KeyStone’s Stock Talk Show, Episode 194.

Great to be back with now one-week into what should be exciting new year.  We will start with a brief discussion of Canada’s hot jobs report and Microsoft’s investment in ChatGPT appears to be a good one. I will answer a listener question in our YSOT segment on K-Bro Linen Inc. (KBL:TSX) the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the Northeast of England. The stock, which we have owned in the past and sold at a significant profit, is on our Monitor List for 2023 and a clients asks if it is now time to buy. Brett will also answer a viewer question on Intel (INTC:NASDAQ), the world’s largest logic chipmaker. Intel is pays a relatively attractive dividend of 5% after the stock price was cut roughly in half over the past year, leading to the question, is this value or a value trap? Brett has your answer. In a Finance 101 segment Brennan answers the question that no one was asking – what is an FHSA? I am kidding, we have received multiple questions on this new registered account (all from Brennan himself).

The FHSA or Tax-Free First Home Savings Account aims to give first-time homebuyers the ability to save

$40,000 on a tax-free basis towards the purchase of a first home in Canada. Brennan will have the details.


I welcome my cohosts – Aaron, and the Killer B’s – Brennan and Brett.




K-Bro Linen Inc. (KBL:TSX)


Your Stock Our Take

K-Bro Linen Inc. (KBL:TSX)


Price: $28.84  – stock is down 22% over the past year.

Market Cap: $310.69 Million

Yield: 4.27%


Company Description: K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada and a market leader for laundry and textile rental services in Scotland and the Northeast of England.

Segmented Revenues:

We are very familiar with K-Bro, having recommended the business way back in October of 2008 when Brennan was in kindergarten and the shares traded at $8.75. In 2011 while the company’s shares traded at $22.56, we issued a near-term recommendation to “SELL HALF” and later shifted the stock to a full “SELL” rating in 2017 while it traded at $40.00. The reason for the rating shift at that time was that the business struggled to achieve its margin targets while it invested for growth. Since then, the stock has slowly declined to its current range of around $28-$29 taking its largest hit in 2020 during the pandemic while its hospitality segment was severely impacted. With the world reopening, the company’s hospitality segment is finally back to its pre-pandemic highs

Recent Financial Results:

Q3 2022

  • Consolidated revenue increased 19.7% to $73.63 million from $61.49 million in Q3 2021.
  • EBITDA decreased in the third quarter to $11.0 million compared to $11.6 million over the comparable 2021.
  • Net earnings in the third quarter of 2022 increased to $2.5 million compared to $2.1 million in the comparative period of 2021, and as a percentage of revenue decreased by 0.2% to 3.3%.

Analyst Estimates:

From our analysis and conversations with management, these estimates are aggressive. Earnings should take a significant uptick in 2023, but these estimates, as they so often are from the brokerage community are just too positive.

Our Take:

The business pays a solid dividend yield at around 4.2%, but is not cheap on an earnings basis and remains levered. If K-Bro can reach management’s target Adj. EBITDA margin of ~18% while generating upward of $270 million in revenue during fiscal 2023, the business would trade at approximately 8 times EV/EBITDA) – below its historical average. But on an earnings basis it is not cheap.

We anticipate the company to continue to pursue M&A growth over the next 12 months but will continue to monitor the numbers in Q4 2022 and Q1 2023 results to see if management can begin to achieve their margin targets. MONITOR at present.

K-Bro has significant recession resistance, a strong dividend yield and the direction of earnings growth should be very positive in 2023, given the tight labour market and high input costs, the expected margin recovery will likely be slower than analyst anticipation. As such, we monitor K-Bro closely, but remain on the sidelines with its current PE in the range of 21-25 times 2023 earnings. Based on 2024 expected earnings, the stock is looking more attractive at 14.5 times earnings, but we expect to have a better buying opportunity during 2023 to take advantage of this step up in profitability which may initially come slower than expected. Analysts estimates appear overly optimistic (particulary in the first half of the year) which could produce upcoming quarterly misses.

New Tax-Free First Home Savings Account (FHSA)

Trudeau’s Federal government has moved to launch a new registered account – named the Tax-Free First Home Savings Account (FHSA) – which aims to help first time home buyers purchase a home in Canada.

FHSA was first proposed in the Federal Budget of 2022 and on November 4, 2022, the revised legislation was released as part of Bill C-32 (Fall Economic Statement Implementation Act, 2022) and if passed, the FHSA rules will enter into force on April 1, 2023.

How does the FHSA work?

This new registered account will give prospective first-time homebuyers the ability to save $40,000 on a tax-free basis towards the purchase of a first home in Canada.

Like an (RRSP) contributions to an FHSA will be tax deductible, but withdrawals to purchase a first home, including from any investment income or growth earned in the account, would be non-taxable, like a tax-free savings account (TFSA).

To open an FHSA, an individual must be a resident of Canada and must be a first-time homebuyer. The annual contribution amount is $8,000, and up to a $40,000 lifetime contribution limit. And like a TFSA unused annual contribution can be carried forward. Sooo if you contribute less than $8,000 in a given year, you can then contribute any unused amount in a future year, in addition to your annual contribution limit of $8,000 (subject to the $40,000 lifetime limit).

Keep in mind though that carry-forward amounts only start accumulating after an individual opens an FHSA for the first time. Which contrasts to a TFSA as you do not actually need to open a TFSA for the carry forwards to begin accumulating.

An individual can keep an FHSA open for up to 15 years or until the end of the year when they turn 71 years old. 

What kind of investments can you hold in an FHSA?

An FHSA is permitted to hold the same types of qualified investments that are currently allowed in a TFSA and RRSP, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.

When can you withdrawal from an FHSA?

To withdraw you must be a first-time homebuyer at the time of withdrawal and you must also have a written agreement to buy or build a qualifying home before Oct. 1 of the year following the year of withdrawal, and you must intend to occupy that home as your principal place.

If the funds within the FHSA are not used Individuals are able to transfer funds from one FHSA to another FHSA, or to an RRSP or a RRIF, all on a tax-free basis.

Other things to consider. 

The Home Buyers’ Plan, which allows first-time homebuyers to withdraw up to $35,000 from an RRSP to buy a first home, will continue to be available, but you won’t be permitted to make both an FHSA withdrawal and an HBP withdrawal for the same home purchase.


  • The newly proposed FHSA registered account has characteristics of both the RRSP and TFSA and should help Canadian’s (like myself) purchase their first home.
  • I think that it is interesting that you cannot use the RRSP’s Home Buyers’ Plan in unison with the FHSA account. But one could potentially transfer the funds from an RRSP to an FHSA on a tax-free basis though.



Intel symbol INTC on the Nasdaq is the world’s largest logic chipmaker. It designs and manufactures microprocessors for the global personal computer and data center markets. Intel is currently trading at $28.85 with a market cap of 123 billion.

Intel is currently paying a yield of 5% after the stock price was cut roughly in half over the past year, leading to the question, is this value or a value trap?

The company saw a rough 2022, for Q3 revenue fell 20% and non-gap EPS falling from $1.45 to only $0.59. This can be attributed in part to the weakening demand across intel’s two largest segments: revenue client computing was down 17%, and data center and AI down 27%. As well costs climbed during this period, putting pressure on the margins of the company, falling from 58.3% in 2021 to 45.9% in 2022 on a non-GAAP basis. The company is currently trading at a valuation of roughly 15 times its 2023 guided adjusted EPS.

The overall computing market has fallen, but Intel has fumbled multiple times over the past few years. For example, the failure to get past the 14-nanometer architecture, which it has got past, and more recently, the issues launching its dedicated GPU.

While the 14 nanometer is now in the past, it was what allowed competitor AMD under the same symbol to trade blows or surpass in many ways. Intel effectively rolled out the red carpet for AMD during this period, but that utter failure seems to have stopped. The latest 13 consumer-grade chips are closer in price & performance to the equivalent AMD 7000s series than the poor 10 & 11 thousand series from Intel during their fumbling period. Intel saw their market share drop, but producing more competitive products should allow Intel to better hold on to its market share. The overall market is expected to grow in the long term, so if Intel is able to hold on to its market share, earnings growth should follow.

Perhaps the most appealing thing about Intel is its push into fabrication plants or fabs, where silicon chips are manufactured. The company has received subsidies from multiple governments, including the US and Germany. If they are able to execute on building these fabs AND compete against the current industry leader TSMC, it could be extremely lucrative. Intel revitalizing its fabrication capabilities will take time, its American fab in Ohio expected to be completed in 2025.  That being said, there are already delays in Germany as the company was expecting to start construction in the first half of 2023 but has put that on hold as Intel is now looking for additional subsidies from the country. The company could be in serious trouble if the fab plan becomes another 14-nanometer situation. This is perhaps the main risk to Intel in the coming years, execution if it is able to execute on its fab plan and, to a lesser extent, its GPU segment.

The company is investing significant funds into this push to build fabs, leading to financial risk. Perhaps one of the most prominent questions is will the company cut its dividend. The current dividend yield is the highest its ever been at roughly 5%.

The company is operating cash flow fell dramatically year to date to 7.7 billion from 24 billion in 2021. The drop in operating cash flow made it so the free cash flow of the company is running at a deficit. Management has guided for the year an expected free cash flow of negative 2 to 4 billion. If the company does not see increased operating cash flow it will likely need to cut the dividend, but it should be able to sustain this rate in the short term but unable in the long term.

The company did see a cash influx of around 900 million from spinning off its automated driving segment Mobileye, which it still owns roughly 94%. Meaning, the company does have an easy divestiture to raise capital if it needs to or desires.

Management has stated they intend to keep the dividend at the current rate, but what management wants and what happens is not always the case.

In summary, any potential investors in Intel need to take a long-term view of at very least 3 years but more conservatively 5 years, be cautious that the dividend could see a pause in growth or a cut, and perhaps the most important risk, execution risk.


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