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| Market News: News Archive : Morning News Call Week ending |
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Nov 20, 2009
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FRIDAY, NOVEMBER 20, 2009, CANADIAN EDITION
TOP STORIES
• D.R. Horton posts wider-than-expected Q4 loss
• JM Smucker Q2 beats Street, raises FY EPS view
• EU extends review of Oracle plan to buy Sun
• Big investors ask Goldman to cut bonuses - report
• Ferrero, Hershey would likely break up Cadbury - report
BEFORE THE BELL
Toronto's main stock index may open lower on Friday as stronger dollar further pressured oil and gold prices. With no key Canadian economic data or corporate results to sway sentiment, the market could be directed by Wall Street, which is also set for a lower open. European shares extended losses after banking stocks turned lower and energy stocks retreated. Asian stocks were also down. Oil edged lower towards US$77 a barrel, while gold held near US$1,140 an ounce.
STOCKS TO WATCH THIS MORNING
• Bank of Montreal (BMO). The bank said on Thursday it would buy back upto 15 million of its common shares, starting December 2.
• Fairfax Financial Holdings Ltd. (FFH). The company said on Thursday it is voluntarily delisting its subordinate voting shares from the New York Stock Exchange.
• Jaguar Mining Inc. (JAG). The company said it intends to increase spending on exploration to about $14.7 million in 2010 and added during the first ten months of 2009 it completed about 38,000 m of drilling in Iron Quadrangle.
• Plazacorp Retail Properties Ltd. (PLZ). The company said on Thursday it increased 2010 annual dividend to $0.1925 per share from $0.185 per share.
• Torstar Corp. (TSb). The company said on Thursday David Holland has been appointed president & CEO of the company and his earlier position as the company's CFO and executive vice president would be taken up by Lorenzo DeMarchi.
16:00 International Minerals Corp. (IMZ). Annual shareholders meeting
ANALYST RECOMMENDATIONS
• Celestica Inc. (CLS) rating raised to buy from hold at Genuity
• New Gold (NGD) price target cut to $4.50 from $4.75; rating sector perform at Blackmont
• Pristine Power (PPX) coverage started with outperform rating; price target of $3.50 at Macquarie
• Royal Host REIT (RYL_u) price target cut to $1.50 from $1.80; rating sell at Canaccord Adams
Note: All values in Canadian currency, unless otherwise statedCORPORATE EVENTS
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INSIGHT
Recession shows shortcomings in U.S. economic data
The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth.
The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March.
The most likely culprit is the so-called "birth-death" model, which the Labor Department uses to estimate how many companies were created or destroyed.
That model appears to have misjudged how many companies went out of business during the recession, meaning the labor market was even weaker than initially thought when President Barack Obama took office in January. More recent figures may still be underestimating job losses now, but it will be many months before the Labor Department is certain.
One characteristic of this recession is that it has hit small businesses especially hard, driving down demand and choking off vital sources of credit at the same time.
Obama's administration is scrambling to try to prop up small business -- it hosted a summit on that topic on Wednesday -- because those companies are essential to bringing the jobless rate down from its current 10.2 percent, having accounted for the lion's share of new job growth in recent years.
Government data has difficulty gauging the health of smaller firms because there are simply too many of them, leaving officials to rely on surveys and models that are hit and miss.
Jan Hatzius, an economist at Goldman Sachs in New York, thinks that is distorting not only the employment data, but also figures for retail sales, durable goods and even the biggest economic indicator of all -- gross domestic product.
"Our conclusion is that if small firms aren't captured well in the advance GDP data, the economy may be growing less quickly than suggested by the recent official data," he wrote in a recent note to clients.
Recent data has suggested the economy grew at a somewhat slower pace in the third quarter than the 3.5 percent rate the government initially estimated, and many economists think the figure will be revised down later this month.
Because of problems tracking small firms, Hatzius thinks the figure will eventually be revised down much more sharply, perhaps by as much 2 percentage points. But this could take years.
Government statisticians always are in a tug-of-war between trying to provide economic data quickly enough to be useful for policy makers -- and investors -- and ensuring its accuracy.
The task became even trickier during this downturn because the economy suffered such a swift and severe slump that the data struggled to keep up.
BIRTHS, DEATHS AND BREAKDOWNS
Olsson's Books & Records is one casualty of the recession. It filed for Chapter 7 bankruptcy liquidation last year, closing its five stores in the Washington area. At its height, the chain boasted nine bookstores, with some 200 employees.
Terence McCann, who was a business manager at Olsson's for 20 years, said it just got "harder and harder to compete every year."
In filing for liquidation, the company blamed low cash reserves, and an inability to renegotiate current leases, along with a continuing weak retail economy and plummeting music sales -- common ailments among small businesses.
Indeed, 43,546 businesses filed for bankruptcy in 2008, the highest tally since 1998, and the pace has picked up this year, according to data from the American Bankruptcy Institute.
In the second quarter of 2009, the most recent data available, 16,014 businesses filed for bankruptcy, up from 14,319 in the previous three-month period and the highest mark in 16 years.
The Labor Department simply can't catch all those failures fast enough to compile its monthly employment reports, which are normally released on the first Friday after the end of the month. So it must make an educated guess.
Each month, the department surveys about 160,000 firms to get a sense of how many jobs were added or cut. It also uses the "birth-death" model to try to estimate out how many companies opened or closed.
Once a year, the department looks at unemployment insurance tax records to get a more accurate picture of how many people were employed, and matches that up with its own data. Each February, it tries to reconcile these differences by releasing a "benchmark revision".
Normally, the discrepancy is modest. This coming February, it is likely to be about 824,000, according to the Labor Department's preliminary estimate last month. That would mean instead of about 7.2 million jobs lost since the start of the recession in December 2007, there were more like 8 million.
"Preliminary research indicated that a big portion of that was a result of a breakdown in the birth-death model," said Chris Manning, the department's benchmark branch chief.
Until this recession, the birth-death model had a track record of performing well regardless of whether the economy was growing or shrinking.
Manning said his department was still trying to figure out what went awry this time. One possibility is that the model was not sensitive enough to the credit crunch, which choked off borrowing and pushed many companies into bankruptcy.
"We're researching ways to better understand the limitations of the model, in particular when it comes to responding to economic shocks," he said.
One change under consideration is plugging data into the model more often, perhaps quarterly instead of once a year, so that discrepancies would be apparent sooner.
If the department decides on any changes in the next couple of months, it will spell them out in February when it releases the annual benchmark revisions, Manning said.
--- Emily Kaiser and Nancy Waitz, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Nov 19, 2009
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THURSDAY, NOVEMBER 19, 2009, CANADIAN EDITION
TOP STORIES
• CF shareholders back Agrium's hostile tender
• JPMorgan lands Cazenove in US$1.7 bln buyout
• Sears loss narrows as Kmart shows improvement
• OECD sees Fed, ECB rates on hold into late 2010
• Nevsun targets late 2010 for Eritrean gold
BEFORE THE BELL
Toronto's main stock exchange may open lower on Thursday as weak gold and energy prices could constrain the resource-laden market. Investors will also digest a slew of data including September Wholesale trade, which is expected to have risen 1.4 percent, and leading indicators for October, which is expected to have risen 0.7 percent, according to Reuters polls. Wall Street is also set to open lower ahead of some key data. The OECD's twice-yearly economic outlook would play in investors mind, which said the U.S. economic recovery will be weaker compared to recoveries after previous deep recessions, and the high jobless rate will decline only slowly. OECD added Federal Reserve and the White House must begin to withdraw economic supports as growth becomes self-sustaining. European shares were down for the third consecutive session, with food producers amongst the top losers. Asian stocks were mixed even as two big initial public offerings in the region made double-digit gains. Oil eased below US$79 a barrel, while gold retreated from a record high to trade around US$1,145 an ounce.
STOCKS TO WATCH THIS MORNING
• Agnico-Eagle Mines Ltd. (AEM). The mining company has started work at its Pinos Altos gold and silver project in northern Mexico with an investment of US$240 million, Mexico's economy ministry said on Wednesday.
• Agrium Inc. (AGU). About 62 percent of CF Industries' (CF) shares have been tendered in favor of the fertilizer maker, Agrium's hostile takeover bid, according to a source familiar with the matter, but the outcome of Agrium's drawn-out effort to acquire its smaller U.S. rival was more likely to be determined at a different vote later in the week.
• Bombardier (BBDb). French rail operator SNCF said on Wednesday it is in exclusive negotiations with the manufacturer to buy trains in a deal that could be worth as much as 8 billion euros.
• Canadian Imperial Bank of Commerce (CM). The bank is interested in buying Allied Irish Banks' minority stake in U.S. lender M&T Bank Corp, the Irish Independent reported on Thursday.
• CoolBrands International Inc. (COB). The company on Wednesday broke-even in the fourth-quarter. The company also added it continued to receive merger and acquisition opportunities.
• Etrion Corp. (ETX). The energy company and U.S. based SunPower Corp entered into an agreement to build four solar power plants, totaling four megawatts, in the Puglia region of southern Italy, the companies said on Thursday.
• Manulife Financial Corp. (MFC). The life insurer said late on Wednesday it planned to issue $2.5 billion in equity, and reach the fortress level of capital it has sought all year.
• Migao Corp. (MGO). The specialty potash fertilizer producer said on Wednesday it is selling shares worth $30 million, partly to fund the development of specialty potash or related fertilizer manufacturing capacity in China.
• Nevsun Resources (NSU). The company pumped US$21.7 million during the third quarter into its Eritrean Bisha project, the project's general manager said on Thursday.
• Nortel Networks Corp. (NRTLQ). U.S. telecom equipment maker Avaya Inc received European Union regulatory clearance on Thursday for its planned buying of Nortel's enterprise business for about US$900 million. Separately, Nokia Siemens Networks and private equity firm One Equity Partners have jointly bid for the bankrupt Canadian telecommunications equipment maker's optical networking and carrier ethernet business, a person familiar with the sale said on Wednesday, challenging Ciena Corp's (CIEN) US$526 million bid for the assets.
• SunOpta Inc. (SOY). The processor of natural and organic food products on Thursday said it opened natural and organic sesame hulling operation. The company said the plant, which is owned by Sunopta and Kaleb Service Farmers House, has potential to generate revenues in excess of US$20 million.
• Telus Corp. (T). The phone company has sued Rogers Communications Inc (RCIb) for allegedly misleading Canadians with advertising that claims Rogers' wireless network is the fastest and most reliable in the country.
• Thompson Creek Metals (TCM). The molybdenum miner is seeking development projects in the hopes of expanding molybdenum output as demand rises for the metal, its CEO Kevin Loughrey said on Wednesday.
CORPORATE EVENTS
14:00 MAXIM Power Corp. (MXG). Q3 earnings conference call
16:00 YM BioSciences Inc. (YMI). Shareholders meeting
ANALYST RECOMMENDATIONS
• Bank of Montreal (BMO) price target raised to $45 from $43; rating underperform at Blackmont
• Bank of Nova Scotia (BNS) price target raised to $52 from $50; rating outperform at Blackmont
• CIBC (CM) price target cut to $61 from $64; rating sector perform at Blackmont
• Manulife Financial (MFC) price target cut to $19 from $20; rating neutral at Credit Suisse
• National Bank of Canada (NA) price target raised to $65 from $62; rating sector perform at Blackmont
• RBC (RY) price target raised to $61 from $57; rating outperform at Blackmont
• TD Bank (TD) price target raised to $58 from $53; rating underperform at Blackmont
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
COLUMN - A rising tide of capital controls
Easy money in the United States, a falling dollar and growing flows of funds seeking better returns in emerging markets are touching off a new round of capital controls in hot emerging markets, a trend that could accelerate and will at the very least increase market volatility.
It shouldn't be a surprise, really; loose money in the developed world is helping to spur investment into emerging markets, driving currencies up and making local exports less competitive for countries which, unlike China, aren't hitching a free ride as the dollar declines.
Inflation may be a threat for many of these, but with the global economy still struggling, it certainly won't feel that way to policy makers.
Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.
Kazakhstan, which has been intervening actively to slow the ascent of its tenge currency, has introduced legislation allowing capital controls, but so far has not used them.
Indonesia said this week it will consider curbs on foreign holdings of short-term official debt, sending its rupiah into a brief swoon until central banker Hartadi Sarwono damped things down by saying currency moves based on such flows were so far manageable.
Elsewhere all across developing Asia central banks have been intervening to cap gains in the value of their currencies, with Taiwan going so far as to ban foreign funds from investing in local time deposits.
Brazil last month announced a 2 percent tax on foreign investment in stocks and fixed-income securities to limit the strengthening of the real.
International Monetary Fund chief Dominique Strauss-Kahn gave the fund's standard line to the Financial Times: "The IMF would not recommend them as a standard prescription ... as they carried costs and were usually ineffective".
FIGHTING OVER SCRAPS
Ineffective over the long run they may be, but tempting they are in the short term. The very fact that India and China have emerged relatively well from the crisis and have resumed growth in strong fashion gives courage to those considering their own measures. And really, the very idea of an orthodox allegiance to free flowing markets ensuring the best outcome for all now looks pretty 1999. Malaysia attracted a firestorm of criticism when it imposed controls in the wake of the Asian crisis in the 1990s. There was much talk of how investors would go away and not come back, how development would be retarded and Malaysia ultimately would rue the day. None of that has come to pass, and those same investors proved quite willing to come back if the returns looked good enough, as indeed they did.
But Malaysia, along with Chile, were outliers when they imposed capital controls. What will it mean if it becomes not a tool of desperation but a standard policy when hot money flows? There must be a risk that capital controls become part of an escalating series of beggar-thy-neighbor steps taken by countries fighting over the scraps of a diminished U.S. and European appetite for imported goods.
If, in other words, these controls are a temporary phase to ease the transition to stronger currencies, the risks might not be that high. I'd worry that developed market interest rates are going to stay low for a very long time. That means that the grand emerging markets carry trade of borrowing in dollar to speculate for appreciation elsewhere will, as it did in Japan, build and build.
At the same time you have to look at why interest rates will stay so low for so long. My bet is that it is because consumption in the developed world will be under structural pressure as debts are repaid. So the money flows into emerging markets and drives up currencies, but unless domestic consumption in China and India really takes off there will not be a very good market for exports. That will make newly strong emerging market currencies all the harder for those countries to tolerate, economically and politically. If China does not do its part and allow its currency to appreciate, the argument will be all the more stark.
It may or may not be a good idea, but one thing I would not count on is coordinated and globally sanctioned capital controls, as espoused by Arvind Subramanian, a senior fellow of the Peterson Institute: here The U.S. simply won't wear it.
Look then for more unilateral controls and more volatility as speculation of all kinds grows.
--- James Saft, a Reuters columnist. The opinions expressed are his own
(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Nov 18, 2009
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WEDNESDAY, NOVEMBER 18, 2009, CANADIAN EDITION
TOP STORIES
• Ontario stores boost Metro Inc's results
• Canada October CPI rises after 4-month decline
• Niko Resources to acquire Black Gold
• Hopes of Hershey-Ferrero counterbid lift Cadbury
• China orders Microsoft to halt some Windows sales
BEFORE THE BELL
Toronto's main stock index may open higher on Wednesday as the resource-heavy market could gain from increasing gold and oil prices. On the macro side, Statistics Canada said consumer prices rose on an annual basis in October for the first time since May due to less downward pressure on gasoline prices and rising food and household costs. Wall Street is also set for a higher open ahead of key U.S. housing and consumer prices. European shares bounced back to trade near their highest level in more than 13 months, with energy shares gaining ground after an increase in crude prices. The minutes from the BOE meeting published today showed the monetary policy committee was split three ways, with seven members backing the 25 billion pound quantitative easing, one wanting 40 billion and another calling for no increase at all. Asian stocks were down. Oil rose towards US$80 a barrel while gold rose towards US$1,150 an ounce.
COMPANIES REPORTING RESULTS
• Gaz Metro Ltd. Partnership (GZM_u). Expected to report Q4 loss of 28 cents a share, according to Thomson Reuters I/B/E/S
• Tembec Inc. (TMB). Expected to report Q4 loss of 34 cents a share
STOCKS TO WATCH THIS MORNING
• Canadian National Railway Co. (CNR). Negotiators for the railroad and its 1,700 unionized locomotive engineers will resume talks on a new labor contract on Wednesday, a company spokesman said on Tuesday.
• Cantronic Systems Inc. (CTS). The company and GC Global Capital (GDEa) entered into a loan agreement of $1 million and said proceeds would be used for new contract orders and general working capital purposes.
• Commerce Resources Corp. (CCE). The exploration company is aiming to become a major Western supplier to the world of tantalum, a metal necessary to make cell phones, laptops and most digital devices. The company owns the rights to a deposit of tantalum in British Columbia that could produce 1 million lbs a year, the company's president and director, David Hodge, said, on Tuesday, in a telephone interview with Reuters.
• Corel Corp. (CRE). Esw capital said on Tuesday it acquired 8.1 percent of the consumer software maker's shares, for $4.75 per share.
• Cossette Inc. (KOS). Cosmos Capital raised its takeover offer late on Tuesday for the advertiser matching a rival offer by a U.S. private equity group and said it could go even higher.
• METRO Inc. (MRUa). The grocery chain said on Wednesday that a strong performance at its Ontario stores helped the company to post a fourth-quarter results that topped expectations.
• Niko Resources Ltd. (NKO).The oil and gas explorer said on Wednesday it will buy Black Gold LLC to expand its deepwater exploration acreage in Indonesia. The company said the deal will require about $310 million of financing which it plans to fund with convertible debentures.
• Pacific Iron Ore Corp. (POC). The company said it would raise its previously announced financing upto a maximum limit of $3.6 million, from $3.0 million, as it has been over subscribed.
• Seacliff Construction Corp. (SDC). The company said on Tuesday it agreed to buy Saskatchewan-based privately held heavy civil construction company Broda Construction Group for $50 million in cash and stock, including assumption of debt, to expand its market presence.
• Sterling Resources Ltd. (SLG). The oil and gas company posted a higher third-quarter profit on Tuesday, helped by gains from disposition of assets.
CORPORATE EVENTS
10:00 Metro Inc. (MRUa). Q4 earnings conference call
16:00 Gaz Metro LP (GZM_u). Q4 earnings conference call
16:00 Tembec Inc. (TMB). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• BTB Real Estate Investment Trust (BTB_u) price target raised to $0.70 from $0.40; rating raised to hold from sell at Genuity
• Dollarama (DOL) coverage started with sector outperform rating; price target of $23 at Scotia
• Seacliff Construction (SDC) price target raised to $13.50 from $11.75; rating outperform at Raymond James
• Uranium One Inc. (UUU) price target raised to $3.75 from $3.70 at Scotia
EXDIVIDEND
• Canaccord Capital Inc. (CCI). Amount $0.05
• Husky Energy (HSE). Amount $0.30
• Industrial Alliance Insurance and Financial Services (IAG). Amount $0.245
• Lassonde Industries Inc. (LASa) . Amount $0.27
• Ritchie Bros. Auctioneers Inc. (RBA). Amount US$0.10
• Rogers Communications Inc. (RCI). Amount US$0.2723
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Retailers send distress signal for holiday quarter
Investors may be in a merry mood, but U.S. retailers ranging from Target Corp to Saks Inc to Kohl's Corp are warning Wall Street to keep its expectations in check for this holiday season.
The broader U.S. stock market fell on Tuesday after discount retailer Target said it might be a stretch to meet Wall Street's fourth-quarter earnings forecast. It said early November sales were trending below its expectations, and shoppers had pulled back on discretionary purchases.
The comments were the most pointed effort to date by a retailer to lower holiday expectations, and reflected the sentiment of other industry titans such as Wal-Mart Stores Inc, the world's largest retailer, and department store operator Macy's Inc.
"In our view, sell-side analysts are somewhat more optimistic across most of our industry than we believe is warranted in light of the harsh realities of the current environment," Target's Chief Financial Officer Doug Scovanner said on the company's earnings conference call.
Investors have been piling into retail stocks since March, betting the worst has passed for the consumer and retailers' sales and earnings can only improve as shoppers once again begin spending.
The S&P Retail Index has jumped 77 percent since March 9, while the Dow Jones industrial average has risen 59 percent in that time.
But in the past week, retailers have made it clear that consumers are in no mood to splurge.
The all-important holiday shopping season kicks off in earnest on the day after U.S. Thanksgiving, also known as Black Friday, which falls on Nov. 27 this year.
CONSUMERS STILL 'SHELL SHOCKED'
Target said consumers are more disciplined in their spending and prefer buying cheaper private brands over name-brand items. While sales of discretionary merchandise, like apparel, improved in its recently completed third quarter, some of that demand has waned in early November.
"So much of this fourth quarter is going to be decided in the two days after Thanksgiving and four weeks prior to Christmas and nobody really knows at this point in time how good it's going to be," said Target Chief Executive Officer Gregg Steinhafel.
In early October, the National Retail Federation said it expected total U.S. holiday sales would fall 1 percent this year, compared with a drop of 3.4 percent drop in 2008.
Days after it issued the forecast, retailers reported stronger-than-expected September sales. The results raised investors' hopes that holiday sales could outperform as shoppers showed a willingness to spend on back-to-school merchandise.
That optimism faced a reality check earlier this month, when more than half of the U.S. retail chains that report monthly sales posted October results that fell short of Wall Street's heightened expectations.
"I think October...was good to bring expectations down," said Barclays Capital analyst Robert Drbul.
Upscale department store chain Saks, which slashed prices on its designer goods by 70 percent last Christmas, estimated on Tuesday that its fourth-quarter, same-store sales would be down "in the high single digits" after a year of double-digit declines in luxury sales.
While the luxury market may be improving, Saks said consumers remain "shell shocked" and will likely focus on value for some time.
If upscale shoppers are "shell shocked," middle- to lower-income income shoppers are also not ready to spend.
"Customers continue to tell us they're concerned about their own finances and unemployment," Wal-Mart U.S. chief Eduardo Castro-Wright said. "We recognize that some customers may be more cautious in their holiday spending."
The U.S. unemployment rate stands at a 26-1/2 year high of 10.2 percent, and Wal-Mart Treasurer Charles Holley said consumers would need to see a sustainable drop in the unemployment rate before they would feel more optimistic.
FIGHT FOR MARKET SHARE
Retailers are planning for a cutthroat holiday season.
U.S. Walmart stores are slashing prices each week ahead of Christmas. On Tuesday, Walmart said it would offer fresh discounts on toys and electronics starting Saturday.
Walmart.com has also slashed prices on hotly anticipated books, igniting a price war with Amazon.com Inc.
Meanwhile, websites claiming to have copies of Target's advertising circular for Black Friday say the retailer will be selling a coffeemaker and a slow cooker for US$3 each.
Target said it was "unable to confirm the accuracy" of pricing information posted online by other sites.
Kohl's Corp Chief Executive Kevin Mansell told Reuters last week that he was looking at new areas in which to offer exclusive brands, such as men's apparel and women's accessories, to lure shoppers.
"We recognize that in a lower spending environment that this is going to be all about winning market share," he said in an interview.
--- Nicole Maestri, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Nov 17, 2009
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TUESDAY, NOVEMBER 17, 2009, CANADIAN EDITION
TOP STORIES
• Loblaw posts Q3 earnings beats estimates
• Home Depot profit beats Street; outlook raised
• China, U.S. eye pact to help troubled banks
• UBS targets return to profit, says will take time
• Ferrero weighs Cadbury alliance offer - report
BEFORE THE BELL
Toronto's main stock index may open lower on Tuesday giving back some of the gains notched in a triple-digit advance in the previous session, as weaker gold and energy prices weigh. With no key Canadian economic data or corporate news to sway sentiment, the index could be directed all session by Wall Street, which is set open lower after a rally on Monday. Investors will also await the U.S. producer price for October, which is likely to have risen 0.5 percent, after falling 0.6 percent, in the earlier period. The traders would also closely follow the negotiations between China and U.S aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the U.S. European shares retreated from a 13-month high and snapped a four-day winning run after comments from prominent analyst Meredith Whitney, who said banking sector is not well capitalized. Asian stocks pared early gains as investors pocketed gains. Oil and gold fell about half a percent each following a rally in the earlier session.
STOCKS TO WATCH THIS MORNING
• Apollo Gold Corp. (APG). The company on Monday reported third-quarter loss 5 U.S. cents per share, on revenue of US$19.1 million.
• Agrium Inc. (AGU). The fertilizer maker said on Tuesday it has signed a proposed Consent Agreement with the Federal Trade Commission's staff relating to Agrium's proposed acquisition of CF Industries Holdings Inc. The remedies in the Consent Agreement are not material to the proposed transaction with CF.
• Bank of Montreal (BMO). The Canada's No. 4 bank by market capitalization, said on Monday it is taking over Paloma Securities LLC, a U.S.-based securities lender, for an undisclosed amount.
• Bio Extraction Inc. (BXI). The company on Monday reported third-quarter loss of 2 cents per share.
• Black Diamond Income Fund (BDI_u). The company’s said board approved 2010 capital expenditure budget of $69 million and concurrent $25 million bought deal financing. The company added it will sell 1.6 million trust units at $15.20/trust unit.
• Breakwater Resource Ltd. (BWR). The mining, exploration and development company said excessive rain and snow melt has created a considerable amount of water runoff at Myra Falls mine site and it has evacuated the underground workings.
• Crowflight Minerals Inc. (CML). The mineral exploration company said on Monday it was suspending operations at its Bucko Lake nickel mine in Manitoba for three months and laying off about 45 employees temporarily.
• Dragon Pharmaceuticals Inc. (DDD). The company on Monday reported third-quarter EPS of 3 cents, on sales of $41.5 million, which rose 17 percent.
• Hanwei Energy Services Corp. (HE). The company on Tuesday broke-even for the third-quarter and said revenue was $17.2 million, for the period.
• Heritage Oil (HOC). The company said on Tuesday talks with Turkey's Genel Energy are ongoing and that it hopes to reach a formal agreement on the proposed US$6 billion merger before the end of the year. • IMAX Corp. (IMX). The company on Monday entered into a new credit facility of US$75 million, which consists of revolving loans of up to US$40 million and a term loan of US$35 million. The company added new facility extends to October 2013 and allows for increased borrowing capacity.
• International Minerals Corp. (IMZ). The company on Monday reported first-quarter EPS of 1 U.S. cent.
• Loblaw Cos. Ltd. (L). The grocery store chain on Tuesday reported third-quarter EPS of 69 cents, on sales of $9.47 billion. The company added same stores sales declined by 0.6 percent in third-quarter.
• Minera Andes Inc. (MAI). The gold and silver explorer on Monday reported third-quarter EPS of 2 U.S. cents and said silver and gold sales from the San Jose mine totaled US$46.1 million.
• Nortel Networks Corp. (NRTLQ). The bankrupt telecommunication equipment company posted a $508 million third-quarter loss on Monday as it finances were hit by customer uncertainty over its bankruptcy proceedings and the tough economy.
• Scott's Real Estate Investment Trust (SRQ_u). The company said on Monday it would acquire 12 retail properties from Shoppers Drug Mart (SC) for $30 million.
• Sierra Minerals Inc. (SIM). The company on Monday broke-even for the third-quarter, on revenue of US$5.38 million, which rose 11 percent.
CORPORATE EVENTS
10:00 First Uranium Corp. (FIU). Q2 earnings conference call
11:00 Loblaw Cos. (L). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Aecon (ARE) price target raised to $19 from $16.50; rating strong buy at Raymond James
• BNK Petroleum (BKX) coverage started with buy rating; price target of $1.40 at Genuity
• Goldcorp Inc. (G) price target raised to $55 from $54; rating outperform at Blackmont
• Lake Shore Gold Corp. (LSG) price target raised to $4.40 from $3.50; rating market perform at Raymond James
EXDIVIDEND
• Matrikon Inc. (MTK). Amount $0.03
• SNC-Lavalin Group Inc. (SNC). Amount $0.15
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Strong U.S. metal imports fuel economic rebound hope
Greater shipments of industrial metals into the United States in September reflect a budding optimism in the economy and relatively attractive prices should keep luring manufacturers into replenishing depleted inventories.
The U.S. International Trade Commission on Friday reported that September copper imports soared more than 50 percent from August to 56,012 tonnes. Aluminum shipments were up more than 18 percent to 134,800 tonnes, and zinc and nickel also showed month-over-month gains.
"I think people are probably viewing prices here as being pretty good and they want to build a little inventory," said Sterling Smith, an analyst for Country Hedging Inc. in St. Paul, Minnesota.
Prices of copper and aluminum have been in broad-based consolidation range since August, and now look poised to make new highs for the year as economic prospects brighten.
Copper futures in New York rallied to a 13-1/2-month high on Monday and aluminum futures on the London Metal Exchange (LME) rose to their loftiest levels since mid-August.
"We are probably looking at a better demand scenario moving into Q1, 2010 and Q2," Smith said.
Looking back one year, metal-intensive industries like manufacturing and housing were hit hard from the global economic downturn, forcing fabricators and home builders to run down personal supplies as a form of protection from a deteriorating demand environment.
"Why would you want a bunch of inventory if you have no idea what the future holds?," asked Michael K. Smith, president of T & K Futures and Options Inc. in Port St. Lucie, Florida. "That costs money for storage insurance and interest ... they kept it at a bare-bones minimum."
That hand-to-mouth type business eventually ran inventories down to oversold levels, and promoted a wave of restocking in 2009 in the world's largest economy.
Recent data reinforced the brighter economic outlook.
The Institute for Supply Management Manufacturing index rose to 55.7 in October, marking the third month of expansion, while a 0.7 percent rise in industrial production and gains in both construction spending and new housing starts added to the positive sentiment.
"I think we are still looking at a general economic improvement," one New York-based metals dealer said. "With the weakness in the dollar, people are going to want to hold inventory as a simple defense against prices moving higher."
Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto, expected U.S. demand for metals, particularly copper, to keep improving as government stimulus measures begin to take hold.
"The U.S. will likely continue to ramp up spending, keep interest rates at extremely low levels and provide ample financial sector liquidity for most of 2010," Melek said in a research note.
"Out of the US$787 billion allocated for the U.S. stimulus program, only about a fifth to a quarter has been spent so far. Much more of the U.S. stimulus money is to come out by end of fiscal 2010, with maximum impact occurring in Q4 2009 - Q2 2010," he said.
--- Chris Kelly, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Nov 16, 2009
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MONDAY, NOVEMBER 16, 2009, CANADIAN EDITION
TOP STORIES
• GM to start repaying US$6.7 bln U.S. loan
• Lowe's posted lower-than-expected Q3 profit
• Cisco ups Tandberg bid, says has 40+ pct backing
• Babcock Infrastructure investors back Brookfield plan
BEFORE THE BELL
Toronto’s main stock index could open higher on Monday as commodity prices rise driven by weaker U.S. dollar. On the macro front, factory sales is expected to have risen 1.7 percent in September, compared with a fall of 2.1 percent in the previous month, according to a Reuters poll. Wall Street is also poised for a higher open ahead of retail sales data, as investors look for clues about consumer spending ahead of the holiday season. Also, General Motors Co will announce today that it plans to start repaying a US$6.7 billion loan to the U.S. Treasury by year-end due to modest operating improvements, a source knowledgeable about the situation said. European shares advanced for a fourth straight session to trade just below a 13-month high, led by resource-related stocks. Asian markets were also up. Oil prices rose above US$77 a barrel, taking back most of last week's 1.4 percent losses. Gold touched a fresh high above US$1,130 an ounce, before shedding some gains to trade at around US$1128.60 an ounce.
STOCKS TO WATCH THIS MORNING
• Aecon Group Inc. (ARE). The company said on Monday it won a key oil sands project that would see it complete the field construction of Suncor's Firebag 3 central plant facilities.
• Antrim Energy Inc. (AEN). The company on Monday reported third-quarter loss of 1 U.S. cents per basic share, on revenue of US$4.2 million.
• BAM Investments Corp. (BNB). The company on Friday reported third-quarter EPS of 3 cents.
• Brookfield group (BAMa). Shareholders in Babcock & Brown Infrastructure on Monday approved a US$1.7 billion plan backed by Brookfield to rescue the debt-saddled Australian port, railway and pipeline asset manager.
• Canadian Apartment Properties Real Estate Investment Trust (CAR_u). The company on Friday reported third-quarter net FFO of 36 cents.
• Fronteer Development Group Inc. (FRG). The company on Monday reported third-quarter EPS of 10 cents.
• Harvest Energy Trust (HTE_u). The company on Friday reported third-quarter loss $3.95 per trust unit, on revenue of $991.9 million.
• High River Gold Mines Ltd. (HRG). The company on Friday reported third-quarter loss of 1 cent a share, on revenue of $90.5 million.
• Imperial Metals Corp. (III). The company on Friday reported third-quarter adjusted EPS of 31 cents, on revenue of $53.8 million.
• Ivanhoe Energy Inc. (IE). The company on Friday appointed Gerald Schiefelbein as the new CFO, who will be taking position of retiring CFO Gordon Lancaster.
• Ivanhoe Mines Ltd. (IVN). The company on Friday reported third-quarter loss of 18 U.S. cents per share, on revenue of US$11.9 million.
• Royal Host Real Estate Investment Trust (RYL_u). The company on Friday reported third-quarter loss of 10 cents a share, on hospitality revenues of $25.2 million.
• Sabina Gold and Silver Corp. (SBB). The company on Friday reported third-quarter loss of 1 cent a share.
• Uranium One Inc. (UUU). The company on Monday said the Kazakh Ministry of Energy and Mineral Resources approved the company's 50 percent acquisition of the Karatau Uranium mine. The company said the deal, which is expected to close on or about December 15, would be paid by the issuance of 117 million shares and a cash payment of $90 million.
08:30 Manufacturing sales for Sept. Prior -2.1% Expected 1.7%
CORPORATE EVENTS
10:00 Canadian Apartment Properties Real Estate Investment Trust (CAR_u). Q3 earnings conference call
10:00 Uranium One Inc. (UUU). Q3 earnings conference call
11:00 Enterra Energy Trust (ENT_u). Q3 earnings conference call
16:30 TLC Vision Corp. (TLC). Q3 earnings conference call
18:00 Equinox Minerals Ltd. (EQN). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Advantage Energy (AAV) price target raised to $8.25 from $8; rating outperform at Raymond James
• Allied Properties REIT (AP_u) price target raised to $17.60 from 16.50; rating market perform at Raymond James
• Boardwalk REIT (BEI_u) price target raised to $37 from $34.50; rating market perform at Raymond James
• Ensign Energy Services (ESI) rating raised to outperform from market perform at Raymond James
• First Uranium (FIU) price target cut to $3.60 from $4.40; rating outperform at Raymond James
• Neo Material (NEM) price target raised to $5 from $3.75; rating outperform at Raymond James
• Northern Property REIT (NPR_u) price target raised to $24 from $20.25; rating raised to outperform from market perform at Raymond James
• Uranium One (UUU) price target raised to $3.70 from $4; rating cut to market perform from outperform at Raymond JamesECONOMIC CALENDER
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
HP-3Com deal raises stakes in tech M&A battle
Major technology companies seem to be launching multibillion-dollar acquisitions every other week, and those who don't join the race may be at risk of getting run over.
Hewlett-Packard Co challenged Cisco Systems Inc last week by announcing a US$3 billion deal for network equipment maker 3Com. It came after Cisco stepped up its dealmaking and expanded into the server market to compete with HP, IBM and Dell Inc.
"I think this is the start," said Ronald Gruia, analyst at Frost & Sullivan. "Once you have one acquisition, you can have a cascading effect."
The motivation behind this wave of dealmaking by the tech majors is to broaden product portfolios and provide for all of customers' IT needs -- from computing, security, storage and networking to online videoconferencing.
HP's 3Com deal comes after a string of M&A news including Dell's deal for Perot Systems Corp, Xerox Corp's deal for Affiliated Computer Services Inc and Oracle Corp's deal for Sun Microsystems.
IBM, which bid for but failed to win Sun, has been comparatively quiet on the dealmaking front, doing some smaller deals to expand its services business and signing sales partnerships but nothing viewed by Wall Street as a game changer.
Pressure is mounting on technology companies to diversify to satisfy shareholders' demands for more dramatic sales growth as the economy recovers, analysts said.
"There are three big enterprise infrastructure vendors today: IBM, HP, and now Cisco. And they're all competing against one another," said Broadpoint AmTech's Brian Marshall.
Smaller, niche technology firms, on the other hand, are increasingly open to buyouts as a way of securing a solid sales channel. A smaller company bought by a large vendor like Cisco or IBM could could turn into a serious competitor overnight.
M&A deals are also a response to customers looking for simpler and cost-efficient ways to run data centers, which are struggling to cope with increasing data traffic.
"All of us are under pressure in the IT environment to allow businesses to do more with less," VMware Chief Executive Paul Maritz told Reuters in an interview. "People are trying to say, rather than selling everything piece by piece on an a la carte basis, requiring customers to be their own master chefs, we're going to sell more prepackaged meals here."
BROCADE, RIVERBED, F5
Companies like Riverbed Technology Inc and F5 Networks Inc, which specialize in supporting faster and more secure online applications, are widely seen as possible acquisition targets.
F5 shares have risen 75 percent in the last six months, though Riverbed is up only 18 percent. Both companies trade at around 25 times forecast 2010 earnings.
And while HP's offer for 3Com made it look like Brocade Communications Systems Inc may have missed out, some analysts said the switching and storage networking company is still an attractive target.
"I think Brocade is still definitely in play," Gruia said, adding that IBM could be a buyer. Brocade shares have fallen more than 12 percent since HP announced the 3Com deal.
Most analysts, however, said IBM is likely more interested in expanding in software and services than hardware. It has bought business analytics company SPSS Inc for US$1.2 billion.
"They're really going to focus on software because that's where the value and the real margin structure in growth is," said Marshall.
Analysts say HP and Dell could also do more deals, and many see network equipment maker Juniper Networks Inc eyeing M&A to compete against Cisco.
Other acquisition targets include wireless technology firms as well as companies specializing in online video, analysts said. They are particularly focused on Polycom, whose bigger rival Tandberg is being courted by Cisco. The Tandberg deal is not yet final as some shareholders are seeking a higher price.
PARTNERSHIPS
Polycom CEO Robert Hagerty said that rather than find a buyer, it was trying to boost sales partnerships with vendors like HP and IBM. That is similar to the strategy at Brocade, which has forged more deals with IBM and non-Cisco vendors.
Analysts said depending solely on such partnerships may leave many companies vulnerable. Resale partnerships can be cast aside when one party enters an M&A deal with another.
For example, video network infrastructure company Radvision is a close partner of Cisco, but analysts say some of its sales are at risk if the Tandberg deal goes through.
But some also note that acquisitions themselves are high-risk endeavors. Cisco chief John Chambers has said that around 90 percent of acquisitions fail, in general.
"As we all understand, the vast majority of acquisitions fail, and truly meaningful strategic alliances have an even poorer success rate," Chambers told analysts recently.
The cross-Atlantic merger of Alcatel-Lucent, which posted its 12th straight loss in the third quarter, is widely cited as a failure.
--- Ritsuko Ando, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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(Please note Canadian quotes are delayed 15 min)
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