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1. Friday March 13, 2009 S&P/TSX Composite +271.25 8282.27 CANADA Dow Jones +239.66 7170.06 S&P 500 +29.38 750.74 The S&P/TSX Composite rose as resource and…
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  • 1. Friday March 13, 2009 S&P/TSX Composite +271.25 8282.27 CANADA Dow Jones +239.66 7170.06 S&P 500 +29.38 750.74 The S&P/TSX Composite rose as resource and financial companies NASDAQ +54.46 1426.10 extended their gains from the previous two sessions on hopes that the worst S&P/TSX Venture +19.52 843.42 of the economic crisis may be over. Philadelphia SOX +7.36 217.38 Crude futures climbed more than 10% to top US$47 a barrel, following Crude Oil (US$/brrl) +4.70 47.03 better-than-expected U.S. February retail sales data and ahead of a Gas (US$/mmbtu) +0.20 4.00 weekend OPEC meeting. Oil stocks such as Suncor (SU), Canadian Oil Copper (US$/lb) +0.03 1.65 Sands Trust (COS.UN) and Canadian Natural Resources (CNQ) Gold (US$/oz) +13.30 924.00 moved higher in tandem. Nickel (US$/lb) -0.06 4.41 Palladium (US$/oz) +0.00 197.50 Former tech darling Nortel Networks (NT), which filed for bankruptcy Platinum (US$/oz) +1.00 1053.75 protection earlier this year, is looking to break itself up by selling off major Silver (US$/oz) +0.20 13.01 divisions, media reported. Instead of trying to rebuild itself under Uranium (US$/lb) -0.25 43.50 bankruptcy protection, the company is considering offers from potential Canadian Dollar +0.0037 0.7819 buyers who are interested in buying its wireless-gear business, as well as a 30 Year Canada -0.03 3.636 separate division that manufactures office telecom equipment. 30 Year U.S. -0.04 3.620 Health sciences company MDS (MDS) reported lower quarterly earnings Volatility Index (VIX) -2.43 41.18 and revenue as customers deferred research projects. Likewise, commercial One Less Reason For printer Transcontinental (TCL.A) swung to a quarterly loss as its Newspapers… customers slashed spending. A Quebec entrepreneur is UNITED STATES planning to bring obituaries out of the back Stocks gained for a third straight day as General Electric (GE) said an pages of newspapers to a S&P credit-rating downgrade will not hurt business and the government new home on the small said retail sales beat estimates. screen. Bank of America (BAC) frontlined a continued ascent in financials after Gerald Dominique hopes “Je me souviens”, a announcing it will not require further U.S. government aid. Moreover, the niche network dedicated to broadcasting bank said it was profitable during the first two months of 2009, echoing digital obituaries, will be ready to begin comments from Citigroup (C) a few days earlier. broadcasting by the summer. Steelmakers fell after JPMorgan Chase cut its earnings estimates for the The French-language speciality channel will industry and said AK Steel Holding (AKS), U.S. Steel (X), ArcelorMittal charge a fee to broadcast obituaries, prayers, (MT) and Steel Dynamics (STLD) could “potentially be at risk of hospitalization notices and messages of violating their debt covenants” should the metal’s prices and shipments fail thanks. to recover this year. The Quebec entrepreneur obtained a licence Intel (INTC) surged after AmTech upgraded the chipmaker, citing the in February from the CRTC and plans to company’s pursuit of new revenue sources. Conversely, Microsoft expand the channel to the rest of the country, (MSFT) lagged as the world’s largest software maker had its earnings under the moniker “Remember the Name.” estimates reduced at Morgan Stanley, which said the PC market will remain “choppy” this year. “The goal of this channel is to tell stories…How many stories are lost all over Smithfield Foods (SFD) advanced as the pork processor posted a loss the world each year – great stories about excluding some items of only 15 cents a share, half the average estimate of people’s lives – those are the stories we hope analysts. to tell,” Dominique told the Canadian Press. This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  • 2. – Canadian and U.S. Comments for Friday March 13, 2009 2 ECON 101 CANADIAN Data Today: This morning, the Unemployment Rate (February) is expected to be 7.4%, slightly worse than 7.2% in the previous month. Net Change in Unemployment (February), on the other hand, is projected to be a loss of 55,000 jobs, better than a loss of 129,000 in January. International Merchandise Trade (January) is thought to have fallen by $1 billion, wider than an earlier $500 million. U.S. Data Today: This morning, the Trade Balance (January) is expected to have shrunk by $38.0 billion, compared to $39.9 billion in December. Finally, Import Prices (February) likely fell by 0.7%, slower than 1.1% last period. MARKET MOVERS Technical Indicators: TSX TSX-V NYSE NASDAQ AMEX Advancers 1035 410 2787 2227 340 Decliners 458 465 318 464 143 Net +577 -55 +2469 +1763 +197 Notable 52-Week Highs: No Notable Highs. Notable 52-Week Lows: Arbor Memorial Services ABO.B $ 16.21 Intertape Polymer Group ITP $ 0.39 African Copper ACU $ 0.01 Lanesborough REIT LRT.UN $ 1.49 Alaris Royalty AD $ 6.71 Miranda Technologies MT $ 4.40 Akita Drilling AKT.B $ 6.25 Newalta NAL $ 2.40 BELLUS Health BLU $ 0.16 Opta Minerals OPM $ 1.01 Belzberg Technologies BLZ $ 1.34 Railpower Technologies P $ 0.03 Canfor Pulp Income Fund CFX.UN $ 1.31 Sabretooth Energy SAB $ 0.19 Contrans Income Fund CSS.UN $ 2.98 Skylon Intl Advantage Yield SIA.UN $ 15.10 The Data Group Income Fund DGI.UN $ 2.77 Sierra Wireless SW $ 3.71 FP Newspapers Income Fund FP.UN $ 3.24 Sceptre Investment Counsel SZ $ 3.27 Fortress Paper FTP $ 4.62 TerraVest Income Fund TI.UN $ 2.22 Global Plus Income Trust GIP.UN $ 5.00 West Fraser Timber WFT $ 22.01 Geovic Mining GMC $ 0.46 Western Canadian Coal WTN $ 0.36 Hardwoods Distribution HWD.UN $ 0.50 Zarlink Semiconductor ZL $ 0.21 First Asset Income & Growth IGF.UN $ 4.85 CANADIAN EQUITIES OF INTEREST Listed Alphabetically by Symbol Pensions The pen(sion) is mightier than the sword. Statistics Canada reported yesterday that employer-sponsored pension funds dropped by 8.7%, or $83 billion, to $869 billion in the third quarter. This was the largest quarterly decline in a decade. Pension fund assets peaked at $955 billion at the end of 2007. As a result of the decline in equity over the past year, the market value of stocks and equity funds accounted for 34.2% of total pension fund assets at the end of the third quarter, down from 38.4% in the same quarter in 2007. Prior to the market downturn in 2001 and 2002, stocks and equity funds accounted for up to 45%. The market value of bonds accounted for 36.0% of total pension fund assets in the third quarter of 2008. Real estate investments represented 8.4%, mortgages 1.7%, and short-term investments 3.3%. The remaining assets, which include pooled foreign funds, accounted for 16.3%. The value of pension funds held in foreign investments has fallen for six consecutive quarters. At the end of the third quarter, foreign investments accounted for 28.9% of total pension fund assets, down from the most recent This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  • 3. – Canadian and U.S. Comments for Friday March 13, 2009 3 peak of 31.3% during the first quarter of 2007. Expenditures of $22.8 billion in the third quarter exceeded revenues of $17.0 billion, for a negative cash flow of $5.8 billion. This was the largest quarterly net income loss in six years and the second time in 2008 that pension funds experienced a negative cash flow. Collectively, pension fund managers reported $8.5 billion in third quarter losses, the largest net loss on sale of securities recorded for trusteed pension funds. Total revenue from contributions in the third quarter of 2008 amounted to $8.3 billion, down 1.6% from the second quarter. Pension benefits paid to retirees grew 5.8%, reaching a high of $9.8 billion. Benefits exceeded pension contributions made by employers and employees for a fifth quarter in a row. In total, about 5.8 million Canadian workers are members of employer pension plans. Of this group, 4.6 million workers are members of trusteed plans. The remaining 1.2 million members with employer pension plans are managed principally by insurance company contracts. Data in this release refer only to trusteed plans and their pension funds. Oil Futures April 2009 (OILC : NYMEX : US$47.03), Net Change: 4.70, % Change: 11.10% To cut or not to cut, that is not the question. With global economic conditions tapering off since the last OPEC meeting, you’d think that talk of additional production cuts would be dominating headlines leading into this Sunday’s OPEC meetings in Vienna. However, the debate hasn’t really been around whether the cartel will or will not cut, but rather compliance (or lack thereof) with the OPEC’s previously announced production cuts. According to media reports, OPEC has so far made about 80- 85% of the 4.2-million-barrel-a-day cuts already announced. The Wall Street Journal, citing PFC Energy, a consultancy that tracks OPEC, estimates that five cartel members – Angola, Ecuador, Iran, Nigeria and Venezuela – have failed to deliver on more than 50% of their pledged cuts, based on February production data. According to Saudi media reports, the country wants OPEC members to improve compliance with current production cuts before considering more production cuts. The cartel has a poor track record of adhering to production cuts over more than a couple of months. We have said this for awhile now and it’s worth repeating: oil traders know there are three certainties in life, namely taxes, death, and OPEC cheating. For those of you who are still handicapping the chances of an OPEC cut, oil traders are saying that there’s a 50% chance of another 1.0-million barrel-a-day cut on Sunday. Cameco* (CCO : TSX : $19.80), Net Change: -0.24, % Change: -1.20%, Volume: 2,068,763 Paladin Energy* (PDN : TSX : $2.60), Net Change: 0.17, % Change: 7.00%, Volume: 2,983,115 Uranium One* (UUU : TSX : $2.24), Net Change: 0.17, % Change: 8.21%, Volume: 13,385,896 AREVA Derche? Speaking at the Reuters Global Mining and Steel Summit in New York on March 11, Cameco’s CEO Jerry Grandey disclosed the company’s intent to pursue a potential uranium acquisition in the $1.0-2.0+ billion range. Cameco believes that there are currently opportunities to take advantage of undervalued and underfunded miners, which would further strengthen the company’s position in the market. To our knowledge there are very few publicly listed uranium miners with a market capitalization greater than $1.0 billion; these include Uranium One, Paladin Energy and Energy Resources of Australia. Of these, Canaccord Adams Metals & Mining Analyst Orest Wowkodaw believes Paladin and Rio Tinto’s (RTP) 68% stake in ERA (currently worth F$2.5 billion) would be the most logical targets. Both Paladin and ERA would further diversify the company’s producing asset base in relatively attractive regions. Alternatively, Cameco may be looking to make a further direct investment in Kazakhstan, although Wowkodaw believes this to be a low probability given the company’s mixed experience to date at Inkai. There are also media reports that the French government may be looking to sell a minority stake in AREVA, which would also likely interest Cameco. We note that AREVA has ownership stakes in McArthur River and Cigar Lake, among others. With the recent $460 million equity raise, Canaccord Adams estimates that Cameco will end Q1/09 with a cash balance of $870 million but a net debt position of $443 million. Wowkodaw says the company’s balance sheet would not support a transaction in the $1.0-2.0+ billion range without raising additional equity. Capital Gold* (CGC : TSX : $0.81), Net Change: 0.02, % Change: 2.53%, Volume: 168,500 Gammon Gold* (GAM : TSX : $9.59), Net Change: 0.43, % Change: 4.69%, Volume: 568,291 Why that’s a capital idea. Gammon announced that it entered into a letter of intent to acquire the shares of Capital Gold, a small-cap gold producer in Mexico. This is an all-share transaction of 0.1028 Gammon Gold shares for each Capital Gold common share outstanding. At yesterday’s close, it appears to value Capital Gold at roughly $0.98 per share, which is a 29% premium. The total value of the transaction is about $195 million. Capital Gold’s key asset is the El Chanate Mine in Sonora Mexico. In its latest quarter ended January 31, 2009, it produced 13,646 oz. Gammon should realize synergies with its own Mexican operations. The transaction is subject to satisfactory completion of due diligence, receipt of Capital Gold shareholder approval, regulatory approvals and certain other conditions. The letter of intent states that the parties plan on reaching a definitive agreement by March 31 with a break fee of US$4 million. This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  • 4. – Canadian and U.S. Comments for Friday March 13, 2009 4 Contrans Income Fund (CSS.UN : TSX : $3.20), Net Change: -1.00, % Change: -23.81%, Volume: 355,839 It’s beautiful and so are you, dear Prudence. The freight and transportation company announced that it will temporarily suspend payment of current distributions and that future distributions will be made quarterly instead of monthly as a result of the current business environment. But don’t worry: the company remains confident in its ability to compete and create long- term value (of course, they say nothing about the short-term). The trust had paid a $0.1042 per unit distribution in February. The company is affected by a slowing economy and by reduced shipments of autoparts across the US/Canada border. The only thing that surprises us is how greatly the units sold off. Should it really be surprising that another trust has cut distributions? It’s the prudent thing to do. Forsys Metals* (FSY : TSX : $5.25), Net Change: -1.00, % Change: -16.00%, Volume: 4,677,194 KEYWORDS: NO LATER THAN. Concerns over a potential delay in the closing of the Forsys buyout sent some investors hurrying to the exits late Thursday. At last update, a news release from the George Forrest Group provided some confidence that the plan of arrangement whereby George Forrest International Afrique S.P.R.L. (GFI) will acquire all the issued and outstanding common shares of Forsys at $7.00 per share in cash and all of the outstanding in-the-money options and warrants for total consideration of $579 million will close as early as March 12 “BUT NOT LATER THAN” March 18. Canaccord Adams Senior Mining Analyst Eric Zaunscherb says that all of the major boxes, save issuing and cashing the cheque, have been checked. The recent news release by George Forrest Group helps reduce the risk. Zaunscherb believes that Forsys’ share price will continue to move toward GFI’s $7.00 offer price. At yesterday’s close, the spread represents a potential 33% short-term return by March 18. Manulife Financial* (MFC : TSX : $12.70), Net Change: 1.47, % Change: 13.09%, Volume: 16,801,299 Sun Life Financial (SLF : TSX : $19.96), Net Change: 2.04, % Change: 11.38%, Volume: 2,844,198 “There are worse things in life than death. Have you ever spent an evening with an insurance salesman?” – Woody Allen. Insurers on both sides of the border had a big day yesterday. The Wall Street Journal published an article highlighting how a dozen life insurers have pending applications for aid from the government’s US$700 billion Troubled Asset Relief Program, and are expecting an answer to their request for a bank-style bailout in the coming weeks. One stumbling block is that the industry is overseen by state regulators and not a single federal agency. That means there’s no group of federal officials responsible for it, or with a deep understanding of its challenges. For now, the Treasury Department hasn’t said whether life insurers will be eligible for TARP funds. Industry group ACLI (American Council of Life Insurers) expects the Treasury to decide whether insurers will be eligible for federal aid some time later this month. Canadian insurers also participated in the rally. On Tuesday, Bloomberg reported how the Canadian government said a program to guarantee borrowing by life insurers, such as Manulife, will be available this month. The insurers can use the backstop program until December 31. The government is insuring debt and buying back as much as $125 billion in bank mortgages to revive lending. MDS* (MDS : TSX : $7.19), Net Change: 0.32, % Change: 4.66%, Volume: 444,418 MDS* (MDZ : NYSE : US$5.69), Net Change: 0.41, % Change: 7.77%, Volume: 217,281 The microbe is so very small. The life sciences company posted quarterly results, which saw the company earn $2 million, or $0.02 per share, down from $16 million, or $0.16 per share, last year. Adjusted earnings were $0.06 per share, down from $0.07 per share last year and slightly off the $0.07 Reuters consensus. Adjusted EBITDA fell 16% to $32 million. MDS said restructuring and productivity initiatives that were implemented to help adjust for market softness generated $14 million in savings in the latest quarter. In early February, MDS announced it had set up a committee of independent directors to review strategic options. The company’s MDS Nordion division contributed $66 million of net revenue in the latest quarter, up 10% from a year earlier. Revenue would have increased 48% were it not for the negative impact of foreign exchange and the sale of certain product lines. MDS said revenue growth at MDS Nordion was driven by year-over-year strength in medical isotope sales resulting from a competitor’s nuclear reactor shutdown in Europe during the first quarter of 2009 and an unscheduled shutdown of Atomic Energy of Canada Ltd.’s NRU reactor in the first quarter of 2008. MDS Pharma Services’ net revenue was down 12% to $106 million. Analytical Technologies net revenue declined 27%. Nexen* (NXY : TSX : $18.63), Net Change: 0.84, % Change: 4.72%, Volume: 5,228,816 OPTI Canada (OPC : TSX : $0.90), Net Change: 0.27, % Change: 42.86%, Volume: 4,328,805 Putting the OPTI before the Nexen? Rumours of Total SA’s (TOT) renewed interest in Nexen didn’t hurt OPTI on Thursday – if Total were to buy Nexen, wouldn’t they buy OPTI as well? If that Total scenario sounds too far fetched, how about the This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice.
  • 5. – Canadian and U.S. Comments for Friday March 13, 2009 5 rum
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