“There are decades where nothing happens; and there are weeks where decades happen.” – Vladimir Lenin
The last few weeks have seen everyone’s world turned upside down. We now have fears, and live in a reality that we only experienced in movies.
The world has changed in unimaginable ways in just a few weeks. Half of the world is shut down in order to minimize human transmission of the COVID-19 virus. Markets are understandably concerned as to how companies will survive if their revenue drops 90 or 100%.
In January, we watched as the new coronavirus devastated Wuhan in China, and caused China to shut down the whole country during Chinese New Year, the most important holiday of the year, and the busiest travel week of the year.
We were horrified as we realized Western countries were not stockpiling personal protective equipment (PPE), and taking the necessary precautions as South Korea, Taiwan, and Singapore did.
Spartan Fund Management – MM Fund
The investment team responsible for Spartan’s MM Fund has transformed our portfolio aggressively in the last two months to position the Fund for what they believe are both near-term and medium-term opportunities. The fund now has four categories of investments:
- bonds,
- companies that we believe can benefit from the worldwide effort to mitigate the virus,
- companies that could thrive in the “new normal” with continued social distancing, and
- gold.
It is critical to position the portfolio for the sequencing that will happen as the economy opens up.
We are focusing on companies that we believe can thrive in a “new normal” of social distancing, record low interest rates, Quantitative Easing (money printing) and limited air travel.
Below are three examples of companies that are benefitting from increased demand for their services because of the virus. The Fund currently holds positions in each of these companies.
Protech Home Medical and Viemed Healthcare
Protech Home Medical (TSXV: PTQ) and Viemed Healthcare (TSX: VMD) are in the business of providing ventilators and oxygen to U.S. patients at home. There is an urgent need to treat patients at home, or discharge them from the hospital more quickly, to free up space for the anticipated surge of severe coronavirus patients. In early April, Viemed raised its revenue guidance for Q1/2020. Moreover, worries about a Medicaid reimbursement rate cut for 2021 have been quashed by the coronavirus. Revenues for Viemed are expected to grow 21% annually over the next two years, and earnings are expected to grow to US$0.45 in 2021.
Protech delivers home medical equipment in 11 U.S. states. The company is more diversified than Viemed, as 17% of revenue is from home ventilators, 23% is from oxygen therapy, 21% is from positive airway pressure (PAP) therapy, 19% is from sleep therapy, 11% is from home medical equipment, and 8% of revenue is mobility equipment. Recurring revenue comprises 68% of revenue, versus 32% from one-time sales. Revenue at Protech is expected to grow 19% annually for the next two years, and earnings are expected to grow to US$0.11 in 2021.
Richards Packaging
Richards Packaging (TSX: RPI.UN) distributes packaging to 14,200 small and medium sized North American consumer product businesses. Food & beverage packaging comprises 47% of revenue that likely is stable, with disruptions offset by more grocery sales, with stay at home orders. The cosmetics business (30% of revenue) will likely be weak with less shopping and going out for work or leisure. Healthcare makes up 25% of Richards Packaging revenue and includes distributing products for disinfecting and testing for infection, masks & gloves, and pumps/sprayers for hand sanitizers. Analysts increased their estimates for Richards Packaging in March because of strong sales in healthcare, and the weaker Canadian dollar that helps their US business. The company also has a secure 3% dividend yield.
The above is provided for informational purposes only. Prospective investors should consult with a professional financial advisor before investing.
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