From the Desk of Irwin Michael – December 4, 2015

Two favoured ABC Funds’ holdings reported excellent results this past week. They include:

Exco Technologies reported a solid quarter, with EPS and revenue beating analyst forecasts. Revenue growth was robust, driven mainly by increased European and North American auto volumes. The company also saw higher margins, due to a number of factors including efficiency gains, a stronger US dollar and higher operational leverage. The company produced significant free cash flow in the quarter, resulting in a greater excess cash balance. With a clean balance sheet and abundant free cash flow, Exco has the ability to make a large, accretive acquisition over the next twelve months. Due to its strong organic growth and attractive valuation, we anticipate continued upside potential for Exco over the next year.

Avago Technologies also reported EPS and revenue above expectations, helped by strong results from its wireless chip division that supplies Apple. The company reported improved gross margins and gave guidance that was better than what the market had been anticipating. Looking forward into Q1 2016, the company expects to close its transformational acquisition of Broadcom. This transaction will be highly accretive to Avago through significant cost synergies and scale benefits. We see the potential for a much higher AVGO share price given growing demand for the company’s chips in mobile and the Internet-of-Things.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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