When Montreal-based asset management firm Letko Brosseau decided to invest in Air Canada during the financial crisis in 2009, few people were interested in the action of the airline, which was worth a dollar. Letko Brosseau saw an opportunity at this price and bought 23 million shares.
After more than doubling this stake over the years to nearly 50 million shares, the time has come for Air Canada’s largest shareholder to cash a portion of its profits while the stock comes from close the $ 30 mark on the stock market.
Letko Brosseau revealed Thursday in a document filed with the stock market authorities that she had sold for a hundred million dollars of shares of Air Canada during the last two months.
A block of shares valued at $ 9 million was sold during the single session on October 26, a few days after the record high of $ 28.70.
13 MILLION SHARES IN 2017
Letko Brosseau divested 4.5 million shares of Air Canada during the months of September and October. Since the beginning of the year, more than 13 million shares of Air Canada have been sold by Letko Brosseau.
Letko Brosseau remains Air Canada’s largest shareholder, but its stake, which has already risen to almost 20%, has now been reduced to 12%. But let’s not say the least, says Peter Letko, who expects the carrier’s profits to increase next year.
“Air Canada is still a very good investment,” says the portfolio manager.
“The valuation of the security remains very reasonable. It is even a security whose valuation is one of the most reasonable companies in Canada. ”
– Peter Letko
“Air Canada’s stock is trading at about five times the expected profits this year, compared to an otherwise reasonable ratio of 13 times profits for banks and 18 times profits for the stock market as a whole Canadian, “he adds.
PRESS CHANGE
Peter Letko recalls that when the initial decision to invest in Air Canada was made in 2009, the carrier was going through a particularly difficult time.
“There were all kinds of problems. The economy was plunged into one of the most serious recessions seen since the depression. The company was losing money and there was a big deficit of almost $ 4 billion in the pension fund. ”
The portfolio manager explains that at that time, it was necessary to anticipate that the economy would take the best, that the number of passengers would increase moreover, that the prices of the seats would go up. “It was our assumptions at the time, and that’s why we decided to buy shares,” says Peter Letko.
“We also saw that the management of the company has improved a lot. The team, including Calin Rovinescu, Ben Smith, Michel Rousseau and others, did a great job to change the situation. The value of the shares follows the path of profits. If profits go up, stocks will also go up. ”
The recovery of Air Canada seen by Peter Letko
THE DEMAND
“The demand for air travel is increasing by 5 to 6% a year. Its very important. And Air Canada is doing better than that. The company has enhanced its capacity with Rouge in particular. Eight years ago, Air Canada carried 30 to 32 million passengers a year. Today this figure is probably between 48 and 50 million. It’s a tremendous growth, “says portfolio manager Peter Letko.
THE COSTS
Air Canada has improved overall efficiency. “Managers have lowered costs. For example, by increasing the number of seats on flights, the cost per passenger decreases. ”
THE PRICE
“In recession, people travel less, and when they travel, they look for less expensive tickets. Ticket prices suffer and are depressed. This affects revenue per seat. When the economy picks up, people travel more and prices rise, which helps to return to profitability. ”
PENSION FUND
“In 2009, the deficit of the pension fund amounted to 4 billion. Today there is a surplus of some $ 2 billion. An agreement with the government was necessary, but the investment strategy put in place for the fund plays an important role. “