Altius Renewable Royalties Corp T.ARR

David Barr - Pender Growth

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7 October 2024

Pender Small Cap – Manager’s Commentary – Q3 2024

Written by David Barr and Sharon Wang

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Highlights

• Many positive contributors in the quarter, such as Kraken Technologies Limited, TerraVest Industries Inc., Altius Renewable Royalties Corp, Dye & Durham Ltd. and BlackLine Systems, Inc..
• Thinkific was a key detractor in the quarter.
• We are finding attractive opportunities in companies in the early stages of their growth cycles in areas of the market with long-term demand drivers.

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Fund Performance

The positive momentum in the Pender Small Cap Opportunities Fund continued in the third quarter, with the Fund gaining 11.3%.[1] This builds on the previous quarter’s gains with the portfolio up 38.4% year-to-date and 47.4% over the last year. The performance in the quarter outpaced the S&P/TSX Composite which gained 10.5%, as well as the S&P/TSX Small Cap Index which gained 8.4%. The performance in Canadian Small Caps was stronger than south of the border, driven by the resource-heavy exposure of the Canadian market. While our Fund has outperformed on a relative basis, small caps continue to lag their larger peers.

Notable Developments

The theme of management teams taking companies private at a significant discount to fair value hit our portfolio this quarter. A win for short term performance, a loss for the long term. Altius Renewable Royalties, a provider of flexible capital to renewable energy project developers agreed to go private at $12.00 per share. A lot of PMs get excited about the short-term performance hit their portfolio receives when a holding is acquired. We however are incredibly disappointed the independent directors of the company have agreed to the transaction. If you follow the company at all, you will hear about how the company could not get the valuation it deserved in the public market. And while this is true in the short term, the company was quarters away from an inflection in royalty revenues as projects under construction become operational. We find the timing of the transaction incredibly opportunistic, and it is our intention to vote against the deal or exercise our dissent rights as we believe the company is worth closer to $18 than the go private price of $12. Stay tuned!