Portfolio manager’s detailed analysis of women’s retailer Aritzia pays off … with a little help from princess
.jpg)
A portfolio manager relied on fashion tips to ensure a boost to his fund this quarter by keeping faith with women’s retailer Aritzia.
The company, which has a global following boosted by adopted Torontonian and the new Duchess of Sussex Meghan Markle, represented a typically contrarian hold for Amar Pandya and his Pender Canadian Opportunities Fund.
But in his quarterly report he explained how detailed research and meeting the Vancouver firm’s founder convinced him there continued to be a divergence between the share price and Aritzia’s intrinsic value.
Its price has steadily risen over the past few months on the TSX, from its May 1 share price of $12.40 to $16.62 on October 1, hitting a high of $17.95 in July.
Pandya said that the company’s performance was offset by Auto Canada Inc, which was impacted by a weak new car sales environment, and Polaris Infrastructure, which sold off due to the company’s exposure to Nicaragua, where there has been political unrest.
However, he believes Aritzia maintains a large growth runway from increasing online sales and in the US, where it is expanding. International growth, thanks to stars like Markle, is also a genuine opportunity.
He said: “The company, which went public in late 2016, had fallen out of favour after aggressive selling by the private-equity backers of the firm and a weak retail sector backdrop negatively impacted investor sentiment.
“Despite these concerns, the company has continued to report industry-leading same-store sales growth and strong cash-flow generation. We have met Aritzia’s founder Brian Hill a number of times and have noted the company holds many of the founder-led company attributes we look for in long-term compounders.
“A recent tour of the company’s headquarters demonstrated the strong entrepreneurial culture of the firm which we believe provides the company with a competitive advantage. After posting strong Q1 results and guidance for a strong summer season, the market started to take notice of the disconnect between the company’s share price and its intrinsic value.”
From a more general view, Pandya said Canadian markets have been relatively robust despite trade concerns and interest-rate speculation.
He said: “Strength returned to the market in the second quarter, driven by an improved economic backdrop supported by strong corporate earnings, synchronized global economic growth and the benefits of US tax reform beginning to permeate through the world’s largest economy.
“North of the border, despite increased concerns over trade, tighter mortgage lending rules and higher interest rates raising borrowing costs for levered consumers, the Canadian market was resilient with the S&P/TSX Composite Index up 5.9% in the quarter, pushing the index up to a positive year-to-date return.”
