Middlefield Canadian Income — Exposure to high-yielding North American equities

Middlefield Canadian Income — Exposure to high-yielding North American equities

Middlefield Canadian Income (MCT) is listed on the Main Market of the London Stock Exchange. It aims to invest in a diversified portfolio of Canadian and selected US companies that are able to pay high sustainable or growing dividends and have the potential to generate long-term capital growth. On a sector basis, the trust currently has high exposure to the pipelines, power & utility and real estate sectors. MCT is benchmarked against the S&P/TSX Composite High Dividend Index, which it has outperformed over one, three and five years. MCT currently pays a regular quarterly dividend of 1.25p, although the board has recently proposed a modest increase to 1.275p; its current dividend yield is 4.7%.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Middlefield Canadian Income

Exposure to high-yielding North American equities

Investment trusts

26 April 2017

Price

107.5p

Market cap

£114m

AUM

£149m

NAV*

113.1p

Discount to NAV

5.4%

*Including income. Data as at 24 April.

Yield

4.7%

Redeemable participating preference shares in issue

106.5m

Code

MCT

Primary exchange

LSE

AIC sector

North America

Benchmark

S&P/TSX Composite High Dividend

Share price/discount performance

Three-year performance vs index

52-week high/low

109.8p

77.8p

122.6p

90.6p

*Including income.

Gearing

Gross*

22.2%

Net*

18.0%

*As at 31 March 2017.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

Middlefield Canadian Income is a research client of Edison Investment Research Limited

Middlefield Canadian Income (MCT) is listed on the Main Market of the London Stock Exchange. It aims to invest in a diversified portfolio of Canadian and selected US companies that are able to pay high sustainable or growing dividends and have the potential to generate long-term capital growth. On a sector basis, the trust currently has high exposure to the pipelines, power & utility and real estate sectors. MCT is benchmarked against the S&P/TSX Composite High Dividend Index, which it has outperformed over one, three and five years. MCT currently pays a regular quarterly dividend of 1.25p, although the board has recently proposed a modest increase to 1.275p; its current dividend yield is 4.7%.

12 months ending

Share price
(%)

NAV
(%)

S&P/TSX Comp. High Dividend (%)

S&P/TSX Composite (%)

FTSE World
(%)

31/03/13

21.2

17.2

12.3

9.8

17.5

31/03/14

(8.8)

0.3

(2.4)

(2.8)

7.6

31/03/15

(2.3)

2.7

(1.9)

4.7

18.8

31/03/16

(13.7)

(8.4)

(6.6)

(5.5)

0.0

31/03/17

42.9

36.8

35.0

32.2

32.9

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Top-down and bottom-up

MCT is an actively managed fund; managers Dean Orrico and Rob Lauzon select stocks on a bottom-up basis, taking account of the macro environment. They seek to outperform the benchmark by investing in companies with good fundamentals, strong management teams and attractive valuations offering a good level of income with the potential for dividend growth. While the majority of the portfolio is invested in Canada, currently c 20% is invested in US equities to allow the managers to access attractive areas that are unavailable in Canada. MCT’s currency exposure is unhedged and gearing of up to 25% of gross assets is permitted.

Market outlook: Broader sector leadership

Canadian equities delivered above-average returns to investors in 2016; however, stock market leadership was narrow, led by materials and energy, which benefited from higher commodity prices. The other two outperforming sectors were also cyclical (financials and industrials) where earnings growth was boosted by higher interest rates and more robust economic activity. So far in 2017, stock market leadership is much broader – as at end-March, only two sectors were underperforming. There is the potential for wider sector leadership to continue so for investors seeking exposure to North America, a diversified fund offering a high level of income with the potential for long-term capital growth may be of interest.

Valuation: Scope for discount to narrow further

MCT’s 5.4% current share price discount to cum-income NAV compares to the averages of the last one, three, five and 10 years (range of 5.4% to 13.4%). There is scope for the discount to narrow further if investor demand for Canadian equities increases or the manager continues to deliver positive relative investment performance. Investors should note that as recently as early 2015, MCT’s share price stood at a premium to NAV.

Exhibit 1: Fund at a glance

Investment objective and fund background

Recent developments

Middlefield Canadian Income’s objective is to provide a high level of sustainable dividends and long-term capital growth via investment primarily in Canadian and selected US equities, with a small exposure to fixed income securities. It is benchmarked against the S&P/TSX Composite High Dividend Index in sterling terms and is a member of the FTSE All-Share Index.

20 April 2017: Annual results ending 31 December 2016. NAV TR of 44.4% versus benchmark TR of 57.7%.

20 April: Board proposal to increase the quarterly dividend to 1.275p.

6 April 2017: Declaration of 1.25p quarterly dividend.

5 January 2017: Declaration of 1.25p quarterly dividend.

Forthcoming

Capital structure

Fund details

AGM

May 2017

Ongoing charges

1.02% (FY16)

Group

Middlefield Group

Interim results

June 2017

Net gearing

18.0%

Manager

Dean Orrico and Rob Lauzon

Year end

31 December

Annual mgmt fee

0.70% of average NAV

Address

288 Bishopsgate, London,

EC2M 4QP, UK

Dividend paid

Apr, Jul, Oct, Jan

Performance fee

None

Launch date

July 2006

Trust life

Indefinite

Phone

+44 (0) 20 3709 4016

Continuation vote

Last in May 2013, none going forward.

Loan facilities

See page 7

Website

www.middlefield.co.uk

Dividend policy and history

Share buyback policy and history

Dividends of 1.25p are paid quarterly in April, July, October and January.

MCT has redeemable participating preference shares in issue (see page 7).

Shareholder base (as at 21 February 2017)

Asset mix (as at 31 March 2017)

Top 10 holdings (as at 31 March 2017)

Company

Country

Sector

Portfolio weight %

31 March 2017

31 March 2016*

Veresen

Canada

Pipelines

4.9

N/A

Vermilion Energy

Canada

Energy

4.8

N/A

The Blackstone Group

US

Financials

4.7

N/A

JPMorgan Chase

US

Financials

4.5

3.4

AltaGas

Canada

Pipelines

4.3

N/A

Pembina Pipeline

Canada

Pipelines

4.0

3.9

National Bank of Canada

Canada

Financials

4.0

N/A

H&R REIT

Canada

Real estate

3.9

N/A

Bristol-Myers Squibb

US

Healthcare

3.8

N/A

Chemtrade Logistics Income Fund

Canada

Materials

3.8

N/A

Top 10

42.6

36.9

Source: Middlefield Canadian Income, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in March 2016 top 10.

Market outlook: Potential for broader leadership

Exhibit 2 (LHS) shows the performance of Canadian indices in sterling terms over the last 10 years. Returns during 2016 were boosted by the weakness of sterling, which depreciated by c 23% versus the Canadian dollar. As shown in Exhibit 2 (RHS), Canadian stock market returns in 2016 were led by materials, energy, financials and industrials. During Q117, market leadership has broadened out, and as at-end March 2017, nine sectors had outperformed year-to-date; the exceptions were energy (which had been affected by a pullback in the oil price) and healthcare (a tiny sector dominated by the troubled Valeant Pharmaceuticals). There is the potential for this broader leadership to continue for the balance of the year.

Exhibit 2: Market performance and valuation

Canadian indices last 10 years (£)

S&P/TSX Composite Index performance to end-March 2017 (C$)

 

Weight (%)

YTD total return (%)

2016 total return (%)

2017e P/E (x)

Financials

34.5

3.5

24.1

12.9

Energy

21.4

(5.5)

35.5

26.1

Materials

12.1

6.2

41.2

22.8

Industrials

9.0

5.3

22.8

19.0

Consumer discretionary

5.1

7.0

10.7

14.5

Telecoms

4.8

5.0

14.7

17.0

Consumer staples

3.8

2.6

7.5

19.9

Utilities

3.1

7.3

17.7

18.9

Real estate

3.0

4.7

5.9

15.3

IT

2.9

7.0

5.2

19.7

Healthcare

0.6

(10.1)

(78.5)

6.2

Index

100.0

2.4

21.1

17.0

Source: Thomson Datastream, Edison Investment Research, Bloomberg

Following the significant share price appreciation of Canadian equities in 2016, some valuation measures are looking high relative to history (Exhibit 3, LHS). On a forward earnings basis, using the Datastream Canadian Index as a proxy, Canadian equities are trading towards the top end of their 10-year range and 14% higher than the 10-year average. However, a benign economic environment could provide support to company earnings. In its April 2017 World Economic Outlook, the International Monetary Fund forecasts 2016-21 average annual economic growth for Canada of 1.86%, which is broadly similar to the US and modestly above the growth expected in both the UK and Europe. For investors seeking exposure to North America, a fund invested broadly across the Canadian stock market (and selectively in the US), with a focus on companies generating an attractive level of income and the potential for long-term capital growth, may appeal.

Exhibit 3: Market valuation and GDP growth

Datastream Canadian Index 10-year valuation metrics (as at 20 April 2017)

Historic and forecast GDP growth (% CAGR)

 

Last

High

Low

10-year
average

Last as % of
average

P/E 12 months forward (x)

16.1

17.2

8.8

14.1

114

Price to book (x)

2.0

2.8

1.3

1.9

104

Dividend yield (%)

2.8

4.7

2.1

2.9

96

Return on equity (%)

8.2

16.5

4.1

10.2

81

Source: Thomson Datastream, Edison Investment Research, IMF WEO (April 2017)

Fund profile: High income, North American exposure

Middlefield Canadian Income – GBP PC (MCT) is the initial (sole) protected cell of Middlefield Canadian Income PCC (protected cell company). It is managed by the Middlefield Group, an investment company with c C$4.0bn of assets under management, with offices in Toronto, Calgary, San Francisco and London (UK). MCT is incorporated in Jersey and its shares are traded on the Main Market of the London Stock Exchange. It aims to provide shareholders with a high level of dividends and long-term capital growth from a diversified portfolio of primarily Canadian and US equities. Investments are focused on companies with good fundamentals, proven management teams, strong balance sheets and sustainable dividends. The portfolio typically contains 40-50 holdings; there are currently 47, including six debt instruments. Since fund inception, MCT has been managed by Dean Orrico; Rob Lauzon replaced the previous co-manager in May 2016. The trust is benchmarked against the S&P/TSX Composite High Dividend Index.

In February 2015, the investment limit for securities listed outside a Canadian exchange was increased from 20% to 40% and a new condition was introduced, allowing 10% of the fund to be invested in securities listed outside Canada and the US. These new rules allow the manager greater freedom to invest in sectors that are underrepresented in Canada, which could lead to higher total shareholder returns. MCT may invest up to 10% in a single issuer, the top 10 holdings may comprise 50% of the portfolio and up to 10% may be invested in unquoted securities (although none are held due to lack of liquidity). Currency exposure is not hedged. Gearing up to 25% of gross assets is permitted; it is typically in a range of 0% to 20%.

The fund managers: Dean Orrico and Rob Lauzon

The managers’ view: Improving economic outlook

From a macro perspective, co-lead manager Orrico considers that both Canadian and US economic data is relatively positive, with unemployment, purchasing manager indices and general economic activity all moving in the right direction. The manager suggests that the US economy has had more momentum than Canada, and this may continue if President Trump is able to follow through on his proposed policies. Orrico explains that Canada has come out of a difficult two-year period, where softness in the oil price and other resources weighed on the economy, but now commodity prices have improved. He suggests the improving economic outlook provides a good backdrop for the performance of North American equities. Corporate earnings have been improving since Q316, which the manager argues should support equities, given elevated valuation multiples.

The manager comments that interest-rate sensitive sectors such as real estate have been affected by higher US rate expectations over the last few months, but real estate is an industry where, in the longer term, he expects rental growth and improved occupancy to outweigh higher borrowing costs. (At more than 20%, real estate is MCT’s second largest sector exposure.) Orrico believes that if comments from the Federal Reserve Board are constructive on economic activity, there are likely to be another two US interest rate rises in 2017, but the outlook for rate rises in 2018 is too difficult to call. He suggests that 10-year US government bond yields are likely to stay in a 2.5-3.0% range and that stock markets will start to discount this. Canada has not seen interest rate rises unlike in the US; hence the manager continues to prefer Canadian commercial real estate rather than US REITs. He says that these companies have good fundamentals, solid balance sheets, good payout ratios and are selectively increasing their annual dividends.

Asset allocation

Investment process: Stock selection with macro considerations

Managers Dean Orrico and Rob Lauzon take account of the prevailing macro environment to select high-yielding, primarily Canadian companies, which have the potential to increase their dividends. The managers aim to outperform the benchmark S&P/TSX Composite High Dividend Index. When selecting stocks on a bottom-up basis, screens are used extensively, including dividend yield, payout ratios and valuation metrics, and meeting company managements is a key element of the investment process. Third-party resources are used to provide research into areas, such as energy and healthcare, that are considered too specialist for a generalist fund manager. The healthcare research is led by SSR, which is led by Dr Richard Evans. Currently, c 15% of MCT’s portfolio is invested primarily in the US to provide exposure to sectors unavailable in Canada, such as healthcare where there are a large number of listed companies available. A small percentage of the portfolio (c 6%) is held in fixed income securities. All of MCT’s equity holdings pay a dividend; the manager has analysed MCT’s portfolio and found that eight out of 41 equity holdings raised their dividends during Q416 and c 70% of current equity holdings have increased their dividends during the last three years (by an average of c 13%). The manager suggests that investing in dividend-paying companies results in a better total return with lower risk, as well as helping to fund MCT’s dividend.

Current portfolio positioning

As shown in Exhibit 4, over the last 12 months, MCT’s exposure to Canadian equities has increased, while US equity and fixed income exposure has been reduced. The manager argues there are plenty of Canadian companies that are attractive from a risk/reward and yield perspective.

Exhibit 4: Asset mix as at 31 March 2017 (% unless stated)

Portfolio end-March 2017

Portfolio end-March 2016

Change (pp)

Canadian equity

78.0

62.4

15.6

US & international equity

16.3

30.5

(14.2)

Fixed income

5.7

7.1

(1.4)

100.0

100.0

Source: Middlefield Canadian Income, Edison Investment Research

A recent addition to the portfolio is Chorus Aviation, which provides airline services to Air Canada (90% of revenues with contracts up to 2025) and has started diversifying its operations to third-party firms. Chorus operates in three business areas: Contracted flying operations; maintenance, repair and overhaul; and regional aircraft leasing. It has been consistently profitable since its initial public offering in 2006; its current dividend yield is c 6.5%.

Exhibit 5: Portfolio sector exposure vs benchmark (% unless stated)

Portfolio end-
March 2017

Portfolio end-
March 2016

Change
(pp)

Index weight*

Active weight
vs index (pp)

Trust weight/ index weight (x)

Pipelines, power & utilities

22.5

13.8

8.7

32.2

(9.7)

0.7

Real estate

21.8

10.1

11.7

14.9

6.9

1.5

Financials

15.1

19.7

(4.6)

29.2

(14.1)

0.5

Energy

12.1

11.8

0.3

6.0

6.1

2.0

Industrials

6.3

6.7

(0.4)

1.4

4.9

4.5

Bonds & convertible debentures

5.7

7.1

(1.4)

0.0

5.7

N/A

Materials

5.4

7.7

(2.3)

1.2

4.2

4.5

Healthcare

5.1

4.8

0.3

0.0

5.1

N/A

Consumer discretionary

4.8

8.8

(4.0)

4.3

0.5

1.1

Other

1.2

1.2

0.0

0.0

1.2

N/A

Consumer staples

0.0

5.2

(5.2)

0.4

(0.4)

0.0

Telecommunications

0.0

0.0

0.0

10.1

(10.1)

0.0

Technology

0.0

3.1

(3.1)

0.2

(0.2)

0.0

100.0

100.0

100.0

Source: Middlefield Canadian Income, Edison Investment Research. Note: Numbers subject to rounding. *S&P/TSX Composite High Dividend Index.

Performance: Returns in 2016 boosted by weak sterling

The manager comments that currency can be a challenge to performance; he suggests that on balance, investors prefer unhedged exposure, but currency moves can result in volatility in MCT’s reported NAV. During 2016, sterling’s 22.9% depreciation versus the Canadian dollar provided a tailwind to MCT’s absolute total returns, but this followed a five-year headwind due to sterling appreciation. Over the last 12 months, MCT’s share price and NAV total returns of 42.9% and 36.8%, respectively, are ahead of the 35.0% benchmark total return. In Q117, sterling was more stable, appreciating by 0.8% versus the Canadian dollar; however, the manager comments that developments around the UK’s exit from the EU are likely to lead to further sterling volatility.

Exhibit 6: Fund performance to 31 March 2017

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and index total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

MCT’s relative returns are shown in Exhibit 7; its NAV total return has outperformed the S&P/TSX Composite High Dividend Index over one, three and five years, while lagging over 10 years. As a reference to UK shareholders, MCT’s NAV total return has outperformed the FTSE All-Share Index over one and three years and significantly outperformed over the last 10 years.

Exhibit 7: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to S&P/TSX Comp. High Div.

(0.3)

(1.0)

0.5

5.9

(2.6)

(1.8)

(15.8)

NAV relative to S&P/TSX Comp. High Div.

0.0

(1.2)

(0.7)

1.3

4.2

11.6

(4.8)

Price relative to S&P/TSX Composite

(0.6)

(1.1)

1.8

8.1

(7.9)

(4.7)

7.6

NAV relative to S&P/TSX Composite

(0.3)

(1.3)

0.6

3.4

(1.6)

8.4

21.7

Price relative to FTSE World

(1.2)

(4.7)

(1.2)

7.5

(23.7)

(33.3)

(7.4)

NAV relative to FTSE World

(0.8)

(4.9)

(2.4)

2.9

(18.5)

(24.2)

4.8

Price relative to FTSE All-Share

(1.7)

(3.2)

3.2

17.2

(3.6)

(16.1)

33.1

NAV relative to FTSE All-Share

(1.3)

(3.4)

2.0

12.2

3.1

(4.6)

50.5

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-March 2017. Geometric calculation.

Exhibit 8: NAV total return performance relative to benchmark over five years

Source: Thomson Datastream, Edison Investment Research

Discount: Narrowing over the near term

MCT’s 5.4% current share price discount to cum-income NAV is narrower than the 13.4% average of the last 12 months (range of 5.4% to 17.9%). It compares to the averages of the last three, five and 10 years of 8.7%, 5.4% and 6.4%, respectively.

There is scope for the discount to narrow further if investor demand for Canadian equities increases or the manager continues to deliver positive relative investment performance. In should be noted that in the past there have been periods where MCT’s shares traded at a premium to NAV; the last time was in early 2015.

Exhibit 9: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

The authorised share capital of MCT is split between two management shares, each valued at £1, and an unlimited number of redeemable participating preference shares. The fund is able to issue or repurchase these preference shares without shareholder approval. During 2016, 1.2m redeemable participating preference shares were repurchased at an average price of 80.41p and so far in 2017, 0.5m shares have been repurchased at an average price of 104.89p (0.4% of shares outstanding at the end of 2016). There are currently 106.5m redeemable participating preference shares outstanding with a further 18.2m held in treasury, which may be sold to satisfy future demand (up to a maximum of 10% of the issued share capital at the time of the last AGM).

MCT has an on-demand credit facility agreement with the Royal Bank of Canada up to a maximum of the lesser of C$65m or 25% of its total assets. The rate of borrowing is either prime minus 0.35% or banker’s acceptances plus a stamping fee of 0.60%. MCT uses gearing strategically; it is increased when the manager considers that equities are attractively valued and paid down when valuations are unappealing. In FY16, the level of net gearing ranged from 5.6% to 17.5% and was 18.0% at end-March 2017. In recent years, the yearly average level of net gearing has increased from 4.6% in FY12 to 13.3% in FY16. Gearing is partially offset by fixed-income exposure in the portfolio, which was c 6% at end-March 2017.

Middlefield Group, the investment manager, is entitled to a management fee of 0.7% of net assets, payable quarterly in arrears. In FY16, the fees were split between capital and revenues in a ratio of 60:40. Prior to June 2013, the management fee was 0.867%. In FY16, ongoing charges of 1.02% of average NAV compared to 1.06% in the prior year.

Dividend policy and record

MCT currently pays regular 1.25p quarterly dividends in April, July, October and January. Barring unforeseen circumstances, it had been the board’s intention to continue to pay an annual dividend of 5.0p, supported by dividend and interest income from MCT’s investments. However, the board discusses the level of the dividend on a regular basis; given MCT’s positive capital returns and dividend increases in the underlying portfolio, the board has proposed to increase the quarterly dividend from 1.25p to 1.275p. Based on robust Q117 income, the 2017 pro forma dividend cover is more than 120%. MCT’s current dividend yield is 4.65%, (calculated on the proposed higher quarterly dividend, its prospective yield is 4.74%).

Peer group comparison

MCT is a member of the AIC’s North America sector – in Exhibit 10 we highlight the two funds with significant exposure to Canada. MCT has the better NAV total return over five and 10 years, while lagging over one and three years. It has a significantly lower discount, a lower ongoing charge, a broadly equal level of gearing and a higher dividend than its peer.

Exhibit 10: Selected peer group as at 20 April 2017 (£)

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (ex-par)

Ongoing charge

Perform.
fee

Net gearing

Dividend yield (%)

Middlefield Canadian Income

113.9

23.3

19.7

49.1

137.2

(5.4)

1.0

No

118

4.7

Canadian General Investments

435.0

26.4

26.0

39.9

54.4

(28.1)

1.7

No

119

3.7

Average

274.4

24.8

22.8

44.5

95.8

(16.8)

1.3

119

4.2

MCT rank in sector

2

2

2

1

1

1

2

2

1

Source: Morningstar, Edison Investment Research. Note: TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are five directors on the board of MCT, four of whom are independent of the manager. Chairman Nicholas Villiers, Raymond Apsey and Philip Bisson were appointed at the fund’s inception and Thomas Grose was appointed in 2012. Apart from a period between 2010 and 2012, MCT’s co-lead manager, Dean Orrico, has also been on the board since the fund’s inception.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Middlefield Canadian Income and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Middlefield Canadian Income and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Piteco — Bold entry into the US marketplace

Piteco is buying the principal assets of LendingTools (LT), a small, privately owned US payments software provider, for up to $14.5m in cash. LT operates in the niche area of “correspondent banking”, offering financial institutions an alternative to the Federal Reserve’s FedLine Advantage. The deal provides Piteco with an attractive route into the lucrative US market, which it plans to use to grow its core treasury software solutions. On our updated forecasts, EPS rise by 12-14% over FY17 to FY19. Given the attractive growth opportunities, strong cash generation and healthy balance sheet, we continue to believe the shares are attractive on c 14x our FY18e earnings.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free