July 7, 2016 URBANA CORPORATION Source: www.tmx.com PROFILE Financial Data Urbana Corporation ( Urbana or the Company ) is a closedend investment holding and trading company with a primary interest in the financial services sector, including stock exchanges, banks, broker-dealers, and investment companies. It also owns a gold and silver exploration property in Québec. Reports The eresearch reports are written on companies that eresearch believes have interesting prospects, are smaller in size and, therefore, have little or no following on the Street, and which would benefit from the exposure that eresearch can provide through the dissemination of the reports via our extensive electronic distribution network. eresearch Analysts: Bob Weir, B.Sc., B.Comm., CFA Note: Reports are prepared with public information only. See Disclaimer on Page 9. eresearch wrote this report from publicly-available information, and management was not contacted to verify any of the facts or statements contained herein. Neither a Target Price nor a Recommendation concerning the shares of the Company is provided in this report, and no valuation analysis to determine the worth of the company has been conducted. eresearch Corporation 78 Cameron Crescent, Suite 202 Toronto, Ontario M4G 2A3 Telephone: 416-570-1806 www.eresearch.ca
INVESTMENT CONSIDERATIONS Strengths Urbana s President and CEO, Tom Caldwell, has been involved within the investment industry since 1965. He is highly recognized as an expert in capital markets, and particularly so in trading environments. The Company s permanent capital base gives it both the scope and flexibility to act quickly as opportunities arise. Urbana has the scope, required capital, and management acumen to invest in any sector, in any region, at any time. Challenges Urbana tends to concentrate its investment focus on one particular sector at a time. In the 2000s, the emphasis was on identifying under-valued global stock exchanges, but most of these investments have been sold. Now, the concentration is on the financial sector. Although there is diversification within its holdings in the financial sector, there is still considerable sector concentration risk. As an aside, with the Brexit referendum vote, there is currently downside pressure on the global financial group. Considerable dependence for performance rests with the Company s President and CEO, Tom Caldwell. In addition, direct management in the Company is somewhat thin, because there is strong reliance for advice and consultation with affiliated companies. Urbana pays investment management fees to Caldwell Investment Management Ltd. for investment management services, and the Company pays commission fees to Caldwell Securities Ltd. for handling its portfolio transactions. Urbana also pays fees to Caldwell Investment Management Ltd. for investor relations services. The stock is quoted on the S&P/TSX and the CSE but it is thinly traded and is likely to be of greater interest to retail rather than institutional investors. The average trading volume on the TSX over the last three months was 36,400 shares. BACKGROUND Urbana Corporation was originally incorporated in 1947 as a mineral exploration company, Macho River Gold Mines Limited. The Company changed from a mining issuer to an investment issuer in 2005. The Company is now considered a non-redeemable investment fund and an investment fund for the purposes of applicable securities laws. OPERATIONS Urbana Corporation is an investment holding and trading company with a current focus on the financial sector. Its stock holdings extend to stock exchanges, chartered banks, broker-dealers, and investment management companies. STRATEGY Urbana Corporation states on its website that The goal of Urbana Corporation is to generate long-term asset growth through a combination of public and private investments. The mix of an actively managed, liquid portfolio with private equity investments ensures non-committed assets are productively employed as we seek out and evaluate opportunities in the non-public sphere. Many of the latter investments take time to mature and typically encompass high risk/high return characteristics. eresearch Corporation ~ 2 ~ www.eresearch.ca
DIVIDEND POLICY Urbana pays an annual cash dividend to the holders of its Common shares and its non-voting Class A shares. The amount of the dividend is determined each year by the company s board of directors after taking into consideration all of the factors deemed relevant, including the performance of the Company s investments, economic and market conditions, and the Company s financial situation. Currently, the Company pays a cash dividend of $0.05 per share, which is paid as soon as possible after year-end. At the current price for the Class A shares of $2.20, the shares provide a yield of 2.27%. MINING ACTIVITIES Urbana started off its corporate life as a mining entity. The Company purchased a property in Urban Township in Québec and staked original claims in 1947. The Urban gold property exhibits strong geological similarities to properties in the Abitibi greenstone belt. The property is situated not far from the Windfall gold deposit with which it displays similar geologic features. In all, the Urban mining property consists of 44 claims covering 1,154 hectares and is located along strike with the Windfall project. The 2015-2016 winter drilling program consisted of 11 drill-holes for a total of 1,621 metres and concentrated in the centre of the property. The best hole showed 19.85 g/t of gold and 82 g/t of silver over 1.10 metres. The mineralization was discovered near surface and it extended open along strike and at depth. NET ASSET VALUE eresearch Corporation ~ 3 ~ www.eresearch.ca
FINANCIAL RESULTS 1. Q1/F2016 Results (January 1- March 31, 2016) Revenue Publicly-traded securities markets were quite volatile in Q1, recording a significant decline from the beginning of the quarter until about mid-february, and then staging an equally dramatic recovery. The major areas affected were banks and energy. As a result, the Company s gain on sale of investments slipped in Q1/16 to $5.74 million compared to $8.22 million in the corresponding period in 2015, and the change in unrealized gains on foreign exchange and investments fell dramatically to a negative $14.33 million compared to negative $1.84 million in Q1/2015. The net change in investment holdings during the quarter resulted in a 25% decline in dividend income and interest earned. Pre-Tax Profit After deduction of investment management fees and other expenses, pre-tax profit was a negative $1.58 million compared to a positive $0.65 million in Q1/2015. Net Profit (Loss) and Earnings Per Share The final net loss for Q1/2016 was -$8.11 million. There was a net profit of $5.07 million in Q1/2015. EPS for the current quarter was -$0.15 as against a profit of $0.09 per share in Q1/2015. Net Asset Value The net asset value per share dropped to $3.29 at March 31, 2016 compared to $3.48 at December 31, 2015 and $3.42 at March 31, 2015. Table 1: Urbana Corporation Q1/2016 versus Q1/2015 Source: Company & eresearch eresearch Corporation ~ 4 ~ www.eresearch.ca
2. Annual Results Table 2 below shows selected financial results for the past four years and for the trailing twelve months (TTM) to March 2016. Table 2: Urbana Corporation, Yearly, 2012-2015 & TTM Source: Company & eresearch COMMENT: As to be expected with an investment holding and trading company, Urbana s results are quite volatile year-to-year. Notable over the periods shown is that the Company has been able to increase its Net Asset Value Per Share (until the latest quarter as noted in Table 1). On the next page, in Table 3, we show the Company s results on a half-yearly basis, which was the way the Company reported as an investment fund. On July 13, 2015, the Company was reclassified as a non-investment fund and, as a result, became required to report on a quarterly basis. In Table 4 subsequent, we show all of the quarterly results since the Company s reclassification. eresearch Corporation ~ 5 ~ www.eresearch.ca
3. Half-Yearly Trends Table 3 below shows the half-yearly trend in selected financial items for 2012-2015. Table 3: Urbana Corporation, Half-Yearly, 2012-2015 Source: Company & eresearch COMMENT: As noted in Table 2, Urbana s business is highly correlated to the vagaries of the stock market. Consequently, its buying and selling of investments reflects the various opportunities in the stock market that present themselves at any one time. The key financial statistic of an investment holding and trading company is its ability to grow its net assets and exhibit a rising Net Asset Value Per Share. Urbana Corporation has been able to do that successfully, and is a testament to the ability and acumen of management. On the following page, we show the quarterly results from Q3/2014 until Q1/2016. eresearch Corporation ~ 6 ~ www.eresearch.ca
4. Quarterly Trends Table 4 below shows the quarterly results from Q3/2014 through to Q1/2016. Table 4: Urbana Corporation, Quarterly Results Source: Company & eresearch COMMENT: The bottom line for all of the foregoing financial tables is that Urbana s management has been able to grow the Company s Net Asset Value through all kinds of market conditions and, also, when applying different operations strategies. Let us have a look at the Company s senior management team and its directors, coming up on the next page. eresearch Corporation ~ 7 ~ www.eresearch.ca
MANAGEMENT, DIRECTORS, & AFFILIATED COMPANIES Management Thomas S. Caldwell, CM: President & Chief Executive Officer Tom Caldwell graduated from McGill University in 1965, and has been actively involved in the investment industry ever since. Mr. Caldwell is Chairman of Caldwell Securities Ltd., which was founded in 1980, and is a diversified investment company with affiliate organizations providing investment management, brokerage, and insurance services to investors throughout North America and around the world. Mr. Caldwell is a past Governor of the Toronto Stock Exchange. He is currently Chairman of the Canadian Securities Exchange ( CSE ). In June 2014, Mr. Caldwell was inducted into the IIAC Investment Industry Hall of Fame. Jean Ponter, VP Finance and Chief Financial Officer Jean Ponter has been Urbana s CFO since 2006. Elizabeth Naumovski, Director of Investor Relations Elizabeth Naumovski heads up Urbana s investor relations services. Ms. Naumovski sits on the marketing committee of the Investment Industry Association of Canada (IIAC). Directors Thomas S. Caldwell (1980) Bethann Colle (2006) George D. Elliott (2011) Michael B.C. Gundy (1984) Charles A.V. Pennock (2015) Affiliated Companies Caldwell Financial Ltd. Caldwell Investment Management Ltd. Caldwell Securities Ltd. CORPORATE INFORMATION Urbana Corporation 150 King Street West Suite 1702 Toronto, ON M5H 1J9 Telephone : 416-595-9106 Website: www.urbanacorp.com eresearch Corporation ~ 8 ~ www.eresearch.ca
eresearch CORPORATION eresearch Analyst on this report: Bob Weir, B.Sc., B.Comm., CFA Analyst Affirmation: I, Bob Weir, hereby state that, at the time of issuance of this report, I do not own, directly or indirectly, shares of Urbana Corporation. NOTE: eresearch reports on Urbana Corporation and other companies are available FREE on our website at www.eresearch.ca. You must REGISTER to access these reports. eresearch Corporation eresearch was established in 2000 as Canada's first equity issuer-sponsored research organization. Our various research packages allow corporate management to choose the form of research coverage that best meets their company s needs. We are a primary source for professional investment research, focused primarily on small- and mid-cap companies. Our research and analysis is of institutional quality, and has the potential to reach millions of global investors through our extensive electronic distribution network. Reports The eresearch reports are written on companies that eresearch believes have interesting prospects, are smaller in size and, therefore, have little or no following on the Street, and which would benefit from the exposure that eresearch can provide through the dissemination of the reports via our extensive electronic distribution network. eresearch wrote this report from publicly-available information, and management was not contacted to verify any of the facts or statements contained herein. Neither a Target Price nor a Recommendation concerning the shares of the Company is provided in this report. eresearch does not receive a fee from the subject companies for the preparation and publication of reports, and Urbana Corporation did not pay eresearch a fee for the preparation and publication of this report. eresearch Intellectual Property No representations, express or implied, are made by eresearch as to the accuracy, completeness or correctness of its research. Opinions and estimates expressed in its research represent eresearch s judgment as of the date of its reports, are subject to change without notice, and are provided in good faith and without legal responsibility. Its research is not an offer to sell or a solicitation to buy any securities. The securities discussed may not be eligible for sale in all jurisdictions. Neither eresearch nor any person employed by eresearch accepts any liability whatsoever for any direct or indirect loss resulting from any use of its research or the information it contains. This report may not be reproduced, distributed, or published without the express permission of eresearch. eresearch Corporation ~ 9 ~ www.eresearch.ca