Officer and Portfolio Manager of NCM Small Companies Class and NCM Income Growth Class.