Cannabis Excites and Telcos Bore, Veteran Canadian Analyst Says

(Bloomberg) -- Dvai Ghose closes out a 25-year career in the financial world on Friday when he retires from Canaccord Genuity Group Inc., an independent Canadian firm. The Oxford-educated Ghose worked as a telco analyst for CIBC World Markets during the tech boom and bust from 1999 to 2006, and was ranked as the country’s top analyst in the sector consistently by Brendan Wood International. Most recently, he was head of strategic development and global head of equity research at Toronto-based Canaccord.

Ghose spoke in an exit interview at Bloomberg’s Toronto office on the future of the bull market, the cannabis boom and the equivalent of watching paint dry.

On Canadian Telcos:

“I think they’ve peaked,” Ghose, 52, said of Canada’s big-three firms, BCE Inc., Telus Corp. and Rogers Communications Inc. He says it’s hard to see where growth is going to come from when a monthly cellphone bill is C$80 ($60) and incomes aren’t growing much. Revenue per customer is decreasing, he says, and various models for telcos to add growth -- such as the media-buying frenzy of recent years -- have come and gone. That doesn’t mean the sector’s dividend yields, which are as high as 5 percent, aren’t attractive. But it used to be exciting covering telcos, Ghose said. Now it’s like “watching paint dry.”

On His Best Call:

He initiated a buy on cellular company Clearnet Communications at C$12 a share and it was acquired a few years later by Telus at C$70 in 2001. He recommended Telus when Moody’s Investors Service downgraded it to junk in 2002 during the tech wreck. Apart from a slight interruption during the financial crisis, Telus has proceeded to rise steadily, reaching a record intraday high on Thursday. In terms of today’s equity markets, Ghose sees the bull market softening in the next 12 to 18 months. “I think we’re very much in the last innings, and that’s why I hold a lot of yield stocks personally.” He also still owns tech stocks.

On Research:

With analyst shops shrinking in a world of declining fees, cheap exchange traded funds, and robo advisers, Ghose envisions a time when companies pay for analyst research, just like they do for bond ratings from the likes of Moody’s. This might be especially useful for the thousands of “orphan” firms that never get analyst coverage. As for the conflict of interest inherent in such a model, Ghose said that’s already prevalent where the majority of ratings are buys from sell-side firms also trying to capture investment banking or other business. “Why don’t we take the game to its natural conclusion and say, look, you pay for the research and we’ll put it up.”

On Cannabis:

Canaccord has been at the forefront of the cannabis investment boom, becoming a leader in equity financings and M&A before the banks would touch the industry. While jurisdictions in the U.S. and Europe continue to legalize the drug for recreational use, he sees the real future in the medical field. “I’m actually very, very excited about medical applications going forward,” he said. “Having said that, I am concerned about the recreational side because I think it is becoming commoditized.”

On Independent Firms:

The business of finance hasn’t been especially kind to independents, with Canaccord’s share price sliding to around C$5.50 from a high of almost C$27 in 2006. But Ghose said they’re essential in Canada to drive entrepreneurialism when the big banks are so conservative. “The death knell of independents, of which I read regularly, is not true,” he said. “If we didn’t have independent brokers in Canada, we wouldn’t have a cannabis industry because no one would finance it.”

On Diversity:

“Disgraceful” behavior was prevalent when he started in the business, Ghose said.“It was a very sexist environment. It was a very homophobic environment.” Ghose of Indian descent, who grew up in Hong Kong, never found the industry to be overtly racist however. He said the environment has improved, but the number of women on boards and in management are still an “embarrassment,” and more needs to be done to nurture the more diverse talent now coming in the door.

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