Author: TSX Stocks

A prominent U.S. short seller has targeted Montreal-based engineering firm WSP Global and believes its stock is overpriced upwards of 50 per cent.

Spruce Point Capital Management issued a “strong sell” position against WSP as it raised concerns about the “accuracy of its accounting choices and financial reporting, durability of its growth prospects, and sustainability of its extreme valuation multiple.”

Spruce Point also worries that WSP’s growth has been largely limited to acquisitions in recent years and will find it harder to find quality targets.

Ben Axler, founder and CIO of Spruce Point Capital Management, said WSP is showing “clear signs” of financial stress.

“They’re in a competitive space, they report margins that are astronomically higher than peers, which should be a red flag,” he told BNN Bloomberg in a television interview on Wednesday.

“We think they use a number of aggressive adjustments to embellish those numbers. The free cash flow we also think is embellished. Why? Because if you look carefully, they misclassified interest expense and then the acquisitions, I think they’re competing with other companies that are looking to roll up the industry.”

Axler called his position against WSP a “very high conviction short” as it is prepared to the position for multiple years if needed.

“The valuation of this company is the highest in the industry despite declining disclosure transparency, despite evidence of financial strains, large insider selling, difficulty finding employees and difficulty finding quality acquisition,” he said.

“When we look out and we put a short piece and put a price target, we’re looking out one year, two years, then we just expect this stock to go down and or significantly underperform the market. So we’re long the Canadian market as a hedge against WSP.”

WSP’s stock is down six per cent in early trading Wednesday but has historically been among the top-performing stocks on the Toronto Stock Exchange. As of Wednesday morning, Bloomberg data shows 13 of 16 analysts have it as a “buy” rating.

“We think the analysts are taking a lot of what management has to say at face value and haven’t done a deep forensic review of what the company is doing with their financial reporting with their accounting policies,” Axler said.

“It’s made a lot of money for shareholders in the past, but we’re forward-looking. We think investors should be looking out six, nine months, a year, two years to see what the prospects are and we think they’re dim.”

Axler said he hopes the report spurs WSP Global to shake up its board with more international members, as just 20 per cent of its business is in Canada.

“We want to see an independent investigation to review our concerns and we want to see a board shake-up and improvement with global independent board members that are not exclusively Montreal-based,” he said.

Spruce Point has had prior success in shorting Quebec-based companies, with previous shorts against Lightspeed and Nuvei declining more than 80 per cent since its report, while Saputo fell 25 per cent after its report.

“We’ve covered a number of Quebec and Canadian companies and frequently we find some of our best short targets to be highly acquisitive companies that are over-promoted, that we don’t feel fairly reflect the fundamental fair value and that are using aggressive financial reporting and accounting tactics to embellish results,” Axler said.

In an email to Bloomberg News Alain Michaud, the chief financial officer at WSP said the company is aware of the short-seller report. 

“While the report is being reviewed by our team, WSP upholds the highest levels of governance standards, and we take our obligations in this regard seriously.”

With files from Bloomberg News. 

* TSX ends up 0.2% at 22,112.46

* Materials group adds 1.9%

* Gold climbs to new record high

* Energy rises 1.5%; oil settles at 5-month high

April 3 (Reuters) – Canada’s main stock index rose on
Wednesday, including gains for resource and financial shares, as
commodity prices climbed and U.S. economic data supported bets
the Federal Reserve would begin lowering interest rates over the
coming months.

The Toronto Stock Exchange’s S&P/TSX composite index
ended up 37.36 points, or 0.2%, at 22,112.46, staying
in touch with the record closing high it posted on Monday at
22,185.25.

“This is a classic TSX rally in that you’ve got the miners
rallying, precious metals in particular, you’ve got energy
rallying and you got the financials rallying,” said Philip
Petursson, chief investment strategist at IG Wealth Management.

“This isn’t a fluke. This is driven by fundamentals and
these fundamentals can continue for a while yet.”

Combined, the energy, materials and financial sectors
account for roughly 60% of the Toronto market’s weighting.

The materials sector, which includes metal miners and
fertilizer companies, rose 1.9% as copper prices climbed and
gold moved to a fresh record high.

“Gold is finally responding to not only inflation but the
expectation for lower real interest rates,” Petursson said.

Bond yields eased after data showed U.S. services industry
growth eased further in March, suggesting inflation is slowing.

Energy added 1.5% as the price of oil settled at a
five-month high, rising 0.3% to $85.43 a barrel, while
financials ended up 0.2%.

Lightspeed Commerce shares gained 5.5% after the
payments company announced 280 job cuts, looking to turn
profitable.

Professional services firm WSP Global was a drag,
falling 5.4%, after short-seller Spruce Point Capital Management
shorted the stock.
(Reporting by Fergal Smith in Toronto and Purvi Agarwal in
Bengaluru; Editing by Ravi Prakash Kumar and Costas Pitas)

Indigo Books & Music Inc. has agreed to be taken private after agreeing to a sweetened offer from a holding company connected to its largest shareholder.

The retailer says its agreement will see Trilogy Retail Holdings Inc. and Trilogy Investments L.P. pay $2.50 per share in cash for the stake in Indigo they do not already own.

The Trilogy companies, owned by Gerald Schwartz, the spouse of Indigo chief executive Heather Reisman, offered Indigo $2.25 per share in cash in February.

Indigo did not say what caused Trilogy to boost its offer but noted the new price reflects a 69 per cent premium on the share price of $1.48 that Indigo had when Trilogy first made its bid.

Indigo says an independent committee of its board of directors recently unanimously recommended the company accept Trilogy’s latest offer.

‘Challenging years for the business’

If shareholders agree to the deal during a May vote, Indigo expects the transaction to close in June and its shares to be delisted from the Toronto Stock Exchange sometime after.

“We believe that this transaction will provide minority shareholders with a substantial premium for their shares following some challenging years for the business, while also ensuring a strong future for Indigo with full ownership by a team that has demonstrated a deep commitment to Indigo’s mission,” Indigo board chair Markus Dohle said in a statement.

WATCH | Indigo employees share concerns following data breach: 

Indigo employees worried about identity theft after data breach

1 year ago

Duration 1:49

The personal information of current and former Indigo employees was stolen in a cyberattack. There is no evidence the data has been released, despite claims it has, but experts say the risk is not gone.

The last two years have seen Indigo encounter a ransomware attack that downed its website for a lengthy period and the departure of several board members, including one who said she experienced a “loss of confidence in board leadership.”

Amid these challenges, Indigo’s founder, Reisman, returned to the company’s helm after retiring in the summer of 2023.

Indigo announced layoffs earlier this year as part of ongoing efforts to streamline its operations.

The company said at the time that the cuts were part of its strategic plan, and were meant to return the business to profitability.

Through the Trilogy firms, Schwartz is the controlling shareholder of Indigo. He owns around 56 per cent of the company’s issued and outstanding common shares, while another 4.6 per cent belong to Reisman through a different holding company.

Trilogy has said it’s not interested in selling any of its shares.

Lightspeed Commerce is cutting about 280 jobs, less than two months after its founder returned to the helm of the Montreal-based technology company.

After integrating the company’s many acquisitions, “Lightspeed is now entering a new phase, one focused on profitable growth to capture the opportunity in front of us,” said founder and chief executive Dax Dasilva.

“This means making some hard decisions, like reducing spending in specific areas such as head count, to allow for investments in others,” Dasilva said in a statement.

“As we navigate through this transition, we acknowledge the invaluable efforts of every team member who has played a role in our journey.”

The cuts represent about 10 per cent of Lightspeed’s staff-related operating spending, the company said.

In addition, Lightspeed said it has undertaken several other cost-reduction initiatives in facilities and operations. It expects that most of the restructuring charges will be incurred in the first quarter of its 2025 financial year, which ends on June 30.

The company also announced that its board has authorized the repurchase of up to 10 per cent of its public float of shares.

Dasilva served as CEO for the bulk of the company’s history, after founding it in 2005, but became executive chairman when he turned the reins of the company over to JP Chauvet in February 2022.

Dasilva returned to the CEO role in February this year, when Chauvet left the company. Since his return, he’s been focused on profitability and on boosting Lightspeed’s share price, which he recently said hasn’t budged since he took the company public in 2019.

“One of our top shareholders said to me, ‘I want to see Lightspeed be a real business. It can’t be growth at all costs with large losses just to capture market share forever. When is this company going to have a balance of growth and profitability?'” Dasilva said at the CIX Summit in Toronto last week.

He said Lightspeed made its sales summit virtual instead of in-person as a way of cutting costs and also changed its work-from-home policies so it can reduce spending on food in its offices.

Last November, Lightspeed reached positive adjusted earnings before interest, taxes, depreciation and amortization for the first time. As he made his return, Dasilva said the company’s priority is profitability, and as part of that he plans to put less of a focus on large mergers and acquisitions.

National Bank of Canada analyst Richard Tse said in a note that the moves announced Wednesday by Lightspeed are positive.

“With investor appetites having shifted to more balanced [profitable] growth, we think this move should alleviate concerns that the company was reverting to aggressive investment and potentially resuming its former acquisition path,” he wrote.

However, Tse added that it’s too soon to tell whether the company’s focus on larger accounts will prove successful “beyond the current payment push,” and maintained the price target for the company at $20 US.

Lightspeed shares were up more than five per cent in late-morning trading on the Toronto Stock Exchange, at $19.86 Cdn.