Building on positive long-term track record

Canadian General Investments 8 May 2019 Review
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Canadian General Investments

Building on positive long-term track record

Investment companies
Canadian equities

8 May 2019

Price

C$25.71

Market cap

C$536m

AUM

C$901m

NAV*

C$35.98

Discount to NAV

28.5%

*Including income. As at 7 May 2019.

Prospective yield

3.1%

Ordinary shares in issue

20.9m

Code

CGI

Primary exchange

TSE

AIC sector

North America

Benchmark

S&P/TSX Composite

Share price/discount performance

Three-year performance vs index

52-week high/low

C$26.24

C$19.70

C$37.54

C$27.20

**Including income.

Gearing

Gross*

17.1%

Net*

12.5%

*As at 31 March 2019.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

Canadian General Investments is a research client of Edison Investment Research Limited

Canadian General Investments’ (CGI) manager Greg Eckel is optimistic on the outlook for Canadian equities in 2019, particularly if there is resolution to the US-China trade dispute, along with clarity about the revised North American trade agreement. The manager says that while there are macro issues to consider, the Canadian equity market looks reasonably valued and he is encouraged by the outlook for corporate earnings, judging by the US Q119 results so far. Eckel is continuing to ‘stay true to CGI’s heritage’, following a bottom-up, low portfolio turnover approach, and is finding interesting new investment opportunities. The company has a very strong track record; its NAV has outperformed the S&P/TSX Composite index over the last one, three, five and 10 years. CGI’s total dividend is on track for its first growth in seven years, and offers a prospective yield of 3.1%.

Significant long-term NAV outperformance versus the benchmark

Source: Refinitiv, Edison Investment Research

The market opportunity

Investors may not fully appreciate that there are many investment opportunities available in Canada outside of the financial and commodity sectors. In addition, Canadian equities look attractively valued compared with US stocks, which may provide an opportunity for investors seeking North American exposure.

Why consider investing in CGI?

May be considered as a ‘one-stop-shop’ for investment in Canada.

Significant long-term outperformance versus the benchmark.

Disciplined, bottom-up stock selection approach.

Growing distribution, with a prospective 3.1% dividend yield.

Wide discount despite strong performance record

Despite its long-term history of outperformance, CGI’s shares continue to trade at a wide discount. This may be due to liquidity concerns, given more than 50% of shares are owned by related parties. Its current 28.5% discount to NAV is broadly in line with the 26.6% to 30.1% range of discounts over the last one, three, five and 10 years. CGI has C$150m in preference shares and debt; net gearing at end-March 2019 was 12.5%. The board has increased its first two quarterly dividends in 2019, and the company is currently offering a 3.1% prospective dividend yield.

Exhibit 1: Company at a glance

Investment objective and fund background

Recent developments

CGI’s objective is to provide better-than-average returns to shareholders by investing in a diversified portfolio of primarily Canadian equities. It aims to achieve this through prudent security selection, timely recognition of capital gains/losses and appropriate use of income-generating instruments.

11 April 2019: Announcement of quarterly dividends – C$0.20 per common share and C$0.23438 per Series 4 preference share.

11 March 2019: Annual report for 12 months ended 31 December 2018. NAV total return of -10.9% versus -8.9% for the S&P/TSX Composite Index. Share price total return -10.8%.

21 February 2019: Announcement of quarterly dividends – C$0.20 per common share and C$0.23438 per Series 4 preference share.

Forthcoming

Capital structure

Fund details

AGM

April 2020

Ongoing charges

1.48% (see MER below)

Group

Morgan Meighen & Associates

Interim results

August 2019

Net gearing

12.5%

CEO

Jonathan A Morgan

Year end

31 December

Annual mgmt fee

1.0% (see page 8)

Address

10 Toronto Street, Toronto, Ontario, Canada M5C 2B7

Dividend paid

Mar, Jun, Sep, Dec

Performance fee

None

Launch date

January 1930

Company life

Indefinite

Phone

+1 416 366 2931

Continuation vote

No

Loan facilities

C$150m (see page 8)

Website

www.mmainvestments.com

Dividend policy and history (financial years)

Management expense ratio (MER)

CGI revised its dividend policy in 2014, intending to pay steady to rising quarterly dividends with less emphasis on the special final dividend. The two quarterly dividends announced so far in FY19 are 5.3% higher year-on-year.

CGI pays a monthly management fee at 1.0% per year of gross assets. Leverage costs include preference share dividends, interest and financing charges.

Shareholder base (as at 30 April 2019)

Portfolio exposure by sector (as at 30 April 2019)

Top 10 holdings (as at 30 April 2019)

Portfolio weight %

Company

Country

Sector

30 April 2019

30 April 2018*

Shopify

Canada

Internet services

6.2

3.7

Mastercard

US

Financial transaction processing

3.9

N/A

Canadian Pacific Railway

Canada

Railroads

3.8

3.2

Air Canada

Canada

Airlines

3.7

3.4

Amazon.com

US

Online retail

3.2

4.1

Bank of Montreal

Canada

Banks

3.2

3.2

Canopy Growth

Canada

Cannabis production

3.1

N/A

Franco-Nevada Corp

Canada

Gold mining

3.0

3.4

Royal Bank of Canada

Canada

Banks

2.9

N/A

First Quantum Minerals

Canada

Copper mining

2.8

3.9

Top 10 (% of holdings)

35.8

36.6

Source: Canadian General Investments, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-April 2018 top 10.

Market outlook: Canadian equity valuations attractive

Q418 proved to be a particularly tough time for global markets, including Canada. To provide some context, in December last year the major US indices suffered their worst monthly declines since February 2009, and the worst December performances since 1931. For the year as a whole, the Canadian market delivered a -8.9% total return in local currency terms, with only the technology, consumer staples and real estate sectors generating positive returns (Exhibit 2, RHS). This year has seen a reversal in fortunes as global investors are more hopeful about a resolution to the US-China trade dispute, and the US Federal Reserve has adopted a more dovish stance. Focusing on Canada, as shown in the table below, in Q119 stocks more than made up for losses incurred last year, delivering a +13.3% total return, with all 11 sectors in positive territory. While investors may associate Canada mainly with financial and commodity companies, the country offers broader exposure than may be widely understood – c 50% of constituents and c 40% of the S&P/TSX Composite index exposure are outside of the financials, energy and materials sectors.

Canadian stocks continue to look relatively attractively valued. As measured by Datastream indices, they are currently trading on a 14.7x forward P/E multiple (Exhibit 2, LHS). This is a 15.6% discount to the US market, which is considerably wider than the 10.8% average discount over the last five years. Investors seeking North American exposure may benefit from casting their net wider than the US; there is a wide selection of investment opportunities available in Canada, a market that is on aggregate trading on a relatively attractive forward P/E valuation.

Exhibit 2: Valuation and S&P/TSX Composite index data

Valuation of DS Canada index versus DS US index

S&P/TSX Composite index data (as at 31 March 2019)

 

Number of companies

Weight (%)

Q119 total return (%)

2018 total return (%)

Financials

26

31.7

10.4

(9.3)

Energy

41

18.0

15.6

(18.3)

Materials

49

11.2

8.5

(9.3)

Industrials

30

10.9

15.3

(2.4)

Comm’n services

7

5.8

10.0

(0.8)

Information tech.

10

4.5

25.3

13.0

Utilities

16

4.2

16.1

(8.9)

Cons. discretionary

17

4.1

9.8

(16.0)

Consumer staples

10

3.9

10.6

2.0

Real estate

25

3.5

17.5

2.0

Healthcare

11

2.2

49.1

(15.9)

Index

242

100.0

13.3

(8.9)

Source: Refinitiv, Bloomberg, Edison Investment Research. Note: Performance in Canadian dollar terms.

Fund profile: Well-established Canadian specialist

CGI is North America’s second-oldest, closed-end equity fund, established in 1930. It is listed on the Toronto Stock Exchange (since 1962) and the London Stock Exchange (since 1995). Since 1956, the company has been managed by Morgan Meighen & Associates (MMA), a Canadian investment firm with c C$1.8bn of assets under management. The lead manager (since 2009) is Greg Eckel, who invests in Canadian and selected US companies (up to 25% of the fund) with a medium- to long-term horizon. He aims to generate a better-than-average total return from a diversified portfolio, via prudent stock selection and timely recognition of capital gains and losses. Eckel’s unconstrained investment approach means that CGI’s sector weightings can differ markedly from the benchmark S&P/TSX Composite index. The fund is designated as an investment corporation under the Income Tax Act (Canada), which eliminates a layer of taxation, as capital gains are only taxed at the shareholder level, allowing capital gains to be paid as dividends to shareholders. To maintain this favourable tax status, CGI is unable to repurchase its shares to help manage the share price discount to NAV. No more than 25% of its gross revenue may be from interest income, and at least 85% of gross revenue must be from Canadian sources. The company has employed a leveraged strategy since its first issue of preference shares in 1998. Gearing of C$150m is made up of C$75m Series 4, 3.75% preference shares and C$75m bank debt; at end March 2019, net gearing was 12.5%.

The fund manager: D Greg Eckel

The manager’s view: Cautiously constructive on the outlook

The manager says that along with the rest of the world, economic growth in Canada is moderating, although a bit of a revival in the oil sector may offset some of the slowdown. He believes that if outstanding trade disputes were resolved, it would undoubtedly help the global economy. Eckel is encouraged by the continued pace of economic growth in the US, given it is Canada’s largest trading partner. In addition, the Bank of Canada (like the US Federal Reserve) has adopted a more dovish approach, which should be supportive of growth. The change in stance is in response to US-China trade tensions, a lack of clarity on the new North American agreement to replace NAFTA, and the slowing domestic economy.

While there have been recommendations by some US-based analysts to sell out of Canadian banks, Eckel is unconvinced. He says that he has heard this argument before and if he had taken heed, it would have been detrimental to CGI’s performance. While the fund is underweight banks, as the manager is finding better investment opportunities elsewhere, it maintains some exposure to the group. Eckel notes that Canada ‘sailed through the global financial crisis’ with its economy relatively unaffected, unlike many other countries, and the credit cycle in Canada looks relatively benign, with low levels of delinquencies and consumers having high levels of disposable income compared with their levels of debt.

Commenting on global stock markets, the manager says that share price appreciation year to date ‘is remarkable, and a complete opposite to Q418’. He notes that in the Canadian market, stock leadership has been broad, which is positive for CGI’s diversified portfolio. In Q119, the healthcare sector was particularly strong, led by cannabis stocks, while materials and consumer discretionary were the worst-performing sectors.

Asset allocation

Investment process: Long-term investment approach

Seeking to generate a better-than-average total return, manager Eckel selects stocks on a bottom-up basis, while taking account of the broad investment backdrop. He is able to draw on the expertise of MMA’s seven other investment professionals, seeking companies with strong fundamentals, respected management teams, and which are trading on reasonable valuations. The manager’s long-term approach means that many of CGI’s positions have multi-year holding periods, although they are regularly reassessed to ensure that they are sized correctly and that the investment case still holds true. Portfolio turnover was particularly low at 2.3% in 2018; over the last five years it has ranged between 2.3% and 21.5% (average of 12.7%).

Eckel has a history of successively backing good management teams, who may change employers as a result of mergers and acquisitions. The majority of the fund is invested in Canadian equities; however, up to 25% may be invested in US companies in order to gain exposure to niche operations or business areas that are unavailable for investment in Canada (c 18% at end-March 2019). US holdings include top 10 positions in Mastercard and Amazon.com. Some of CGI’s positions are higher-yielding, such as the Canadian banks, which help to support CGI’s dividend payments. The manager has a bias to mid- and large- cap stocks; the median market cap is c C$8bn and more than 95% of the portfolio (by value) has a market cap above C$1bn.

Current portfolio positioning

At end-April 2019, CGI’s top 10 positions made up 35.8% of the portfolio, which was not dissimilar to 36.6% a year earlier; seven positions were common to both periods. CGI’s sector exposure is shown in Exhibit 3. Its largest weighting is technology (c 22% versus the maximum permitted 35% in a single sector), while the largest active weights are financials (-22.2pp, primarily banks) and technology (+17.2pp). The manager has been consistently underweight energy stocks since 2011, which has been the right call; for example, in 2018, the sector delivered the worst total return in the S&P/TSX Composite (-18.3% versus -8.9% for the index). Over the last 12 months to the end of April 2019, the largest sector increase has been in technology (+7.9pp), with the biggest decrease in materials (-5.1pp).

Exhibit 3: Portfolio sector exposure vs benchmark (% unless stated)

Portfolio end April 2019

Portfolio end
April 2018

Change (pp)

Index weight

Active weight vs index (pp)

Fund weight/
index weight (x)

Information technology

21.8

13.9

7.9

4.6

17.2

4.7

Industrials

15.9

13.6

2.3

11.1

4.8

1.4

Materials

15.8

20.9

(5.1)

10.2

5.7

1.6

Consumer discretionary

14.4

17.2

(2.8)

4.3

10.1

3.4

Financials

10.3

13.3

(3.0)

32.5

(22.2)

0.3

Energy

9.3

12.6

(3.3)

18.3

(9.0)

0.5

Healthcare

5.4

2.3

3.1

2.2

3.2

2.5

Communication services

3.0

3.0

0.0

5.6

(2.6)

0.5

Real estate

1.2

1.2

0.0

3.3

(2.1)

0.4

Utilities

0.8

0.7

0.1

4.1

(3.3)

0.2

Consumer staples

0.0

0.7

(0.7)

3.8

(3.8)

0.0

Cash & cash equivalents

2.1

0.6

1.5

0.0

2.1

N/A

100.0

100.0

100.0

Source: Canadian General Investments, Edison Investment Research

Eckel comments that the broad stock market sell-off in Q418 was a result of macro events and a change in investor sentiment; as such he did not feel the need to change the shape of CGI’s portfolio, and this strategy has proved beneficial to the company’s performance in 2019. The manager highlights a few of the fund’s newer positions:

Aurora Cannabis – adding to exposure to the cannabis sector (CGI now holds three firms in the group). Eckel says Aurora has scale, including international operations, and its share price has lagged the rest of the group, although the gap has started to narrow. So far, the company has not entered into a major partnership; peers that have done so have experienced meaningful share price appreciation. The manager explains that a partnership is an increasing possibility following the company’s involvement with US activist investor Nelson Peltz.

Lightspeed POS – this was a March 2019 initial public offering (IPO). It was the largest technology IPO in Canada for nearly nine years, and was well received, with its stock price appreciating by c 20% on its first day of trading. Lightspeed’s share price has continued to move higher, and at the time of writing it is c 50% higher than the C$16 per share IPO price. Lightspeed is a cloud-based software company with a high percentage of recurring revenues and a low share of its total addressable market. Eckel believes the company has a ‘game-changing’ product offering, including point-of-sale and e-commerce solutions for retailers and restaurateurs to manage their businesses. Given the majority of shares are tightly held, CGI received a modest allocation in the IPO and has been buying shares in the secondary market. The manager believes that Lightspeed has good potential, referring to it as ‘Shopify number two’ in reference to another of the fund’s very successful investments (now the largest holding in the portfolio).

Waste Connections – the third-largest waste management company in North America. The manager says the firm is generating steady growth both organically and via acquisitions, along with significant amounts of free cash flow. Waste Connections has a vertically integrated business model, operating in second- and third-tier cities, which tend to be less competitive than primary markets.

Performance: Very long-term record of outperformance

Exhibit 4: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

S&P/TSX
Composite (%)

MSCI
Canada (%)

FTSE
World (%)

30/04/15

15.3

6.6

6.9

8.5

18.6

30/04/16

(9.0)

(9.0)

(5.4)

(6.6)

(0.9)

30/04/17

21.6

21.8

14.9

15.7

26.3

30/04/18

16.7

17.6

3.1

3.7

7.3

30/04/19

13.1

12.1

9.6

9.7

10.9

Source: Refinitiv. Note: All % on a total return basis in Canadian dollars.

CGI has enjoyed a very long-term record of outperformance versus the S&P/TSX Composite index. Data from MMA show that in the 25 years to the end of 2018, the company generated total returns of 9.0% pa (+1.6pp higher than the benchmark’s +7.4% pa total return), while over the last 50 years the outperformance is even greater (+1.8pp) at +10.5% pa versus +8.7% pa for the index.

In 2018, CGI’s local currency NAV and share price total returns of -10.9% and -10.8% lagged the -8.9% total return of the benchmark. Performance was helped by having its largest overweight exposure in technology, which was the top-performing sector last year; global e-commerce platform Shopify was a standout performer, delivering a total return of c 50%. Other positive contributors included apparel company Canada Goose and US online retailer Amazon.com. Holdings detracting from performance in 2018 included retailer and long-standing outperformer Dollarama (held since the company first listed in 2009), as it failed to meet its usual high earnings expectations. Base metal stocks were also weak on fears about slowing global growth, which negatively affected CGI’s holdings including First Quantum Minerals, Hudbay Minerals and Lundin Mining.

Exhibit 5: Investment company performance to 30 April 2019 (Canadian dollar terms)

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

The fund’s relative performance across a variety of time periods is shown in Exhibit 6. Its NAV has modestly outperformed over the last year, but has meaningfully exceeded the benchmark’s total returns over three, five and 10 years. As shown Exhibit 7, so far in 2019, having undergone a tough period of performance in H218, CGI is continuing to build on its positive long-term record. The manager says this has come from a variety of sources, including Shopify, cannabis stocks Canopy Growth and Aurora Cannabis, and commodity stocks First Quantum, Hudbay Minerals and Parex Resources. When we met with Eckel on 24 April 2019, he noted that CGI owned five of the top 10 year to date performers in the S&P/TSX Composite index.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to S&P/TSX Composite

1.8

6.4

2.0

3.2

23.6

28.3

47.2

NAV relative to S&P/TSX Composite

2.0

4.6

3.5

2.3

23.6

18.6

54.8

Price relative to MSCI Canada

1.2

6.0

1.8

3.1

22.0

26.3

52.8

NAV relative to MSCI Canada

1.4

4.2

3.3

2.2

22.0

16.8

60.6

Price relative to FTSE World

0.8

3.8

2.4

2.0

6.8

(4.6)

1.4

NAV relative to FTSE World

1.0

2.1

3.9

1.0

6.9

(11.7)

6.6

Source: Refinitiv, Edison Investment Research. Note: Data to end-April 2019 in C$ terms. Geometric calculation.

Exhibit 7: NAV total return performance relative to benchmark over three years

Source: Refinitiv, Edison Investment Research

Discount: Broadly in line with historical averages

The company consistently trades at a wide discount to NAV despite its long-term history of outperformance. This may be due to the high level of insider ownership (52.5%), affecting investor perceptions regarding liquidity, although the structure does ensure that the interests of management and shareholders are aligned. It is also interesting to note that over the last 20 years, there have been brief periods when the company traded at a premium (the last time was in 2006).

CGI’s shares are currently trading at a 28.5% discount to NAV, which is broadly in line with the averages of the last one, three, five and 10 years (30.1%, 29.6%, 28.8% and 26.6% respectively). The board is unable to repurchase any of CGI’s shares to help manage the discount, as this would invalidate its favourable Canadian investment corporation tax status.

Exhibit 8: Share price discount to NAV (including income) over three years (%)

Source: Refinitiv, Edison Investment Research

Capital structure and fees

CGI has 20.9m ordinary shares in issue and gearing of C$150m (C$75m Series 4, 3.75% preference shares, redeemable on or after 15 June 2023, and a C$75m, 2.28% fixed-rate, three-year, non-revolving bank credit facility – a combined 3.015% cost of capital). The credit facility expires on 6 June 2019; the board is looking into other facilities, but given the current low level of interest rates, it is likely that the loan will be rolled over. At end-March 2019, taking 4.6% in cash and equivalents into account, net gearing was 12.5%.

MMA is paid an annual management fee of 1.0% of the market value of its investments, net of cash, portfolio accounts receivable and portfolio accounts payable (no performance fee is payable). In 2018, the annualised management expense ratio (MER) was 2.15% including leverage costs (16bp lower than 2.31% in 2017, and 51bp lower than 2.66% in 2016). The MER excluding leverage costs is more comparable with the ongoing charge figure used in the UK; in 2018, it was 1.48%, which was 6bp lower year-on-year.

Dividend policy and record

In 2018, CGI received dividend income of C$15.6m, which was 22.2% higher than C$12.7m in 2017, helped by a C$2.1m special dividend from building products company Norbord.

Since 2014, there has been an increased emphasis on quarterly dividends, and less on special dividends. In 2018, four quarterly dividends of C$0.19 were paid (with no specials), which equates to a yield of 3.0%. So far in 2019, two quarterly payments of C$0.20 have been declared (+5.3% year-on-year, and the manager is hopeful of further dividend increases in the future); if this distribution level is maintained for the balance of the year, the C$0.80 total dividend would equate to a prospective 3.1% yield. It should be noted that prior to 2019, the total distribution was maintained at C$0.76 pa for six years, although the balance between regular and special dividends shifted significantly during this time.

Peer group comparison

CGI is one of the two funds in the AIC North America sector with significant Canadian exposure (Exhibit 9). While a comparison between the two funds has some relevance, it should be noted that they have different investment mandates. CGI has significantly better NAV total return performance over one, three and five years, while lagging over 10 years. Despite its long-term record of outperformance, the company consistently trades at a wide discount, which may be due to its high inside ownership. Both of the funds have a similar level of net gearing. CGI has a lower dividend yield, which is unsurprising given its focus on total return rather than income.

Exhibit 9: Selected peer group as at 3 May 2019 (C$)*

% unless stated

Market cap

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

Canadian General Investments

542.4

11.2

62.9

52.5

258.9

(29.5)

1.5

No

113

3.0

Middlefield Canadian Income

179.7

7.8

27.1

22.3

298.4

(12.0)

1.3

No

112

5.3

Average

361.0

9.5

45.0

37.4

278.7

(20.7)

1.4

112

4.2

Fund rank in sector

1

1

1

1

2

2

1

1

2

Source: Morningstar, Edison Investment Research. Note: *Performance data to 2 May 2019 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

CGI’s board comprises seven directors, four of whom are independent of the investment manager. The three non-independent board members are: Vanessa Morgan (chairman of CGI, president and CEO of MMA – appointed to the board in 1997); Jonathan Morgan (president and CEO of CGI, executive vice-president of MMA – appointed to the board in 2001); and Michael Smedley (executive vice president and CIO of MMA – appointed to the board in 1989). The four independent directors and their years of appointment are: Neil Raymond (2002), Richard Whittall (2004), James Billett (2005) and Michelle Lally (2015). The average tenure of the seven directors is c 17 years.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Canadian General Investments and prepared and issued by Edison, in consideration of a fee payable by Canadian General Investments. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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