In terms of economic releases, Canadian January manufacturing sales data was reported earlier this morning, along with U.S. industrial production and capacity utilization figures from the month of February.
Just one company in the S&P/TSX composite index was scheduled to report its quarterly earnings results today, Stella-Jones Inc. (SJ-T), which reported its fourth-quarter results before the market opened.
Briefly recapping Thursday's stock market returns, major North American equity indices closed with minor moves.
In the U.S., the Dow Jones Industrial Average fell 0.07 per cent, the S&P 500 index lost 0.16 per cent, while the Nasdaq composite index inched up 0.01 per cent.
Turning to Canada, the S&P/TSX composite index rallied 42 points, or 0.27 per cent. There were 122 securities in the TSX Index that advanced, 123 securities declined in value, and four stocks closed the day unchanged.
The TSX index is up 1.80 per cent year to date.
On today's TSX breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and just 12 stocks appear on the negative breakouts list (stocks with negative price momentum).
As always, I try to appeal to a wide variety of investors. Featured today is an undiscovered small cap consumer discretionary stock. The stock is a new addition to the positive breakouts list as its market capitalization recently crossed above the $200-million minimum screening threshold. The stock has delivered solid long-term returns; however, its low liquidity can make the share price volatile. The company is Pollard Banknote Ltd. (PBL-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Winnipeg-based Pollard Banknote is a leading provider of lottery products. In the company's annual information dated March 13, the company estimated its market share at around 85 per cent of all instant tickets sold in Canada. In the U.S. market, management believes the company is the second largest supplier of instant tickets with a market share of approximately 21 per cent of all instant tickets sold. In 2016, approximately 89 per cent of the company's revenue was from instant tickets, with the balance from charitable gaming products.
In terms of geographical revenue breakdown, in 2016, 54 per cent of Pollard's sales came from the U.S., 20 per cent was from Canada, and 26 per cent of sales came from international regions. As such, the company has foreign exchange exposures to consider with a large exposure to U.S. dollar cash flows.
The company has a diversified customer base with over 250 independent distributors and services over 60 instant ticket lotteries.
The company has achieved steady sales and earnings growth. Looking back over the past few years, in 2013, Pollard reported revenue of $185-million, which climbed to $194-million the following year. In 2015, revenue was $221-million and increased to $246-million in 2016. Earnings per share (EPS) was reported at 23 cents in 2013, 37 cents in 2014, 32 cents in 2015, and 62 cents in 2016. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margins have been relatively stable, in the 12-per-cent range over the past four years, but spiked to over 13 per cent in 2014.
Management's outlook for 2017 is positive, stating in their recent Management's Discussion and Analysis, "The outlook for our instant ticket volumes in 2017 remains positive and we expect it to grow, due to overall growth in the market, higher underlying retail sales in our existing customer base and strategically increasing our market share utilizing additional available capacity generated through our recent investments in new capacity."
Management went on to say, "We continue to review strategic initiatives to increase our expertise to serve the market as lotteries expand their products and services. This includes looking at strategic acquisitions to both add to our core competencies and develop additional areas of expertise. Our strong organic cash flow allows us the flexibility to pursue opportunities to grow our organization while maintaining a sound financial foundation."
The stock can be thinly traded given the Pollard family has retained an ownership position of approximately 73.5 per cent.
Dividend policy
The company pays its shareholders a quarterly dividend of 3 cents per share, or 12 cents per share on a yearly basis. This equates to an annualized dividend yield of 1.3 per cent. Management has maintained its quarterly dividend at this level since 2010.
Analysts' recommendations
This stock has research coverage from just one analyst, Brian Pow from Acumen Capital. Mr. Pow has a 'buy' recommendation.
Revised recommendations
This month, Mr. Pow increased his target price to $10.30 from $9.75.
Financial forecasts
Analyst Brian Pow is forecasting revenue of $259-million in 2017, rising 6 per cent to $274-million in 2018. His EBITDA estimate is $32.6-million in 2017, rising 5.5 per cent to $34.4-million in 2018. Finally, his EPS estimate is 53 cents in 2017, increasing 13 per cent to 60 cents for the following year.
Valuation
The stock is trading at a price-to-earnings multiple of 15.6 times the analyst's 2018 earnings estimate.
Brian Pow has a target price of $10.30, implying 10-per-cent upside potential.
Insider transaction history
So far in 2017, there has been no insider transaction activity.
Chart watch
Year to date, the share price is up nearly 15 per cent and recently broke above a key resistance level on high volume. On Thursday, more than 42,000 shares traded and on Tuesday more than 92,000 shares traded, well above the three-month historical daily average trading volume of approximately 8,700 shares.
All of this year-to-date gain has occurred over the past few weeks. Month to date, the share price is up 15 per cent. If the stock was a member in the S&P/TSX composite index consumer discretionary sector, it would be the third top performing stock year to date.
Given the recent strong price move, the stock's positive price momentum may soon need to pause as its shares digest these gains. If the share price retreats, there is support around the $8.85 to $9 range, near its previous resistance level.
The relative strength index is at 75, suggesting the shares are trading in overbought territory. Generally, a reading of 70 or higher reflects an overbought condition.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.