Archive for September, 2009

No Posts…

September 30, 2009


Due to a family emergency, there won’t be any new posts until Thanksgiving.

Dollarama IPO: Should you bite?

September 28, 2009


Dollarama, the largest operator of dollar stores in Canada, is planning to raise about $300 million in an initial public offering. Some discount brokers (RBC Direct Investing is one) are currently asking investors to place an expression of interest in the IPO. The shares are expected to be priced between $16 and $18.

Dollarama has 585 stores across Canada, mostly in Ontario and Quebec and sells knick-knacks priced between $1 and $2. According to the prospectus, the company sold $1.16 billion worth of goods in the 12-month period ending in August 2009, earned a profit of $137 million and reported same-store sales increased 6% compared to year-ago period. It is not clear from the prospectus how much of the company is on offer but news reports indicate that it is 25 to 30 percent, valuing Dollarama at $1 to $1.2 billion.

Unlike most other IPOs (It’s Probably Overpriced), at least at first glance, Dollarama appears to be reasonably priced. Also, there doesn’t seem to be much buzz about the IPO. Recall that Tim Hortons went IPO amidst much fanfare at $27 (if you were lucky enough to get shares at that price) and three years later, the stock is languishing around $30. The current majority owner of Dollarama is Bain Capital, which purchased an 80% stake in 2004 for $1 billion from the company’s founders. A recent Globe and Mail report suggested that Bain Capital is selling a portion of its stake for liquidity purposes:

“Bain wants to move ahead of the Dollar General IPO, while capitalizing on that buzz with investors,” said another investment banker familiar with the fund’s plan, but not working on the IPO. He added that the fund will not initially get private equity’s traditional 15-per-cent-plus expected annual returns on its Dollarama investment, but said: “Bain isn’t really cashing in. They are getting liquidity, but still plan to ride with the company, as they did with Shoppers.”

Time to opt for a variable-rate mortgage again?

September 27, 2009


It hasn’t even been six months since Ben, an astute observer of financial matters, noted that the spread between a 5-year fixed rate mortgage (FRM) and a variable-rate mortgage (VRM) was unusually low and it may be better to buck the conventional wisdom and opt for a fixed-rate mortgage. Not anymore. Fixed-rates have been relatively steady — according to Invis, a mortgage broker, the “best” 5-year rate available currently is 4.09%, just a smidgen higher than the rate reported earlier. But with the credit crisis easing, VRMs have become much cheaper. While the best rate available on a VRM just six months back was Prime plus 0.80%, today Invis is offering VRMs at Prime plus 0.10%.

Canadian Mortgage Trends reported just the other day that BMO has lowered its variable rate to prime and other banks may follow suit. With a spread of 1.75% between a FRM and VRM and the Bank of Canada saying it intends to keep rates level until 2Q-2010, VRMs may once again be poised to deliver savings over FRMs. The usual caveats apply: mortgagees opting for VRM take on the risk of a spike in interest rates in return for the potential to save interest on their mortgage.