Look Out Kimberly-Clark, Here Comes Canadian Private Label Tissue Company Identified by Mary Throop and Kevin Elliott, Partners at Summerhill Capital Management

Wall Street Transcript

67 WALL STREET, New York - February 12, 2013 - The Wall Street Transcript has just published its Investing in Canada Report. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Canada - Long-Term Investing - Canadian Dollar Investing - Value Investing

Companies include: Wal-Mart Stores Inc. (WMT), Baytex Energy Trust (BTE), Canadian Natural Resources Lim (CNQ), The Bank Of Nova Scotia (BNS), Toronto-Dominion Bank (TD), Royal Bank of Canada (RY) and many others.

In the following excerpt from the Investing in Canada Report, two award winning asset managers discuss their methodology for selecting securities for their portfolios:

TWST: What are some of your top investment picks right now in the Canadian equities market?

Mr. Elliott: We don't necessarily talk in terms of top picks. We look at each security in the context of the overall portfolio, and every stock is in there for a reason. An example of a stock we like would be KP Tissue (KPT.TO), which is a subsidiary of Kruger Paper. It's a Canadian company that manufactures the top Canadian tissue brands and is Canada's dominant player. It is a recognizable brand, has very consistent margins and is currently expanding into the U.S. market as a private label supplier to Wal-Mart (WMT). This is a big opportunity to double the company's EBIT over the next five years.

The company pays a large dividend, close to 4%, trades at a very reasonable valuation multiple, and they have a very strong competitive position in Canada from which to launch their offensive into the U.S. The private label opportunity in the U.S. tissue market is interesting, because the market is dominated by very large branded companies that aren't in a position to retaliate by dropping prices and discounting. It's not a widely held name in Canada. It's a company that is just starting to get some research coverage.

TWST: Are there any other examples you'd like to share?

Ms. Throop: Because we don't look at it in terms of top picks, we can tell you why we have KP Tissue; again, for the income and the potential catalyst for growth that it has. So it has a dual mandate. Then there are other companies, like Westshore Terminals (WTE.TO), which we hold predominantly for its yield.

Mr. Elliott: Again, the theme of strong competitive advantage is very prevalent in the Westshore Terminals' case. In the case of North American-based coal companies trying to move coal offshore to Asia, there is a very limited amount of export coal terminals capacity, so the existing terminal operators are basically able to write their own checks in terms of what they can demand from the coal companies. The thermal guys in the U.S. are losing out to natural gas now, so there's a lot of coal that they want to move offshore.

We also have all the metallurgical coal guys trying to move their coal to the steel plants in Japan and China, again, competing for a limited export terminal capacity. They are now booked-out, likely for the next four or five years with very take-or-pay-type contracts. So we see this as a very low risk, lucrative business with high visibility.

It takes years to construct a new coal terminal, so if there's any competitive threat coming, we'll know about it long before it actually impacts these companies. So that's one that we've held for some time as the valuation has continued to climb on the stock.

As far as the fundamental business is concerned, we're not expecting any big changes this year. As far as the stock is concerned, it's already delivered a fair bit, but we think it can deliver its dividend yield, plus another 4% or 5% on an annual basis going forward. For us, that's attractive.

Ms. Throop: If you're looking for themes we are leaning toward today, maybe we tend to have a heavier emphasis on...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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