Maple Leaf Memo
Canada Day
Markets north of the border are closed Tuesday in observance of Canada Day, a federal holiday marking the joining of the British colonies of Nova Scotia, New Brunswick and the Province of Canada into a federation of four provinces (the Province of Canada being divided, in the process, into Ontario and Quebec) on July 1, 1867.
(Here’s a less-official, more-entertaining explanation.)
Canada can also celebrate what’s been a great first six months of 2008.
Two weeks ago, we wrote of an emerging disparity between North America’s major equity markets, noting that Canada’s economy will never decouple from the US but that the major indexes tracking the respective financial markets are reflecting economic realities. The S&P/TSX Composite Index, about half of which constitutes energy-leveraged stocks, has basically held its ground in US dollar terms in 2008, posting a first-half gain of 0.8 percent. The S&P 500, reflecting the relative dominance of US financials in its composition, is off 13.4 percent.
Meanwhile, the marker we’re most cheered by and the source of our own Canadian celebration, the S&P/TSX Income Trust Index, is up 15.3 percent during the first six months of 2008.
Source: Bloomberg
It, too, is heavily weighted to oil and gas stocks. The difference maker thus far in 2008, as far as Canadian energy trusts are concerned, is the rebound in the price of natural gas. Natural gas-focused trusts Advantage Energy Income Fund (NYSE: AAV, TSX: AVN.UN) and Paramount Energy Trust (TSX: PMT.UN, OTC: PMGYF) have both generated 2008 returns in excess of 50 percent on the strength of natural gas.
Advantage, weighted 67 percent to gas, peaked well before the Halloween 2006 income trust tax announcement and continued to slide; Paramount, which is 100 percent focused on gas, traded above CAD23 before hitting a bottom around CAD6 at the end of 2007.
Source: Bloomberg
This year’s gains are heartening, but at the same time, they raise the question of when the celebration will end. It’s a question raised in the June 2008 issue of Canadian Edge: How do you treat an investment that’s really taken off?
That query is best framed by two interrelated megatrends: Asia’s emergence and the concomitant energy bull market. Emerging markets and developing economies have accounted for nearly 95 percent of the increased demand for oil since 2003. Commodity prices are tightly linked to globalization; rapid growth in emerging-market economies, particularly in Asia, is driving most of the gains.
The emergence is best described by sustained growth in per-capita income, rapid industrialization and more intensive use of commodities in production. A 2007 Bank of Canada working paper concluded that “industrial activity in Asia now appears to be the dominant driver of oil-price movements.” And China alone will be the world’s largest energy consumer by 2010.
We’ll know soon enough the impact of slowing G7 growth on the emerging economies. But the forces at work in Asia—and in other emerging regions—will be difficult to contain. At any rate, Canada will be a critical supplier of energy.
How to Be a Billionaire
Stephen Schwarzman is the co-founder and chairman of The Blackstone Group, a featured speaker at elite events such as the annual World Economic Forum in Davos, Switzerland and, in 2007, one of Time magazine’s 100 most influential people in the world.
In a post kicking off the second half of 2008, self-described foolish idealist Barry Ritholtz yearns for a return to rationality won hard by thorough, unforgiving self-appraisal.
Then he points us to Schwarzman’s diagnosis of the current market malaise: It’s the accountants, silly! Here’s Barry:
(Italics are his.)
FAS 157 took effect Nov. 15, 2007, still in the early stages of the global credit crisis brought on by the meltdown of the US subprime mortgage market. It requires that certain assets held by financial companies—including those among the alphabet soup of complex, structured products such as collateralized debt obligation (CDO)—be marked to market. The company holding such assets must value the assets at the price it could sell the asset on the open market.
FAS 157 disallows, in most cases, the valuing of an asset based on a theoretical, computer-generated price. But the market for CDOs, for example, has dried up. So banks must mark the value of such assets down, perhaps all the way down.
The billionaire’s argument is that it just isn’t fair. Click here for the rest of the story.
Barry for PM
Were an election held today, Barack Obama would be the next prime minister of Canada.
Speaking Engagements
“The coldest winter I ever spent was a summer in San Francisco,” a saying that’s almost a San Francisco cliche, turns out to be an invention of unknown origin, the coolest thing Mark Twain never said.
The natural setting is, however, among the most exciting in the US. Venture west for the San Francisco Money Show Aug. 7-10, 2008, and conduct your own field study.
Neil George, Elliott Gue and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.
Click here or call 800-970-4355 and refer to priority code 011362 to attend as our guest.
I also have a special invitation for readers to join me and my colleagues Elliott Gue, Gregg Early and Neil George aboard an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal.
This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.
It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.
For more information, please call 877-238-1270.
The Roundup
We’ve closed the books on what was a difficult quarter for the major US indexes but a rewarding one for Canadian income trust investors.
Second quarter earnings season will be a critical measure of how Canadian Edge recommendations have weathered—in many cases, prospered under—tight credit conditions and a slowing North American economy.
The onset of the second half of 2008 finds policymakers—elected officials as well as appointed experts at central banks—stuck between the rock of slowing growth and the hard place of spiraling prices.
The good news is the Bank of Canada has the flexibility to maintain its inflation target while balancing risks to economic growth. And Canada’s net surplus makes further fiscal stimulus, although unlikely given current circumstances, an alternative should the global economy weaken beyond what’s forecast.
Oil & Gas
Advantage Energy Income Fund (NYSE: AAV, TSX: AVN.UN) is boosting its 2008 capital expenditure (capex) budget by CAD55 million to CAD200 million. The increase as well as the full year’s capex will be funded by cash flow.
Most of the new funds—CAD39 million—will be concentrated on Advantage’s Montney natural gas play at its Glacier field in Northwest Alberta, with the balance going to opportunities that have resulted from increased commodity prices. Advantage drilled five vertical wells in the Glacier property during the first quarter, which revealed the long-term potential of the asset. The fund will drill five more vertical wells and five horizontal wells and will also begin expanding the infrastructure to support long-term development activity.
Advances in horizontal drilling technology and the current natural gas price environment make it an ideal time for Advantage to expand its Glacier efforts. Advantage Energy Income Fund is a buy up to USD14.
ARC Energy Trust (TSX: AET.UN, OTC: AETUF) hiked its monthly distribution 17 percent to 28 cents Canadian per unit and also announced a 17 percent increase in its 2008 capex budget to CAD550 million. ARC, like Advantage, is using the additional funds to exploit a Montney natural gas play.
CAD200 million of the revised budget will be allocated to add land within the Montney play and build a pipeline to increase production there. ARC will also devote funds to the engineering design of a new gas plant for the adjacent Dawson area.
Upon completion of the gas plant in 2011, ARC expects production to be 70,000 barrels of oil equivalent per day (boe/d), up from 64,000 boe/d targeted for 2008. Buy ARC Energy Trust up to USD30.
Avenir Diversified Income Trust (TSX: AVF.UN, OTC: AVNDF) announced last week a restatement of its first quarter financial statement: “As a result of the annual audit in its Elbow River Marketing Group it was determined that the accrual for the employee incentive costs pertaining to the record first quarter 2008 results were understated and an adjustment for a misclassification and change in the valuation of its inventory was required.”
The restatement lowers Avenir’s first quarter funds from operations (FFO) to CAD20.3 million (49 cents Canadian per unit) from CAD21.7 million (52 cents Canadian per unit) and net income to CAD5.2 million (12 cents Canadian per unit) from CAD7.8 million (19 cents Canadian per unit). The fund’s payout ratio for the period ended March 31, 2008, increases to 51 percent of FFO from 48 percent. Avenir Diversified Income Trust remains a buy up to USD8.
Bonterra Energy Trust (TSX: BNE.UN, OTC: BNEUF) is increasing its monthly distribution to 32 cents Canadian per unit, effective with the June payment. Unitholders of record July 15 will receive the bumped-up payout July 31.
It’s the fourth time Bonterra has lifted its monthly distribution in 2008, for an aggregate 45 percent rise from the December 2007 level. Like many oil and gas trusts, Bonterra has increased its payout on the strength of high commodity prices. On a prodigious run thus far in 2008, Bonterra Energy Trust units are a hold at current levels.
Enterra Energy Trust (NYSE: ENT, TSX: ENT.UN) has signed new agreements for revised credit facilities. The revised credit facility consists of a CAD135 million senior revolving credit facility and a CAD15 million non-revolving, second-lien facility, which declines by CAD3 million per quarter and terminates no later than September 2009.
The second-lien facility can be terminated at any time at the discretion of Enterra’s management. Interest rates for the new credit facilities have been lowered to the Canadian prime rate plus 0.25 percent on the senior facility and Canadian prime plus 2.5 percent on the second-lien facility. Sell Enterra Energy Trust.
Electric Power
Atlantic Power Corp (TSX: ATP.UN, OTC: ATPWF) has taken a beating of late, for reasons the company itself is unable to explain. In a statement released at the request of the Investment Industry Regulatory Organization of Canada, made on behalf of the Toronto Stock Exchange, Atlantic Power said that it’s “not aware of any corporate developments that would be impacting the trading of its income participating securities (IPS).”
Atlantic plans to wind up the bond portion of its IPS at the first available date in November 2009, though the imputed value of the equity portion at Atlantic’s current price would still produce a yield of well more than 10 percent. The recent price volatility isn’t due to developments at the company, the assets of which remain very solid, and the distribution isn’t threatened either by rising natural gas prices or the weak credit markets.
The possible buyback of the bond portion of the IPS will only be done if it benefits shareholders and won’t affect the equity portion of the distribution. And as long as the dividend holds, the share price will rebound, whatever volatility we see in this light trading week ahead.
On the operational front, Atlantic Power’s first quarter net income was boosted by the additional interest in the Pasco plant, acquired in late 2007. And the Path 15 power line continues to run well. Project earnings before interest, taxes, depreciation and amortization—essentially operating cash flow for the company’s portfolio of power project interests—rose a robust 22 percent during the first quarter. Atlantic Power Corp is a buy up to USD12.
Gas/Propane
Precision Drilling (NYSE: PDS, TSX: PD.UN) boosted its offer to US-based contract land driller Grey Wolf a third time to USD10 per share (USD1.78 billion), and for a third time, Grey Wolf turned Precision down. Grey Wolf said its proposed takeover of Basic Energy Services offers a better value for its shareholders than a combination with Precision.
Precision has no plans to mail an offer directly to Grey Wolf shareholders, but investors could vote against its merger with Basic Energy at a special meeting July 15. Grey Wolf agreed to buy Basic in April in a bid to combine its land drilling rig fleet with Basic’s land-based well-servicing equipment.
Precision will revisit a Grey Wolf deal if the agreement with Basic is terminated. Precision Drilling, which will remain on the hunt for a US-focused acquisition, remains a buy up to USD25.
Business Trusts
Energy Savings Income Fund’s (TSX: SIF.UN, OTC: ESIUF) board of directors approved a 10.33 cents Canadian per unit per month increase in the fund’s distribution, effective with the July 31, 2008, payment. The new annualized distribution is CAD1.24 per unit. Energy Savings Income Fund, which has boosted its distribution 29 times since its April 2001 initial public offering, is a buy up to USD18.
New Flyer Industries (TSX: NFI.UN, OTC: NFYIF) has received orders during the last three months for up to 1,234 buses worth a combined USD706 million. Of these orders, 1,108 buses are new orders and 126 are exercised options.
When combined with orders reported in a March press release, New Flyer has announced a total of 2,487 bus orders valued at more than USD1.3 billion in 2008. The orders are for a variety of vehicle configurations, including 35-, 40- and 60-foot buses with clean diesel, electric trolley, hybrid, and compressed natural gas and liquefied natural gas propulsion systems. New Flyer Industries—building buses based on virtually every propulsion system available on the market—is a buy up to USD12.
Real Estate Trusts
RioCan REIT (TSX: REI.UN, OTC: RIOCF) and Trinity Development Group have agreed to sell a 50 percent non-managing interest in two developments to the Canadian Pension Plan Investment Board (CPPIB). RioCan, Trinity and CPPIB will form a joint venture to develop the two retail centers, one in Calgary, the other in Toronto.
Total costs for the projects will approach CAD440 million. RioCan and Trinity will each retain a 25 percent ownership interest in the two developments. Buy RioCan REIT up to USD25.
Non-Trusts
Shaw Communications (NYSE: SJR, TSX: SJR.B) reported a 40 percent increase in net profit in its fiscal third quarter, a gain spurred by price hikes and increases in cable, telephone and Internet customers. Net income for the period ended May 31, 2008, was CAD128.1 million (30 cents Canadian per share), up from CAD91.6 million (21 cents Canadian per share) a year ago.
Customer additions and rate increases that started in April helped boost revenue 13 percent to CAD792.1 million. Shaw has expanded its digital phone service to 90 percent of its customer base in the past three years. The company added 57,700 phone customers and 23,185 high-speed Internet customers during the quarter.
Cable revenue rose 15 percent to CAD607.8 million after the company boosted rates for stand-alone cable services, packages and specialty channels. Shaw forecast additional sales of about CAD6.5 million a month based on the rate hikes. Shaw Communications is a buy up to USD24.
Talisman Energy’s (NYSE: TLM, TSX: TLM) Norwegian subsidiary Talisman Energy Norge AS has made a small discovery near the Varg field in the North Sea. The find, about 150 miles off the western Norway port of Stavanger, has an estimated 630,000 to 1.5 million barrels of recoverable oil, which will be produced by linking it to the Varg platform, about 550 yards away.
The well, a sidetrack from an existing Varg well, was drilled to a vertical depth of 10,137 feet below the sea surface; the water depth at the site is 275 feet. Talisman has a 65 percent stake in the field. Talisman Energy is a buy up to USD26.
Markets north of the border are closed Tuesday in observance of Canada Day, a federal holiday marking the joining of the British colonies of Nova Scotia, New Brunswick and the Province of Canada into a federation of four provinces (the Province of Canada being divided, in the process, into Ontario and Quebec) on July 1, 1867.
(Here’s a less-official, more-entertaining explanation.)
Canada can also celebrate what’s been a great first six months of 2008.
Two weeks ago, we wrote of an emerging disparity between North America’s major equity markets, noting that Canada’s economy will never decouple from the US but that the major indexes tracking the respective financial markets are reflecting economic realities. The S&P/TSX Composite Index, about half of which constitutes energy-leveraged stocks, has basically held its ground in US dollar terms in 2008, posting a first-half gain of 0.8 percent. The S&P 500, reflecting the relative dominance of US financials in its composition, is off 13.4 percent.
Meanwhile, the marker we’re most cheered by and the source of our own Canadian celebration, the S&P/TSX Income Trust Index, is up 15.3 percent during the first six months of 2008.
Source: Bloomberg
It, too, is heavily weighted to oil and gas stocks. The difference maker thus far in 2008, as far as Canadian energy trusts are concerned, is the rebound in the price of natural gas. Natural gas-focused trusts Advantage Energy Income Fund (NYSE: AAV, TSX: AVN.UN) and Paramount Energy Trust (TSX: PMT.UN, OTC: PMGYF) have both generated 2008 returns in excess of 50 percent on the strength of natural gas.
Advantage, weighted 67 percent to gas, peaked well before the Halloween 2006 income trust tax announcement and continued to slide; Paramount, which is 100 percent focused on gas, traded above CAD23 before hitting a bottom around CAD6 at the end of 2007.
Source: Bloomberg
This year’s gains are heartening, but at the same time, they raise the question of when the celebration will end. It’s a question raised in the June 2008 issue of Canadian Edge: How do you treat an investment that’s really taken off?
That query is best framed by two interrelated megatrends: Asia’s emergence and the concomitant energy bull market. Emerging markets and developing economies have accounted for nearly 95 percent of the increased demand for oil since 2003. Commodity prices are tightly linked to globalization; rapid growth in emerging-market economies, particularly in Asia, is driving most of the gains.
The emergence is best described by sustained growth in per-capita income, rapid industrialization and more intensive use of commodities in production. A 2007 Bank of Canada working paper concluded that “industrial activity in Asia now appears to be the dominant driver of oil-price movements.” And China alone will be the world’s largest energy consumer by 2010.
We’ll know soon enough the impact of slowing G7 growth on the emerging economies. But the forces at work in Asia—and in other emerging regions—will be difficult to contain. At any rate, Canada will be a critical supplier of energy.
How to Be a Billionaire
Stephen Schwarzman is the co-founder and chairman of The Blackstone Group, a featured speaker at elite events such as the annual World Economic Forum in Davos, Switzerland and, in 2007, one of Time magazine’s 100 most influential people in the world.
In a post kicking off the second half of 2008, self-described foolish idealist Barry Ritholtz yearns for a return to rationality won hard by thorough, unforgiving self-appraisal.
Then he points us to Schwarzman’s diagnosis of the current market malaise: It’s the accountants, silly! Here’s Barry:
You see, those persnickety bean counters forced banks and brokers to actually write down paper for which there was no market.
Therein lies the foible of Schwarzman’s Folly, for if you own marketable securities for which there is no market, then by definition, these are not really marketable securities.
How then to price all of this paper on the books? Why, just rely on the people who bought them in the first place! Never mind that they don’t understand what they own, they failed to do their due diligence before buying this garbage in the first place. Do not acknowledge these folks have an enormous personal incentives NOT to mark this junk down.
You can trust them! They’re good people.
Therein lies the foible of Schwarzman’s Folly, for if you own marketable securities for which there is no market, then by definition, these are not really marketable securities.
How then to price all of this paper on the books? Why, just rely on the people who bought them in the first place! Never mind that they don’t understand what they own, they failed to do their due diligence before buying this garbage in the first place. Do not acknowledge these folks have an enormous personal incentives NOT to mark this junk down.
You can trust them! They’re good people.
(Italics are his.)
FAS 157 took effect Nov. 15, 2007, still in the early stages of the global credit crisis brought on by the meltdown of the US subprime mortgage market. It requires that certain assets held by financial companies—including those among the alphabet soup of complex, structured products such as collateralized debt obligation (CDO)—be marked to market. The company holding such assets must value the assets at the price it could sell the asset on the open market.
FAS 157 disallows, in most cases, the valuing of an asset based on a theoretical, computer-generated price. But the market for CDOs, for example, has dried up. So banks must mark the value of such assets down, perhaps all the way down.
The billionaire’s argument is that it just isn’t fair. Click here for the rest of the story.
Barry for PM
Were an election held today, Barack Obama would be the next prime minister of Canada.
Speaking Engagements
“The coldest winter I ever spent was a summer in San Francisco,” a saying that’s almost a San Francisco cliche, turns out to be an invention of unknown origin, the coolest thing Mark Twain never said.
The natural setting is, however, among the most exciting in the US. Venture west for the San Francisco Money Show Aug. 7-10, 2008, and conduct your own field study.
Neil George, Elliott Gue and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.
Click here or call 800-970-4355 and refer to priority code 011362 to attend as our guest.
I also have a special invitation for readers to join me and my colleagues Elliott Gue, Gregg Early and Neil George aboard an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal.
This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.
It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.
For more information, please call 877-238-1270.
The Roundup
We’ve closed the books on what was a difficult quarter for the major US indexes but a rewarding one for Canadian income trust investors.
Second quarter earnings season will be a critical measure of how Canadian Edge recommendations have weathered—in many cases, prospered under—tight credit conditions and a slowing North American economy.
The onset of the second half of 2008 finds policymakers—elected officials as well as appointed experts at central banks—stuck between the rock of slowing growth and the hard place of spiraling prices.
The good news is the Bank of Canada has the flexibility to maintain its inflation target while balancing risks to economic growth. And Canada’s net surplus makes further fiscal stimulus, although unlikely given current circumstances, an alternative should the global economy weaken beyond what’s forecast.
Oil & Gas
Advantage Energy Income Fund (NYSE: AAV, TSX: AVN.UN) is boosting its 2008 capital expenditure (capex) budget by CAD55 million to CAD200 million. The increase as well as the full year’s capex will be funded by cash flow.
Most of the new funds—CAD39 million—will be concentrated on Advantage’s Montney natural gas play at its Glacier field in Northwest Alberta, with the balance going to opportunities that have resulted from increased commodity prices. Advantage drilled five vertical wells in the Glacier property during the first quarter, which revealed the long-term potential of the asset. The fund will drill five more vertical wells and five horizontal wells and will also begin expanding the infrastructure to support long-term development activity.
Advances in horizontal drilling technology and the current natural gas price environment make it an ideal time for Advantage to expand its Glacier efforts. Advantage Energy Income Fund is a buy up to USD14.
ARC Energy Trust (TSX: AET.UN, OTC: AETUF) hiked its monthly distribution 17 percent to 28 cents Canadian per unit and also announced a 17 percent increase in its 2008 capex budget to CAD550 million. ARC, like Advantage, is using the additional funds to exploit a Montney natural gas play.
CAD200 million of the revised budget will be allocated to add land within the Montney play and build a pipeline to increase production there. ARC will also devote funds to the engineering design of a new gas plant for the adjacent Dawson area.
Upon completion of the gas plant in 2011, ARC expects production to be 70,000 barrels of oil equivalent per day (boe/d), up from 64,000 boe/d targeted for 2008. Buy ARC Energy Trust up to USD30.
Avenir Diversified Income Trust (TSX: AVF.UN, OTC: AVNDF) announced last week a restatement of its first quarter financial statement: “As a result of the annual audit in its Elbow River Marketing Group it was determined that the accrual for the employee incentive costs pertaining to the record first quarter 2008 results were understated and an adjustment for a misclassification and change in the valuation of its inventory was required.”
The restatement lowers Avenir’s first quarter funds from operations (FFO) to CAD20.3 million (49 cents Canadian per unit) from CAD21.7 million (52 cents Canadian per unit) and net income to CAD5.2 million (12 cents Canadian per unit) from CAD7.8 million (19 cents Canadian per unit). The fund’s payout ratio for the period ended March 31, 2008, increases to 51 percent of FFO from 48 percent. Avenir Diversified Income Trust remains a buy up to USD8.
Bonterra Energy Trust (TSX: BNE.UN, OTC: BNEUF) is increasing its monthly distribution to 32 cents Canadian per unit, effective with the June payment. Unitholders of record July 15 will receive the bumped-up payout July 31.
It’s the fourth time Bonterra has lifted its monthly distribution in 2008, for an aggregate 45 percent rise from the December 2007 level. Like many oil and gas trusts, Bonterra has increased its payout on the strength of high commodity prices. On a prodigious run thus far in 2008, Bonterra Energy Trust units are a hold at current levels.
Enterra Energy Trust (NYSE: ENT, TSX: ENT.UN) has signed new agreements for revised credit facilities. The revised credit facility consists of a CAD135 million senior revolving credit facility and a CAD15 million non-revolving, second-lien facility, which declines by CAD3 million per quarter and terminates no later than September 2009.
The second-lien facility can be terminated at any time at the discretion of Enterra’s management. Interest rates for the new credit facilities have been lowered to the Canadian prime rate plus 0.25 percent on the senior facility and Canadian prime plus 2.5 percent on the second-lien facility. Sell Enterra Energy Trust.
Electric Power
Atlantic Power Corp (TSX: ATP.UN, OTC: ATPWF) has taken a beating of late, for reasons the company itself is unable to explain. In a statement released at the request of the Investment Industry Regulatory Organization of Canada, made on behalf of the Toronto Stock Exchange, Atlantic Power said that it’s “not aware of any corporate developments that would be impacting the trading of its income participating securities (IPS).”
Atlantic plans to wind up the bond portion of its IPS at the first available date in November 2009, though the imputed value of the equity portion at Atlantic’s current price would still produce a yield of well more than 10 percent. The recent price volatility isn’t due to developments at the company, the assets of which remain very solid, and the distribution isn’t threatened either by rising natural gas prices or the weak credit markets.
The possible buyback of the bond portion of the IPS will only be done if it benefits shareholders and won’t affect the equity portion of the distribution. And as long as the dividend holds, the share price will rebound, whatever volatility we see in this light trading week ahead.
On the operational front, Atlantic Power’s first quarter net income was boosted by the additional interest in the Pasco plant, acquired in late 2007. And the Path 15 power line continues to run well. Project earnings before interest, taxes, depreciation and amortization—essentially operating cash flow for the company’s portfolio of power project interests—rose a robust 22 percent during the first quarter. Atlantic Power Corp is a buy up to USD12.
Gas/Propane
Precision Drilling (NYSE: PDS, TSX: PD.UN) boosted its offer to US-based contract land driller Grey Wolf a third time to USD10 per share (USD1.78 billion), and for a third time, Grey Wolf turned Precision down. Grey Wolf said its proposed takeover of Basic Energy Services offers a better value for its shareholders than a combination with Precision.
Precision has no plans to mail an offer directly to Grey Wolf shareholders, but investors could vote against its merger with Basic Energy at a special meeting July 15. Grey Wolf agreed to buy Basic in April in a bid to combine its land drilling rig fleet with Basic’s land-based well-servicing equipment.
Precision will revisit a Grey Wolf deal if the agreement with Basic is terminated. Precision Drilling, which will remain on the hunt for a US-focused acquisition, remains a buy up to USD25.
Business Trusts
Energy Savings Income Fund’s (TSX: SIF.UN, OTC: ESIUF) board of directors approved a 10.33 cents Canadian per unit per month increase in the fund’s distribution, effective with the July 31, 2008, payment. The new annualized distribution is CAD1.24 per unit. Energy Savings Income Fund, which has boosted its distribution 29 times since its April 2001 initial public offering, is a buy up to USD18.
New Flyer Industries (TSX: NFI.UN, OTC: NFYIF) has received orders during the last three months for up to 1,234 buses worth a combined USD706 million. Of these orders, 1,108 buses are new orders and 126 are exercised options.
When combined with orders reported in a March press release, New Flyer has announced a total of 2,487 bus orders valued at more than USD1.3 billion in 2008. The orders are for a variety of vehicle configurations, including 35-, 40- and 60-foot buses with clean diesel, electric trolley, hybrid, and compressed natural gas and liquefied natural gas propulsion systems. New Flyer Industries—building buses based on virtually every propulsion system available on the market—is a buy up to USD12.
Real Estate Trusts
RioCan REIT (TSX: REI.UN, OTC: RIOCF) and Trinity Development Group have agreed to sell a 50 percent non-managing interest in two developments to the Canadian Pension Plan Investment Board (CPPIB). RioCan, Trinity and CPPIB will form a joint venture to develop the two retail centers, one in Calgary, the other in Toronto.
Total costs for the projects will approach CAD440 million. RioCan and Trinity will each retain a 25 percent ownership interest in the two developments. Buy RioCan REIT up to USD25.
Non-Trusts
Shaw Communications (NYSE: SJR, TSX: SJR.B) reported a 40 percent increase in net profit in its fiscal third quarter, a gain spurred by price hikes and increases in cable, telephone and Internet customers. Net income for the period ended May 31, 2008, was CAD128.1 million (30 cents Canadian per share), up from CAD91.6 million (21 cents Canadian per share) a year ago.
Customer additions and rate increases that started in April helped boost revenue 13 percent to CAD792.1 million. Shaw has expanded its digital phone service to 90 percent of its customer base in the past three years. The company added 57,700 phone customers and 23,185 high-speed Internet customers during the quarter.
Cable revenue rose 15 percent to CAD607.8 million after the company boosted rates for stand-alone cable services, packages and specialty channels. Shaw forecast additional sales of about CAD6.5 million a month based on the rate hikes. Shaw Communications is a buy up to USD24.
Talisman Energy’s (NYSE: TLM, TSX: TLM) Norwegian subsidiary Talisman Energy Norge AS has made a small discovery near the Varg field in the North Sea. The find, about 150 miles off the western Norway port of Stavanger, has an estimated 630,000 to 1.5 million barrels of recoverable oil, which will be produced by linking it to the Varg platform, about 550 yards away.
The well, a sidetrack from an existing Varg well, was drilled to a vertical depth of 10,137 feet below the sea surface; the water depth at the site is 275 feet. Talisman has a 65 percent stake in the field. Talisman Energy is a buy up to USD26.
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