Alt Thinking May 31, 2024
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Canadian Large Cap Leaders Split Corp.

Canadian Large Cap Leaders Split Corp. - May 2024
Investment Team
  • John Wilson, MBA
    Co-CEO, Managing Partner, Senior Portfolio Manager
    John Wilson, MBA
    Co-CEO, Managing Partner, Senior Portfolio Manager
    John Wilson is a founding principal, Co-CEO and Managing Partner of Ninepoint Partners. John oversees all aspects of the firm’s investment and research initiatives. Prior to Ninepoint’s formation, he was CEO, CO-CIO and Senior Portfolio Manager at Sprott Asset Management (SAM). Previous to SAM, he was Chief Investment Officer at Cumberland Private Wealth Management, founder and CEO of DDX Capital Partners, an alternative investment management firm; was Managing Director at RBC Capital Markets...
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  • Jeff Sayer, MBA, CFA
    Vice President, Portfolio Manager
    Jeff Sayer, MBA, CFA
    Vice President, Portfolio Manager
    Jeff Sayer is Vice President, Portfolio Manager at Ninepoint Partners. Jeff oversees Global Equity, Infrastructure, Tactical Balanced and Split Corp investment strategies for the firm. Prior to Ninepoint’s formation, Jeff was with Sprott Asset Management (SAM), rounding out more than 20 years of investment management experience. Jeff received his MBA from the Schulich School of Business at York University and was awarded his CFA designation in 2004.
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  • Colin Watson
    Vice President, Portfolio Manager
    Colin Watson
    Vice President, Portfolio Manager
    Colin Watson's background spans across equities, asset allocation & derivative-based strategies. Prior to Ninepoint Partners, Colin worked as a Portfolio Manager at IMCO on a team responsible for overseeing IMCO’s $26B public equity allocation and deploying derivatives-based strategies for IMCO’s public asset allocation strategy. Prior to IMCO, Colin worked at Ninepoint Partners on equity selection & options-based overlays. Colin holds a Bachelor of Commerce Degree from McMaster Unive...
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Key Takeaways
  • Several companies in the portfolio have boosted their dividend payments due to solid results.
  • The Bank of Canada has reduced its key overnight rate, which is expected to benefit dividend-paying stocks and expand P/E multiples.
  • Despite good performance, Class A Shares continue to trade at a discount to NAV, approximately 12%*below the reported NAV.

The Canadian Large Cap Leaders Split Corp has now been active for three months. We have been through a quarterly dividend cycle and cash flow from each of our holdings has flowed into the Corp.  Importantly, we’ve had several of our companies boost dividend payments, including Bank of Montreal, Canadian Natural Resources, Manulife and TELUS, supported by generally solid results.  Further, the Bank of Canada has just become the first of the G7 economies to cut interest rates, reducing its key overnight rate by 25 bps from 5.00% to 4.75%, which should provide a nice tailwind for our dividend paying stocks and allow price to earnings multiples to expand.

Despite the good results from our individual holdings, the Class A Shares (NPS on the TSX) continue to trade at a discount to the reported NAV. We don’t believe that this has anything to do with the valuation or financial performance of our holdings as demonstrated by the chart below:

Information below is specific to individual securities held in the Portfolio. It is only intended to describe key characteristics of individual holdings at a point in time and makes no inference about the return no yield of either the Preferred Shares or the Class A Shares of the Canadian Large Cap Leaders Split Corp.

Table 1

From the chart, we can see that our holdings, on average, trade at an LTM price to earnings multiple of 12.9x, compared to the 5-year average price to earnings multiple of 14.4x, a 1.6x multiple point discount (rounding has slightly impacted these calculations). But with the Class A Share trading approximately 12%* below the reported NAV, we can adjust this table to visualize the implied valuation:

Information below is specific to individual securities held in the Portfolio. It is only intended to describe key characteristics of individual holdings at a point in time and makes no inference about the return no yield of either the Preferred Shares or the Class A Shares of the Canadian Large Cap Leaders Split Corp.

Chart 2

It is almost shocking to see that the implied discount has expanded to 3.1x worth of multiple points, which highlights a unique opportunity to buy a portfolio of Canadian high-quality, dividend payers significantly below long-term historic valuation levels (and approximately 12%* below the prior night’s close) through the purchase of shares of NPS on the open market.

In fact, because we believe that the Class A Shares are so undervalued, on May 24, 2024, Ninepoint Partners published the following press release:

TORONTO – Ninepoint Partners LP (“Ninepoint”), on behalf of Canadian Large Cap Leaders Split Corp. (the “Company”) (TSX: NPS/NPS.PR.A), announced today that the Toronto Stock Exchange (the “TSX”) has accepted its notice of intention to make a normal course issuer bid (the “NCIB”) to purchase its class A shares (“Class A Shares”) and preferred shares (“Preferred Shares”) through the facilities of the TSX and/or alternative Canadian trading systems.  The NCIB will commence on May 28, 2024 and terminate on May 27, 2025.  

Pursuant to the NCIB, the Company proposes to purchase, from time to time, up to 182,563 Class A Shares and 182,563 Preferred Shares of the Company, representing 10% of the public float of 1,825,633 Class A Shares and 1,825,633 Preferred Shares.  As of May 16, 2024, there were 1,835,633 Class A Shares and 1,825,633 Preferred Shares issued and outstanding. The Company will not purchase, in any given 30-day period, in the aggregate, more than 36,712 Class A Shares or more than 36,512 Preferred Shares, being 2% of the issued and outstanding Class A Shares and Preferred Shares as of May 16, 2024.

Ninepoint, the manager of the Company, believes that such purchases are in the best interests of the Company.  All purchases will be made through the facilities noted above and in accordance with the rules and policies of the TSX.   All Class A Shares or Preferred Shares purchased by the Company pursuant to the NCIB will be cancelled.

Finally, we would like to highlight that the Canadian Large Cap Leaders Split Corp has announced its third distribution, payable on June 14, 2024, to the Class A Shareholders of record at the close of business on May 31, 2024. As planned, holders of the Class A Shares will receive the $0.12500 per share regular monthly dividend. 

Again, with the NAV rising steadily since the IPO but with the Class A Shares currently trading at an unwarranted discount, we believe that buying stock today represents an attractive long-term investment opportunity for both new and existing shareholders.

We appreciate the support of all those who have invested in the Canadian Large Cap Leaders Split Corp.

Until next month,

John, Jeff & Colin
Ninepoint Partners

*As of close on June 19, 2024. Subject to change daily.

Historical Commentary

View All
  • Commentary
    November 2024
    Canadian Large Cap Leaders Split Corp.
    As we approach the holiday season and the end of 2024, investors should be pleased with their returns for the year. Further, although we are already part way through December, we are entering what has historically been a seasonally strong period for the equity markets, especially after excellent year-to-date performance. We think that the themes and trends that have been working are likely to persist through the balance of the year and into early 2025, as investors chase performance while refraining from selling winners to avoid realizing taxable capital gains.
    Equities
  • Commentary
    October 2024
    Canadian Large Cap Leaders Split Corp.
    As we write this October commentary, it is amazing how much has happened during the month and into the first week of November.
    Equities
  • Commentary
    September 2024
    Canadian Large Cap Leaders Split Corp.
    The US Federal Reserve has now begun easing monetary policy. After 525 bps of tightening from March 2022 to July 2023, the FOMC has finally lowered interest rates by 50 bps to 5.00% on September 18.
    Equities
  • Commentary
    August 2024
    Canadian Large Cap Leaders Split Corp.
    In August, the S&P 500 returned 2.3% and 2.4% on a total return basis while the TSX Composite returned 1.0% and 1.2% on a total return basis.
    Equities
  • Commentary
    July 2024
    Canadian Large Cap Leaders Split Corp.
    In the stock market, things can happen slowly then suddenly all at once. Historically, 5% drawdowns happen about three times a year while 10% drawdowns happen about once a year and we’ve just experienced the latter.
    Equities
  • Commentary
    June 2024
    Canadian Large Cap Leaders Split Corp.
    The Canadian Large Cap Leaders Split Corp has now been active for three complete months. We have been through a quarterly dividend cycle and cash flow from each of our holdings has flowed into the Corp. Importantly, we’ve had several of our companies boost dividend payments, including Bank of Montreal, Canadian Natural Resources, Manulife and TELUS, supported by generally solid results.
    Equities
  • Commentary
    April 2024
    Canadian Large Cap Leaders Split Corp.
    The Canadian Large Cap Leaders Split Corp has now been active for two complete months. We are fully invested in ten approximately equally-weighted, high-quality Canadian Dividend Growth Companies. From a macro perspective, we think that the timing for the launch of the Corp was opportune, and we are confident that the first interest rate cuts of the cycle are approaching, both in Canada and the United States.
    Equities
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All Funds
  • NPS
    (Class A)
    Tax-Efficient Funds Split Share Corps. Equity
    $15.38 $0.05 (0.36%)
    As at 12/27/2024
    Go To Fund

    Ninepoint Partners LP is the investment manager to Canadian Large Cap Leaders Split Corp. (the “Company”). Important information about the Company, including its investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in its prospectus. There is no assurance of a return on a subscriber’s initial investment. Please read the prospectus carefully before investing. This communication does not constitute an offer to sell or solicitation to purchase securities of the Company.

    The Canadian Large Cap Leaders Split Corp. is generally exposed to the following risks. See the prospectus of the Company for a description of these risks: No Assurances on Achieving Objectives, Concentration Risk, Risk Related to Passive Investments, Performance of the Portfolio Issuers and Other Considerations, Greater Volatility of the Class A Shares, Equity Risk, COVID-19, Market Volatility, Market Disruptions, Recent and Future Global Financial Developments, Sensitivity to Interest Rates, Changes in Credit Rating, Reliance on the Manager and the Portfolio Manager, Conflicts of Interest, Use of Options and Other Derivative Instruments, Securities Lending, Sensitivity to Volatility Levels, Taxation, Significant Retractions, Loss of Investment, non-concurrent Retraction, Changes in Legislation and Regulatory Risk, Lack of Operating History, Cybersecurity Risk.

    The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Company may be lawfully sold in their jurisdiction.

    Ninepoint Partners LP: Toll Free: 1.866.299.9906. Dealer Services: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

The Canadian Large Cap Leaders Split Corp. is generally exposed to the following risks. See the prospectus of the Company for a description of these risks: No Assurances on Achieving Objectives, Concentration Risk, Risk Related to Passive Investments, Performance of the Portfolio Issuers and Other Considerations, Greater Volatility of the Class A Shares, Equity Risk, COVID-19, Market Volatility, Market Disruptions, Recent and Future Global Financial Developments, Sensitivity to Interest Rates, Changes in Credit Rating, Reliance on the Manager and the Portfolio Manager, Conflicts of Interest, Use of Options and Other Derivative Instruments, Securities Lending, Sensitivity to Volatility Levels, Taxation, Significant Retractions, Loss of Investment, non-concurrent Retraction, Changes in Legislation and Regulatory Risk, Lack of Operating History, Cybersecurity Risk.

Ninepoint Partners LP is the investment manager to Canadian Large Cap Leaders Split Corp. (the “Company”). Important information about the Company, including its investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in its prospectus. There is no assurance of a return on a subscriber’s initial investment. Please read the prospectus carefully before investing. This communication does not constitute an offer to sell or solicitation to purchase securities of the Company.

The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Company may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances.

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners LP. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners LP is or will be invested.

Ninepoint Partners LP and/ or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.