Wednesday, December 31, 2014

2014 the year of Canadian Technology and Services Stocks CAE Inc, Constellation Software, CSU, OTEX, TSX (aviation training, software, growing companies, acquisitions)

CAE Inc (nyse:CAE) - aviation stocks, aviation training services, aerospace industry, healthcare sector

This year CAE Inc of Montreal became one of the world's largest simulation technology companies.  Its business is arguably the most diversified in the training services sector - at just under 200 locations in over 30 countries the company offers training services for pilots (civil aviation, defence), and manufactures key simulation technology for healthcare and security agencies.  50% of revenue comes from the sale of products (simulators and related technology) with the rest coming from services (aircraft operations training - over 100,000 civil and military personnel).

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why this stock ?  it's low risk !
Among industry observers CAE enjoys a rock solid reputation.  It's extremely diversified (does not rely on a single market sector or customer), owns unique technology that has quickly become a mainstay in global aerospace training.  Business from healthcare is strong (hospitals and universities).
  • a global leader
  • the leading provider of commercial and helicopter aviation training services worldwide - second leading provider of business aviation services - market leader in key regions of China, India, South America
  • highly exposed to the growing defence and security sector (6% increase in revenue quarter ended September 30, 2014 - thanks to more activity in north amerca, europe and asia).
  • secured new contract to train the US Air Force
  • four consecutive years of revenue growth (2,114.90 2,035.20 1,821.20 1,630.80)
  • four consecutive years of dividend growth (0.22 0.19 0.16 0.15)
  • earnings up 38% last fiscal year (March to March) to $190 million.
1-year  6-months  3-months  1-month
1.2%  (1.4)%  6.8%  (1.2)%

Constellation Software Inc

2014 was a great year for Constellation Software Inc of Toronto (tsx:CSU).  The stock is up 60% for the year, bringing the market capitalization of the company to just under $8 billion and for good reason - in the latest quarter
- revenue is up a hefty 33% to $419 million (acquisitions accounted for all but 4%).
- earnings up 44% to $32 million vs $22m (per share $1.51 vs $1.05).
- adjusted ebitda up 73% to $100 million.
it's not just that last quarter either that has investors gleaming - over the last nine months adjusted ebitda is up 55% to $244 million.  net income up 26% -> $64 million.

what I like about the company 
it manufactures market leading software and has exposure to a number of industries (public and private).  the software it provides is critical making its products invaluable (meaning there are few if any alternatives - makes for more reliable customers).  Annual revenue recently surpassed $1 billion ! and quarterly growth is light years ahead of the competition (over 50%).  For a company with a market value over $7.3 billion it's an amazing feat to record 60% growth in stock price in just one year.
tsx:CSU    stock price change
1-year   6-months 3-months 1-month
 59.48%  27.02%       21.35%    4.19%

Open Text Corporation of Waterloo, Ontario  (b2b services, yahoo) - nasdaq:OTEX

2014 was a wonderful year for Open Text Corporation - It's New Year's Eve and year-to-date the stock up 28% to $58.26 (market cap at $7.2 billion on the nasdaq).  Like other Canadian success stories

Sunday, November 30, 2014

Retail Stocks To Watch During Holiday Season Hudson's Bay Company HBAYF, Target TGT, Sears SHLD department stores

Even though total sales during thanksgiving weekend were unchanged and black Friday sales were down 7%, the overall picture is not so bleak i) the official numbers released by the national retail federation do not include online sales (where major retailers like IBM, Target have already reported increases of nearly 10% versus the previous year) ii) sales are forecast to rise by 4% in november/december (holiday sales) which would be the biggest increase in three years.  Another thing benefiting Americans is a strong US dollar - this makes it easier for retailers to lower prices stateside.

US sales figures: black Friday : $9.1 billion -7%.  thanksgiving holiday : $3.2 billion +24%.

With Christmas only a month away let's look at a few stocks possibly benefiting from all this retail activity                     investing

Companies Benefiting From The Holiday Season

Target Corporation (TGT) - Canadian retail sales growth is strong (online sales up 23% nationwide), and with key competitors Canadian Tire CTC.A and Sears SHLD offering little in the way of online competition, there's good reason to expect a surge in sales at Target Canada.  Because Canada has one of the world's highest import fees, Target Canada is not exposed to as much online competition in the country as it is stateside. (Target competitors)
.. online sales matter : online retail sales up +22.6% in 2014.. 6.7% of all Canadian retail sales now occur online.

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Hudsons Bay (nasdaq:HBAYF) - HSBC commands a leading share in Canada's high end clothing market.  With Sears (nasdaq:SHLD) shifting its focus away apparel and into major appliances, hbayf could see an uptick in sales due to market share growth.  The company has a rich real estate portfolio - total retail asset value is $7.3 billion (including those in the US) which is twice the market valuation of the entire company !  Earlier this month its most coveted asset, the Saks Fifth Avenue flagship store in NYC was appraised at $3.7 billion which comes out to $1.3 billion more than what it paid for the entire company last year ! The CEO also has expressed interest in creating a real estate investment trust (reit) using company property.  hbayf - even if you exclude heavyweight Saks, group sales are healthy meaning the retail business adds value to the stock.  Also HBAYF is in the process of refinancing existing debt so as to reduce its long term debt load.  CEO Richard Baker is interested in opening new locations in high traffic areas - with more money coming in from the real estate side of the business he will be able to do this without the burden of short term debt (healthy quick ratio = less risk).
seraphim's advice - Richard Baker knows the retail market for apparel and is a real estate genius.  He's put the company in an enviable position - to grow throughout North America.  Saks, Hudson's Bay, Lord & Taylor are established brands with a long history - the fact that they have continued to do well when others like Sears are on life support, is a testament to the brand strength.  There's plenty of shareholder value to go around.
if you're looking for a company that maximizes shareholder value Hudson's Bay is the way to go - it took just a few years for privately held NRDC Equity Partners to turn a bankrupt chain of Canadian department stores into a money making asset.  The Zellers real estate assets that were sold for $2 billion two years ago didn't even touch the company's premier properties in Calgary, Montreal, and Vancouver.

Friday, October 31, 2014

Still Bullish On Gold & Coal, Alpha Natural Resources ANR Seabridge Gold SA Undervalued Radar Stocks Commodities

Alpha Natural Resources nyse:ANR - I made the mistake of not recommending this stock in my last post.  ANR is up 15% since October 11th.  Though the company's balance sheet still needs some tweaking, it's already showing signs of improvement (good quick ratio (short term equity to debt ratio), quarterly earnings losses not as bad as they used to be, metallurgical coal market is picking up / ANR is the leading producer of this type).

A third of company revenue comes from outside the US where demand will continue to be strong (doesn't have to deal with the Environmental Protection Agency EPA).

On reserves alone, the company's valuation is in the billions.  In 2011 after acquiring Massey Coal, the company was worth more than $10 billion - it is now a measly $434 million.  So what went wrong ?  the debt it absorbed when it acquired Massey was substantial and just after making the deal the company was faced with a series of write-downs which took away its profitability and damaged its reputation.  Some of that stems from an overall decline in the coal price, but not all of it ;

Rumors of an Obama war on coal have been rampant but have yet to come to fruition - in some states coal is just too important to simply phase out.  ANR is a major producer of thermal coal (used in electricity generation) and it relies heavily on sales of this in states like Kentucky - Obama recently mandated a 30% cut in carbon emissions by fuel burning power plants by 2030.  The easiest way for the states to accomplish this is to completely overhaul the way power plants generate electricity in states like Kentucky where thermal coal is the number one source of electricity.

However, given that public opinion is against it (full implementation will cost a quarter of a million jobs) and that democrats have a strong interest in winning Kentucky, it seems unlikely that those radical changes will be implemented anytime soon.  Add to that the higher costs associated with using natural gas (9c per kWh) and renewables (23c per kWh vs 4c for coal) to make electricity and you have a lot of reasons to invest in undervalued coal stocks like ANR.

The Gold Price Fell 5.4% In September Then Another 4.6% In October = Down US $126 In Just 61 Days !  

It's not just equities and the dollar that are pressuring the price of gold.

gold: not as popular among hedge funds

Total holdings by gold exchange traded funds (ETP) is now at the lowest level since 2009.
SPDR Gold Trust GLD is the largest physically backed gold ETF (two-fifths of industry holdings) - SPDR net holdings are at their lowest level since 2008.

It doesn't matter whether it's for jewellery or bullion, gold demand worldwide has been down for the better part of this year.
In the first and second quarters it was probably the price that turned consumers off (remained in a tight range between $1250 and $1310 after hitting $1385 in late March 2014), and with currencies such as the Indian Rupee and Canadian Dollar nearing four year lows against the greenback, the price may have just been too high.  In Q1 demand fell -26%, Q2 -16%.

A Reason To Be Bullish - India

The Indian festival of Diwali is a big reason India is the world's largest market for gold (#2 in 2013 but #1 in 2Q2014).  Last year, demand for gold during Diwali was down -33%, but this year jewelry sales are up +20% !

2014 Diwali : the price for 10 grams of gold averaged 27.5th rupees which is 15% less than in the previous year (32.5th).

Gold Price In US Dollars                                        
sept 2013 1392.25 -> 1326.50  -4.7%         sept 2014 1286.50 -> 1216.50 -5.4%
oct   2013 1290.75 -> 1324.00 +2.6%         oct  2014 1216.50 -> 1160.40 -4.6%

I'm Still Bullish

Though recent trends point to a bear market I remain somewhat bullish, at least for the long run.  US dollar, though up has been unsteady.  It appears to be stronger versus the key reserve currencies yuan, yen, Canadian $, Australian $, Euro, but I don't consider the current level to be sustainable.
US economic growth forecasts remain subdued, the effects of a strong dollar can wreak havoc on exports of US products since prices get more expensive in other currencies (why China has long maintained a low yuan policy).  Also, less exports tip the US trade imbalance even more in China's favor - this will stunt jobs growth as companies would rather pay employees in a cheaper currency. With QE3 down to only $15 billion a month from a high of $85 billion a year ago, any growth the US experienced earlier this year could disappear just as quickly as it appeared (less stimulus / harder for small businesses to borrow).

Tuesday, September 30, 2014

Electrolux eluxy Doubles US Market Share (whirlpool whr), Jaguar Tata Motors ttm Organic Growth China luxury vehicle market

If you're into retail stocks here's one to consider -  Electrolux eluxy aka Sweden's version of Whirlpool is taking the US by storm.  On September the 8th it acquired General Electric's (ge.n) appliances business for $3.3 billion (7 times ebitda multiple).  The move doubles Electrolux's market share in North America ($4.0 billion in sales -> $10.0 billion) putting it in direct competition with market leader Whirlpool whr.n.

Electrolux is already the number two player worldwide but this deal means a lot given that the US is the world's third largest market for sales of major appliances (2013: 28% of Electrolux sales come from Europe vs 32% stateside).. also note that American demand for appliances is estimated to grow by 9% in 2014 (up from previous estimate 7%).  And don't forget about the $300 million in synergy cost savings.. increased profitability right off the bat !  Less competition in the industry could mean higher prices - but even if that doesn't happen, Electrolex will undoubtedly have more control over the market price of its products.
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Electrolux was doing well in North America even before this move - organic growth there is at 7% compared to 0.4% in Europe.  Whirlpool has a market value 40% greater than Electrolux despite having similar revenue;  Electrolux quarterly profit though has been wildly inconsistent.  Annual earnings are comparable to Whirlpool with the exception of 2013 ($827 million vs $93 million) but don't let that bother you - Electrolux is expanding rapidly in emerging markets (also a gradual move in production to low cost regions is estimated to boost 2014 earnings by a hefty $284 million) and the costs associated with that process have been high but, by establishing itself early in those regions Electrolux is setting itself up for the future (and gaining an edge over the competition).

Tata Motors is growing.. very fast

Tata Group (private) is perhaps India's most diversified company.  It sells beverages such as coffee and mineral water, generates electricity for public use, mines salt, manufactures automobiles (both high and low end), provides telecommunications services in India (Virgin Mobile India), is a service company (hotels, airasia, financial services).  Its largest publicly traded subsidiary is Tata Motors nyse:ttm.  In 2012 the auto division was worth $15.2 billion, today it's at $25.2 billion (all organic growth !).

Despite no major acquisitions over the last few years, auto division Tata Motors finally appears to have an asset capable of providing organic growth.  In 2008 it acquired struggling automarker Jaguar Land Rover from Ford for $2.3 billion (today the Jaguar unit represents 95% of Tata Motors' valuation which translates into $23 billion !).  The deal instantly gave Tata a foothold in overseas markets (a plus for a company looking for international recognition) but unbeknownest to Tata, sales at Jaguar Land Rover didn't need much of a push to take off  - between 2009 and 2013 auto sales doubled to 425,000 units ; with 18.8% yoy growth last year.  In 2013 global sales of Jaguar models was up 37% (North America +50% vs -6% the previous year).  Demand from China will have a tremendous impact on future growth (is currently the leading market for Jaguars; will push unit sales up to 1 million by 2020).  Last fiscal year China accounted for 24% of Jaguar Land Rover sales vs 21% the year before.
China is embracing Tata Motors and why not ?  The country has low current luxury ownership rates, rising proportion of affluent individuals, and a strong affinity for premium brands.  
Currently Jaguar represents 7% of all luxury vehicle sales in China (luxury vehicle market); estimates show China's total demand will reach three million by the end of the decade, Tata will account for at least 250,000 units, if its share increases then expect auto sales to rise markedly.
more..  Tata makes electric vehicles and owns South Korea's second largest manufacturer of heavy commercial vehicles (Daewoo has been a part of Tata Group since 2004).  On the flip side Tata Motor's low end passenger vehicle business has fared poorly (sales in India of its own makes including the Tata Nano and Zest are down 33% so far this year 88th -> 58th) but the company is committed to reviving it and has the assets to accomplish that ($7 billion cash, a parent company that both operates leading European and Indian engineering technical institutes and even mines/fabricates the steel used in its cars).

Tata Motors stock price change : 1 mo -10%, 3mo +13%, 6mo +9%

Magna International Expands In India (nyse: MGA)

The largest auto parts marker in North America makes Asia a priority
September 29, 2014 - Magna announces plans for two new facilities to be built in Gujarat, India.  The plants will produce seat systems and body and chassis systems.  Magna already produces various parts in India for GM, Ford, and Nissan.

Sunday, August 31, 2014

USA loses Burger King BKW & Petro Dollars first rouble oil shipment, Tim Hortons Merger Good For Loonie, gold demand

On August 27 rumblings of a Burger King corporate inversion made the headlines but its significance is far outweighed by another event that transpired the same day:  Russia's Gazprom OGZPY ships the first tanker of oil (80,000 barrels) ever to be sold internationally in a currency other than the US dollar.  The destination ? China via the Siberian Pacific Ocean pipeline connection.

A Sign Of Things To Come - veering away from Petro Dollars

In addition to this, two other shipments headed for Europe are also reported to involve roubles.  If you don't have roubles don't fret - Gazprom also accepts Chinese Yuan !  It's unclear as to whether or not this move was made in response to recent sanctions since China and Brazil are also attempting to do the same thing.

Russian Rouble forex rate falls to Record Low

On August 29 the rouble fell to 37:1 versus the US dollar, the lowest exchange rate seen since the Russian currency was restructured in 1998.

America Continues To Lose Big Name Companies - Burger King a Canadian Restaurant Chain ?

The second last weekend of the summer couldn't have ended soon enough for Burger King BKW and InterMune ITMN - mergers and acquisitions

California based InterMune a leader in therapies targeting lung conditions, was acquired by Switzerland's Roche RHHBY for $8.3 billion.
The same day it was also announced that Burger King is in talks to buy Tim Hortons THI in a corporate inversion - merged company uses the move to change country of domicile - New Canadian headquarters presumably will be in Oakville.

Oakville has the sixth-lowest business tax rate among two-dozen Greater Toronto Area municipalities, will be scouted as a potential location.  Last year, federal and state income taxes represented 34% of profits at Burger King.

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One is acquiring the other for $11.4/$C12.5 billion ($3 billion in finance from Berkshire Hathaway gives it a preferred stake which pays a higher dividend yield) or $94.05 per share - $65.50 in cash and 0.8025 per share of the new company for each share they own

... however, Canadian taxes may not be the issue

Daniel Schwartz, Burger King’s C.E.O. added, “We don’t expect there to be meaningful tax savings, nor do we expect there to be meaningful changes to our tax rate.”  Last year Tim Hortons effective tax rate was virtually the same as the US rate of 27.5%.

Other reasons why the company is relocating - Two-thirds of the combined company's revenue will come from Canada, with 20% from the U.S. and 13% from the rest of the world.  Tim Hortons is underleveraged meaning they can borrow against those assets -> this will enable the new company to make even more acquisitions !  

What allows BKW to transfer its headquarters to Canada is thisunder US tax law, if the US company transfers more than 20% of its shares to the foreign firm it can switch its tax jurisdiction.

The Canadian corporate tax rate of 26% compares favorably to the 35% rate stateside - last year Burger King paid a rate of 27%.  Canada has the second lowest tax rates in the G7.  "total tax costs are up to 40% lower in Canada versus the USA".   you see, overseas income is only taxed when it's brought back to the country of domicile.

Burger King is undergoing tremendous growth abroad, something that Tim Hortons has been trying to do over the last few years, unsuccessfully - 859 of the 879 non-Canadian locations are in the United States.
BKW is the larger of the two brands (13,000 restaurants vs 4600 Tim's) but the bulk of its restaurants are franchised, meaning corporate revenue isn't as strong as it is at Tim Hortons (for instance Burger King Canada is not even a part of the company ! it was sold by 3G Capital back in 2013).  Although BKW net earnings doubled last year (117.7-> 233.7 million) it has yet to match that of Tim Hortons ($424.37 million, up 5% in 2013).

After the deal is completed, Burger King can leverage Tim Hortons ability to tap the breakfast, coffee and snack market, making it more competitive with McDonald's.

Tim Hortons THI has always been a great investment - company brass have always been open to partnerships with other fast food industry players.  Previously they were involved Cold Stone Creamery and before that, Wendy's.   Some say that the ice cream partnership didn't work out (cost Tim's $19 million to terminate the deal but it did last a few years) however if done right, this one could actually work !
Brazil's 3G Capital will be the company's largest shareholder (51% of combined company; was 70%  pre-merger).  3G also controls iconic Canadian beer maker Labatt Breweries.

Thursday, July 31, 2014

Agnico Eagle Mines AEM A Safe Gold Investment, 2014 Palladium Deficit, EU Trade Deal Favors Companies

Agnico-Eagle Mines AEM stock hit a 52-week high of $42.12 on July 28th, a gain of 27% since May.  This should come as no surprise given that i) it's a consistent producer - whereas other high profile companies ie Gold Fields have had to selloff assets in anticipation of the lower gold price ii) high grade mines give it flexibility iii) improved cash flow and output stemming from a 50% interest in Osisko's Malartic mine.

- 20% increase in production from Malartic mine (50% interest) leading to improved cash flow.  Osisko was pursued by three high profile gold companies.
- In 2014 gold margins industry-wide are expected to increase owing to a more stable gold price, companies abandoning low grade non performing assets, better logistics.

Agnico-Eagle 2q2014 earnings surprise despite $19.9 million in new costs connected to the recent acquisition of Osisko Mining Corp.
For the quarter Agnico earned $37.7 million (versus a loss of $24.4 million last year) or 20 cents per share (vs -$0.14 per share).  Quarterly operating cash flow at $197.7 million (versus $75.3 million).
Gold prices were down but production was way up !  Output at 326,059 ounces with total cash costs at $626 an ounce; Malartic contributed 11,878 ounces (Agnico's share of 2 weeks worth of production in June - total Osisko output 23,756 at $614; for the entire second quarter, Malartic produced 133,181 ounces of gold at a cash cost of $645.

China Hacking Canada

Canada is accusing China of hacking into the CNRC Canadian National Research Council.  This is significant news because if true, China would have gained access to new Canadian technology: the council is responsible for bringing new technologies to market.

SecuSmart anti-eavesdropping

BlackBerry BBRY buys SecuSmart of Germany.  SecuSmart provides high-level voice and data encryption for business, governments, and telecommunications service providers.  Secusmart technology is already being used by government officials in Germany - it adds another layer of security to BlackBerry devices.  SecuSmart is widely respected within the European community for their patented micro sd cards which, when connected to mobile devices render them virtually impenetrable to hacking (149 years using brute force).  In my opinion, this deal gives BlackBerry a key advantage over IBM-Apple in the enterprise market.

2014 Palladium Deficit

Automaker Mistubishi is "forecasting a 1.8 million ounce palladium deficit this year due to the perfect storm of South African supplies falling to a near 20-year low, growing autocatalyst demand and of course the heavy inflows into the two South African ETFs,"  this bodes well for the price of palladium which has significantly outperformed both gold and silver this year.
January 1, 2014 - July 30, 2014: palladium up +22.5% $717 -> $878, gold +5.9% $1221.3 -> $1293.9, silver +2.8% $20.04 -> $20.60

Canada-EU free trade pact to be rejected by Germany

“There’s a fair chance the whole (Canada-EU) agreement could unravel” over the investor protection issue - the clause gives investors and corporations more power to challenge national governments and get around regulations.
Europeans put more stock in decisions made by international tribunals; this law gives multinational corporations precedence over special tribunals. What the corporations are saying is that these mechanisms are needed to convince investors their money is secure in foreign countries.
The Germans are concerned that it gives investors and corporations too much power to challenge national governments.

I think they're right !  Tribunals exist to protect the interests of the populace, the state and the worker.  This means even more today where high food prices, gas prices, and drug costs are becoming major issues.

Monday, June 30, 2014

Germany Rebuffs American Companies NSA, US Fed, Russia Gold Reserves At Record High

It's not just soccer that is pitting these two superpowers against one another;
German government cancels contract with America's number two wireless services provider Verizan (nyse:VZ) over allegations the NSA has unrestricted access to all information going through Verizon, regardless of how sensitive that information is.  Germany is deeply concerned about "the ties revealed between foreign intelligence agencies and firms".
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Germany versus USA: Who Wins ? Federal Gold Reserves Stay In NY

Also this month, the German government cancelled a previous request to repatriate Fed-held gold reserves, on account of the slow pace / doubts about their whereabouts still prevalent.  The cancellation comes just 1.5 years into a 7 year plan that had called for the return of 87 tonnes per year (374 tonnes from Paris, 300 tonnes from New York), though Germany was getting it back at the rate of only 25 tonnes per year.  What's more, The US Fed returned only five tonnes representing only 8% of what should have been returned.

Russia Replaces US Security Bond Reserves With Physical Gold

Over the last three years Russia has dumped $50 billion in US securities, replacing dollars mainly with gold bars.  In the month of May 2014 alone, Russia purchased 900 thousand ounces of gold ($1.17 billion) bringing its total gold holdings up to 35.5 million ounces (valued at $44.3 billion).  The previous month of April was also a big month for purchases, had been the biggest month for gold purchases by the Russian central bank since 2010.

USA to export first shipment of oil in August 

On June 25, 2014 the Obama administration signs bill lifting previous oil export ban; the ban had been in place to protect US oil supplies.
Over the last few years American oil output increased from 5.5 million to 8.0 million barrels per day, while at the same time US oil consumption fell from 20 million to 18.5 mbpd.  Initially, exports will be limited to condensate from shale produced at Eagle Ford.  Exports could reach 700,000 barrels per day by early next year.  note: shale oil is light oil, making it easier to use in industry; for instance it can be used as aerospace fuel whereas heavy oil cannot.

China Buying Up London

Just this week China Construction Bank paid £110 million for a 123 thousand ft2 seven story building at 111 Old Broad Street.  The building will presumably be its headquarters in Europe and base for yuan clearing bank operations.  This comes one week after China Life paid £795 million for 70% stake in a London office tower.

China Construction Bank is the second biggest bank in China after ICBC.  It has an aggressive overseas expansion plan (in 2013 overseas assets up 40% to $120 billion).

Tuesday, May 27, 2014

Lithium Ion Battery Usage Soars, China Takeover, Growth Stocks Companies

Lithium demand is projected to rise very quickly over the next few years, possibly doubling within a decade. Consumption has the potential to increase even further if electric vehicles become commonplace; sales of Ford hybrid electric vehicles fell between 2010 and 2012 but set a new record in 2013: 65,326 (previous record is 35,496 set in 2010); total US sales for 100% electric vehicles +230% to 46,148; sales at Tesla TSLA keep going up-  Lithium Exploration Group LEXG is expected to be a key lithium contributor at Tesla's newest giga plant, the biggest lithium-ion factory in the world.
Don't forget about lithium-ion battery usage in aerospace: the new Boeing 787 Dreamliner operates on lithium-ion batteries- A key advantage of these batteries is a long battery life.

Bolivia knows this and is currently putting in place the infrastructure needed for companies to make the batteries within its own borders - a very wise move since there is a considerable amount of value added in the secondary industry.

This is especially important in GDP calculations:  If all of the parts forming a product are made elsewhere but assembled in China when exported, China gets credit for the whole thing despite having made no part of it. This has become a problem with respect to high-value US imports of electronics such as computers and mobile phones.

Lithium maintains a strong position in the industry, but investors must also be aware of the risks posed by alternative batteries - the Ryden dual carbon battery is just one example that's raising eyebrows.  It requires only 90 seconds to charge fully versus 30 minutes for lithium-ion.  It also has much improved battery life.

China Is Investing Heavily In Australia but Are Outright Takeovers In Anyone's Interest ?

In April, China made it easier for domestic companies to complete foreign takeovers:  up to $1 billion takeover deals don't  require government approval.  Virtually all of the takeovers have gone through smoothly with one exception:  Westside Corp Ltd asx:WCL rejects $164.5 million bid by China's Landbridge Group.

  • Just this month
  • Aquila Resources AQA owner of the $7 billion West Pilbara Iron Ore Project, got bought out by privately held Baosteel Group of China for $1.4 billion.  If I were an Australian shareholder I'd ask myself, will Baosteel bring over its own employees to run the mine ?  But shareholders were compensated well ($400 million was paid to former Aquila executive chairman) so the deal encountered no opposition.
  • Another takeover this month (May 2014) has PanAust Limited asx:PNA going to Guangdong Rising Assets Management.  A 45% premium makes the transaction hard to resist ($1.4 billion $2.30 per share vs $1.58).
  • The current gold price is posing challenges for Bullabulling Gold GGG:  hard time developing the Bullabulling Gold project.  Financing is not a problem for Zijin Mining of Xiamen, China and that gives it leverage in negotiating a deal.  The $24 million takeover is by Norton Gold ask:NGF, Zijin's Australian division.
  • Earlier this year
  • Carabella Resources CLR of Brisbane was taken over by Kingho Energy Group in a bid that was initially hostile (offer increased to $71 million in January).  The deal gives Kingo Energy control of Grosvenor West, a mega project that remains undeveloped due to high capital expenditure/development costs.

Big Gold Projects Propel Stocks Higher

High development costs ($1.77 billion) for Cadia East had led to construction delays, resulting in years of waiting for the underground mine (largest in Australia) to become operational.. but the extra capex is about to pay off nicely for Newcrest.  Cadia East will boost annual Cadia Hill gold production from under 400,000 oz to over 800,000 ounces (at a competitive cash cost).

Effect of Cadia East news on Newcrest Stock ytd +36%  6 months  +22%  1 month +0.1% vs Newmont NEM +2%  -9%  -8%, Barrick ABX  -6%  +1%  -10%

Canada's version of Cadia East is Kerr Sulpherets Mitchell, a 44.7 million ounce gold-250 million ounce silver-molybdenum mine that's 100% owned by Seabridge Gold.  Keep a close eye on ANY news reguarding its development:  Seabridge stock is due for a big jump in price.

China Agrees to $340 Natural Gas Price, It's A Done Deal 

The 30-year $400 billion deal reached last week between Russia and China will obviously impact the amount of natural gas China imports from other countries, but if you're Australia you shouldn't be too concerned :  Chinese companies already own interest in a number of Australian natural gas projects:  Curtis LNG project is 25% owned by Chinese company.  The Russian deal calls for Gazprom to sell 38m mmcf per year at the fixed rate of $340 per mmcf which is cheap, especially when you compare it to what the Europeans are paying for it.  Whatever happens though, don't expect Russia to ever play hardball with China when it comes to keeping the gas flowing - Russian government gets 6% of its revenue from natural gas exports.  A lot of the growth in Australia's natural gas industry is happening in the northern region.

Growth Stocks

Caterpillar CAT
Even though revenue and earnings declined slightly quarter on quarter, quarter to quarter earnings were stronger being up 4.7% to $922 million.  Pushing this hot stock higher is its earnings beating estimates: $1.61 vs $1.23.

Freeport McMoran FCX
eps beat analyst estimates : 49 cents versus 41 cents

MTR Corp MTRJY is the second largest land owner in Hong Kong.  little risk, lots of upside.  maintains AA+ rating at R&I.

Monday, April 28, 2014

Palladium Production Companies With Strong Outlook Anglo Platinum AMS, Chinese demand

Platinum group metals which include palladium, platinum and rhodium have important auto (catalytic converters), jewelry (white gold plating) and industrial applications.  In recent months, people have raised concerns regarding supply since Russian company Norilsk is the world's leading producer of the white metal.  Add to that the potential for worker strikes in South Africa's platinum belt and you have a recipe for the perfect storm.  Europe is by far the biggest platinum group metals customer for both Norilsk (50% of sales) and Anglo Platinum (over 48% of sales).

Russian palladium shipments via Switzierland continue to decline.  

According to Barclays, the Palladium market will deliver a sizable deficit in 2014 which will lead to a higher bottom price.  Not only are Russian stockpiles dwindling but because it's Russia there are other geopolitical issues at play.  Will Russia limit the supply in order to use palladium as a tool to counter economic sanctions?

And don't forget about the China-effect:  Chinese demand for platinum continues to soar.  Recently, China became the world's largest consumer of platinum thanks in part to fragile European auto markets.
Norilsk Nickel NILSY i) world's number one nickel producer ahead of Vale, Jinchuan, Xstrata.  ii) leading producer of palladium.  production:  platinum:  651,000 ounces (vs 683).  palladium: 2661,000 ounces (vs 2732). revenue, percent of revenue: platinum:  $956 million  9.2%  (vs $1028m 9.0%), palladium:  $1,935m  18.6%  (vs $1722 15.1%).

Anglo Platinum AMS-JO i) low risk South African miner:  BRPM achieved 2 million fatality free shifts in April, a milestone.  Modikwa had no fatalities in 2013.  World's largest platinum producer (38%).  production: platinum: 2376331 oz  (up from 2391), palladium:  1556m (up from 1554m).  palladium output by quarter:  428 vs 413; 369 vs 392; 320 vs 356; 439 vs 403.  revenue six months 2013: platinum:  15398 (vs 11705) 63.3% (vs 59.9%).  palladium:  3868 million ounces (vs 3206m) 15.9% (vs 16.4%)

Stillwater Mining SWC - As of December 31, 2013 2p reserves: palladium 10.346 million ounces (+1.59m), platinum 2.873 million ounces (+0.207m). realized prices: palladium $641-> $721 platinum $1551-> $1481

Primary mine production (supply from metals recycling in brackets): palladium   404.2 (395.9)  223.9 (258.5), platinum 119.7 (117.8) 345.7 (154.9).  percent % of revenue: palladium 37.4% (45.4%), platinum 58.4% (50.0%).

Lonmin LNMIY - Fiscal year ends September 30.  i) platinum sales of 696,000 ounces exceeded guidance by +30,000 oz.  ii) three work related deaths.  iii) capex of $159 million iv) increase in reserves at Marikana +3 million ounces platinum group metals, gold up by 0.9 million ounces.  Production:  palladium 320,503 (331,601), platinum 709,029 (687,372).  percent of revenue: palladium  14.7%   13.1%, platinum  69.4% 65.9%

Aquarius AQP - Fiscal year ends June 30.  i) total revenue declined 24% to $371 million; net earnings amounted to a loss of $288 million or $0.6113 per share.. this despite total PGM production up 13% to 325,103 ounces.  Bulk of metals production comes from Kroondal - 100th oz per quarter for final 3 quarters of 2013. Joint parter at Platinum Mile (12,596 oz) is Anglo Platinum.

Monday, March 31, 2014

Bombardier Flight Test Delay Ok With Customers, BlackBerry (BBRY) Developing New Sources of Revenue Infotainment

Bombardier (BBD.B) cseries delay not a problem for customers
Airlines Lufthansa (fra:LHA) and Odysey have firm orders for 30 and 10 cseries aircraft, respectively;  Lufthansa also has an option for 30 more; that represents 23% of all orders.  First flight was suppose to have occurred back in June 2014 but software upgrades pushed the date back to September 16, 2014.  That date was eventually scrapped in favor of one 15 months later- December 2015.  Engineering is not the problem (already done / confirmed by key customers) rather, the certification process overseen by Transport Canada is to blame as it is time consuming especially since it involves a new United Technologies Pratt & Whitney engine.  The flight test program is scheduled to be 2400 hours long with only 159 logged thus far.  According to Odyssey Airlines, when ready the Bombardier cseries plane will have a flawless entry into service with airlines, making long delays justifiable.

The c100 will cost 15% less to operate versus similarly sized planes (110, 130 seater).  The c300 will seat 20 more passengers than the c100.

Russia crisis affects $3.4 billion Q400 turboprop contract between Bombardier and state owned Rostekhnologii. - Sanctions tabled by the US and Canada prevent Bombardier from moving forward with the contract.  In 2013 Russia accounted for only 1.4% of company revenue ($250m), this deal is pivotal for boosting sales to the region.  Russia is an expanding market and key member of the BRIC group of nations.  In my opinion this is a deal the company must hang onto.

BlackBerry's QNX platform superior to Apple IOS ?

Last month Apple revealed something somewhat surprising:  Apple's new in car operating system Carplay- which enables iPhone to power the infotainment, is actually built on BlackBerry's qnx platform.

"Connectivity to smartphones and other mobile devices is a key strength of qnx Software Systems’ platform", "We have a long-standing partnership with Apple to ensure high-quality connectivity with their devices, and this partnership extends to support for Apple CarPlay".
with automakers Toyota (TM), BMW, GM and Ford (F) already designing their vehicles to be compatible with qnx software it seems inevitable that, as the technology increases in popularity BlackBerry is going to develop a significant new source of revenue.
Also in March:  US department of defense approves BlackBerry Full Operational Capability software to run on government networks.

The week prior to this, the US National Institute of Standards and Technology (NIST) approved BlackBerry's iOS and Android Secure Work Space mobile service for use by the US and Canadian governments- allows IT managers to create a separate area on any iOS or Android device that's managed by Blackberry Enterprise Service 10.  The partnership with Android is another way BlackBerry is increasing revenue stream and future cash flow.

Blackberry About To Make Up More Ground In Smartphone Battle

The new BlackBerry Z3 is a low cost device (under $200;  Samsung and LG rely on low end devices for their sales growth).
Indonesia will be the first country in Asia to get it / Z3 is the first phone manufactured by contract partner Foxconn.

Wednesday, February 26, 2014

Oil Companies 2013 Results Impacted By Oil Sands Production, Lower Refinery Margins, Kearl Project Christina Lake

2013 was a great year for three of my favorite oil companies - Suncor Energy (nyse:SU), Cenovus Energy (nyse:CVE) and Imperial Oil (nyse:IMO).  For the most part, production, revenue, earnings and dividends were up, however plummeting refining margins coupled with a stronger US dollar negatively affected an otherwise solid financial statement from Cenovus Energy.  I have read through the SEC filings from these companies and will give a brief synopsis of the results.

America Choosing Not To Renew Licenses For Coal Fired Power Plants Gives China, India Economies Competitive Advantage

Nearly 1200 coal fired power plants will be coming online around the world in 2014 ; a cost-benefit-efficiency analysis shows that coal fired power plants produce energy at a very low cost and that's giving US competitors China, India and other emerging markets a strategic advantage.  Another interesting thing to note is this - after a string of attacks on nuclear power plants, their vulnerability has been called into question.

Despite what the nay sayers are saying, US carbon emissions are at their lowest levels since 1994; the reason for this is simple - the so-called 'dirty energy' sources are producing at a very high level of efficiency (power plants fitted with sulfur and carbon scrubbers).

2013 Highlights From Suncor Energy, Cenovus Energy, Imperial Oil

Suncor Energy (SU) 2013 Highlights

Net earnings up significantly thanks in part to a strong fourth quarter; last year, 4Q loss was $574 million due to Voyageur incident / writedown on assets in Libya.  12-month net income: $3,911 million up from $2,740 million.  Hindering earnings is the strong US dollar:  fx loss of $157 million in 2013 vs fx gain of $521 million in 2012.
Capex of $6.380 billion is up marginally from $6.370 billion last year: capex on oil sands down 13% -> $4.311 billion; capex on refining and marketing up 38% -> $890 million.  Planned capital and exploration budget of $7.8 billion for 2014.

Concluded 2013 with record quarterly net production from the oil sands (409,600 bpd) up from 342,800 bpd in 4Q2012.

For the year, production was up at oil sands operations (+33,300 or 9.3% -> 392,500 bpd) but down in the exploration and production segment (189,900 -> 169,900).  Production mix is moving away from natural gas (only 6% from natural gas, down from 9%). Refinery utilization down in Western North America (100% -> 96%).  Price per barrel realized up:  oil sands: $84.22 (vs $82.75);  exploration and production: $91.44 (vs $84.05).

Operating Netback:  increases came from North America Onshore (+33.5% -> $2.51 / mcfe), Other International (+14.5% -> $47.85 / bbl), East Coast Canada (+12.0% -> $73.02 / bbl).  Strongest netback results from North Sea Buzzard where the company pays no royalties (netback @$101.50 (vs $99.74) on avg price realized of $109.95 (up from $108.46).  15% increase in quarterly dividend up to 23 cents.  Net earnings up significantly in the final quarter:  $443 million profit, up from $557 million loss.

Cenovus Energy 2013 Highlights 

Wednesday, January 29, 2014

Gold Looks Good In 2014 Despite Fed Tapering, Canadian Oil Price Differential Under $20 Into 2016 pipelines

Key things to note this first month of 2014:  From December 31, 2013 to January 29, 2014 spot gold gained US$85 to close at just under $1270 but keep in mind that if your currency isn't the US dollar then gold got even more expensive thanks to i) ongoing currency crises in emerging markets ii) Canadian dollar drops to 4-year low versus the greenback; country decides not to raise interest rates. iii) fiscal liquidity problem developing in China.  But don't get too excited just yet - At $1255 the April futures gold price remains lower than spot.  Osisko is suing Goldcorp - alleges misuse of confidential information.  I guess that puts an end to Goldcorp's $2.6 billion hostile bid for Osisko.

Canadian WCS oil price:  Canadian oil price differential expected to remain under $20 for the foreseeable future, well into 2016.  A couple reasons for this

  • Enbridge is expanding the capacity of a key pipeline in Wisconsin:  from 400,000 bpd to 1.2 million bpd.  That will have a positive effect on the oil and gas industry in the US NW (three-fifths of oil output in ND is shipped by rail).  Enbridge has also proposed the Sandpiper Pipeline which will add 225,000 bpd to Minnesotia plus another 375,000 bpd to Wisconsin.
  • BP and Marathon refineries in the US are being upgraded to handle more heavy crude from Alberta.
  •  Glut of supply in Wisconsin may be relieved when portions of the Keystone pipeline come online (southern leg of Keystone running through Cushing, Oklahoma became operational January 22).
  • Trans Mountain pipeline from Edmonton to Burnaby tripled capacity from 300th to 890th barrels per day.

canadian oil price differential, wcs, stocks, gold stocks, oil, china gold imports, facebook ads, revenue, investment advice, keystone, enbridge, oil refineries, fed tapering, effect,

Despite several factors working in its favor, over the last few weeks the price of gold hasn't really moved in either direction, as investors were anticipating a tapering to the Fed's $80 billion monthly bond buying program (put downward pressure on commodity prices).  When it finally happened on January 29 ($10b/mo) gold went up as is to be expected (no more tapering in the short term).  I have some concerns about Fed tapering.. The Fed claims that economic activity picked up in recent months -> this should cause money to flow out of commodities and into equities... however that doesn't appear to be happening (soft jobs growth in December).  If you're concerned about interest rates rising in response to Fed tapering don't be:  The Fed has explicitly stated that it will maintain a policy of record low interest rates (gold does well when interest rates go down).

Counteracting this and lifting the price of gold is

  • Currency crisis in emerging markets specifically Turkey, South Africa, Argentina - safe haven investing favors gold, US security notes
  • Financial liquidity problem developing in China; banks aren't lending and that's making it worse
  • Less US monetary stimulus is wreaking havoc on currencies in South Africa and Turkey where account deficit problems are forcing interest rate hikes.