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Market Buzz – Boyd Beats the Street Again

North American markets ended this past week on a decidedly sour note on Friday. All told, the S&P TSX composite index ended the 5-day session down 1.36%, while the Dow industrials was down 2.19%. The question now becomes whether or not the down week will become a trend and put a stopper in what has been a strong rally that has lasted over three and a half months.

Headlining the negative sentiment which sent markets lower was another round of worry that the Chinese government will be forced to take further steps to curb lending and slow the country’s economy. This pushed commodity prices and the resource-heavy Toronto stock market sharply lower Friday.

On the day, the S&P/TSX composite index tumbled 185.5 points or 1.43% to 12,749.24, while the resource laden TSX Venture Exchange declined 32.14 points to 2,007.14. The Canadian dollar fell heavily against the U.S. dollar as prices for oil and metals retreated, losing 0.9 of a cent to close at 99.1 cents US.

Expectations of more Chinese government measures to tighten credit and slow economic growth have been rising since data released Thursday showed that inflation hit a 25-month high in October.

In U.S. economic news the University of Michigan’s gauge of consumer sentiment edged up to a better than expected 69.3 from a reading of 67.7 in October. However, the gauge is still well below June’s reading of 76 and pre-recession levels above 80.

Switching gears to our Canadian Small-Cap universe (www.keystocks.com) this past week, http://www.keystocks.com/ReportRequest.aspx, the Boyd Group Income Fund (BYD.UN:TSX), posted another strong set of quarterly results pushing its share price to new highs.

Through its operating company The Boyd Group Inc. and its subsidiaries, is the largest multi-site operator of automotive collision repair service centers in North America, currently operating 133 locations in the four Western Canadian Provinces and eleven U.S. States. Boyd carries on business in Canada under the trade name “Boyd Autobody & Glass” (37 centers) and in the U.S., Boyd operates under “Gerber Collision & Glass” (59 centers) and “True2Form” (37 centers).

This past week, Boyd reported that its revenues for the three months ended September 30, 2010, increased by 32.1% to $69.0 million compared with sales of $52.2 million in the same period of the prior year, after adjusting for the effect of discontinued operations. For the quarter, net earnings after discontinued operations were $3.2 million, or $0.267 per diluted unit and Class A common share, compared with net earnings of $2.2 million, or $0.188 per diluted unit and Class A common share, for the same period in 2009. The Fund paid distributions of $1.0 million, representing a payout ratio of 16.9% for the quarter.

Boyd has now returned 229% to our clients over the past couple year after hitting new highs at the $7.00 level this week.

Looniversity – Consumer Confidence 101

If you’ve ever watched the markets with even a modest degree of interest, you’ve probably heard of the Consumer Confidence Index (CCI). Ever wonder what the heck it is? Let us put you at ease. In the U.S. (most widely quoted), the CCI is put out by the Consumer Confidence Board and based on a survey that samples 5,000 households. The CCI is considered one of the most accurate indicators of confidence. It looks at factors including wages, interest rates, spending habits, and even goes as far as calculating the number of “help wanted” ads in newspapers to detect how tight the job market is.

The basic idea behind consumer confidence is that the better consumers’ current and economic prospects appear, the more likely he/she is to spend – the more he/she spends, the better it is for the overall economy. Of course, the opposite is also true.

When evaluating the index, many people pay close attention to trends or the moving average over the past 3-6 months. Should the index move above or below the moving average, it is a good indication that consumer confidence is significant. Month to month changes are not considered to have as great an impact as the overall trend.

The CCI is watched closely by the U.S. Federal Reserve when determining interest rates, which affect stock prices. Lowering interest rates make it easier to borrow, which ultimately supports consumer spending and higher confidence – something the stock markets get a warm and fuzzy feeling about.

Put it to Us?

Q. When analysts or accountant types talk about “book value”, what are they referring to?

– Paula Kerr; Edmonton, Alberta

A. Outside of the financial world, “book value” can probably be looked at as that little red tag in the corner of your paperback, but within the wonderful world of finance, it has two other distinct meanings.

The value at which an asset is carried on a balance sheet (example: a car for a cab company). In other words, the cost of an asset minus accumulated depreciation.
The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Book value is the accounting value of a firm. It has two main uses:

A. It is the total value of the company’s assets that shareholders would theoretically receive if a company were liquidated.
B. By being compared to the company’s market value (price-to-book ratio), the book value can indicate whether a stock is under or over-priced.

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