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A View From Here December 2014

December 2, 2014 • Print This Article

A November to Remember... A happy farewell to Glentel

The investment thesis I would call ‘Growth Interrupted’ provided us with an opportunity to achieve excellent results over time. That time came a lot faster than anticipated with BCE’s $26.50 bid providing one of the greatest returns to date for our accounts.

I was numb after I took a call on Black Friday while riding up the escalator with the news that BCE was offering to acquire Glentel at 121% above its average trading price for the prior 10 days. As I entered the office I was greeted by Afsi, and the people who work in our area with this look of; is this really happening? Not too long before, the shares had been struggling despite consistent growth but not meeting the standards of investors who focused on short-term challenges. We began to purchase shares in this investment in early 2014 and continued building a position as our conviction grew stronger in the months that followed. After some prodding, management allowed me the opportunity to visit them, as they are unique in their approach to investor relations…almost nonexistent. The company operates out of Burnaby BC, so on July 7th I flew across the country and took an hour cab ride out to their head offices for a three hour meeting with its CEO and largest shareholder, Tom Skidmore and CFO Jas Boprai. My decision to go out and see them was based on the fact that as a group, we were approaching a 2% holding in the shares outstanding and further insight might sway me to increase our commitment; a view confirmed when I exited the meeting.

Over the prevailing months, we began to increase our position further, as earnings releases confirmed that their challenges were beginning to abate, and it seemed reasonable that this could once again point to a much higher share price. The shares remained under pressure as every time we added more to our accounts, they looked like they wanted to go down further. Early in November, I exchanged emails with the CFO asking again what I was missing. Was there a report out on the industry or something that I had over-looked? That same evening, the company reported an excellent quarter of earnings that gave me more conviction, but still the shares remained challenged. Reports from online publications such as Seeking Alpha and analyst reports began to point out the potential upside, so I was not surprised when the shares began to increase throughout the month, but the takeover (which I always suspected was a possibility) was not expected at this time. With most of our accounts so well positioned in this investment, I cannot understate how impactful this will be on your November statement when it arrives shortly.

What do we learn from this success? The first thing is that the best investment returns exist on the periphery. By this I mean, that we have to look for companies that are out of favor and have challenges that are likely short-term in nature. Secondly, I have always advocated investments if possible where management holds a large position. This is because if your money’s at stake, you tend to make less foolish decisions. Thirdly, conviction in an investment thesis is crucial. While many have opinions, they are just that – to be taken but viewed through the lens of a thesis. Does the opposite side of this equation change the thesis? If not, don’t be deterred. I spent a lot of time talking with investors and analysts who believed that the business challenges were too overwhelming. While I respected their opinions, I did not see it the same way…either did management when I approached it with them.

In last month's View From Here, I wrote that I am beginning to feel a great deal of optimism about some of our holdings and commented on Glentel:

Another name that has brought some interest has been our Glentel position, which reported earnings that far exceeded both the previous year and all analyst expectations. This company is so low-key (does not promote themselves or hold investor calls), that it does not generate much interest and management and related parties own almost 47% of the shares (and have recently been adding to their holdings). It seems that investors are awaking to the potential earnings growth that has been sucked out of the valuation for the past year. We have used that weakness to build what I believe could be a very rewarding investment. And as with Domtar, Glentel pays an attractive dividend while we wait.

- A View From Here – November 2014.

For us as shareholders, the offer to purchase Glentel should go a long way to taking our assets to a whole other level…likely to a place where most of our accounts have never been before.

I would like to share a text exchange with CEO Tom Skidmore on Friday evening. While it is quite complimentary, I was overwhelmed with emotion:

Adam Hennick:Hi Tom, It's Adam Hennick. I'm sure glad I came to visit you in the summer to learn more about the company. Congratulations to you and your family and most importantly..thank you.

Tom Skidmore:Hi Adam. Thanks so much for your unwavering support and wisdom over the past months. We appreciate all of our shareholders and I'm happy that we have been able to share the abundant fruit of our labor. I know your investors will believe that you do still have the golden touch. Bask in your genius!!! Your followers should be sending more money for you to invest. You're right that your trip in the summer definitely paid dividends. Enjoy your weekend. Cheers. Tom

Thanks for your continued commitment and for taking a look,

All Great Things

Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des épargnants.

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