from todays cup of morning enlightenment,...
Canada’s GDP (Nov) grew by 0.4% for the month, ahead of expectations, on growth in the oil and gas, retail, real estate and
financial sectors.
The Industrial Product Price Index (Dec) rose 0.7%, ahead of the expected 0.6%, while the Raw Materials Price Index
(Dec) was up 4.2%, ahead of the forecast 3.5%. Stats Canada indicated both indexes were pushed up by higher prices for
petroleum and metals.
U.S. Personal Income (Dec) rose by 0.4%, in line with expectations, while Personal Spending (Dec) gained 0.7%, ahead of
the expected 0.5%. U.S. Savings as a Percentage of Disposable Income (Dec) dropped to 5.3%, its lowest rate since March
2010.
The Chicago Purchasing Managers Index (Jan) rose to 68.8 from 66.8 in December, ahead of 65.0 projected by economists
and its highest level in 20 years. A figure greater than 50.0 implies economic expansion.
China’s Current Account Surplus rose 25% to $306.2 billion in 2010, while the Capital and Financial Account Surplus
was $165.6 billion for the year. This implies an increase in China’s money supply, creating additional concern surrounding
inflation.
German Retail Sales (Dec) dropped 0.3%, partially attributed to poor weather conditions early in the month.
Bankers Petroleum* (BNK : TSX : $8.34), Net Change: 0.13, % Change: 1.58%, Volume: 2,352,320
Petromanas Energy (PMI : TSX-V : $0.41), Net Change: -0.01, % Change: -2.38%, Volume: 429,500
Stream Oil and Gas (SKO : TSX-V : $2.53), Net Change: -0.07, % Change: -2.69%, Volume: 75,175
Meantime, in Albania...According to media reports, Albanian opposition parties plan to hold a new protest rally this Friday,
ignoring international calls for compromise in the wake of deadly anti-government demonstrations in the country's capital of
Tirana. Recall on January 21, three people were shot dead and more than 150 were injured as protesters battled police at an antigovernment
rally in the Albanian capital. Protesters were demanding the resignation of Albanian Prime Minister Sali Berisha,
whom critics, led by Socialist opposition leader Edi Rama, accuse of rigging a 2009 general election and presiding over massive
corruption. Berisha said he would not yield to demands to step down, warning his political rival to seek power through the
ballot box and not through violence. Rama has denied organizing an attempted coup and said the crowd had been provoked by
police. A country of three million, Albania emerged from the fall of communism in 1991 as the poorest country in Eastern
Europe. It experienced repeated civil turmoil in 1997 and 1998. The European Commission rejected Albania’s application last
year to become a formal candidate for European Union membership, on grounds of democratic weakness, a poorly performing
judiciary and problems with high-level corruption and organized crime. Bankers Petroleum, Petromanas Energy and Stream Oil
and Gas all currently operate in Albania.
Alpha Natural Res. (ANR : NYSE : US$53.73), Net Change: -4.15, % Change: -7.17%, Volume: 41,381,971
Massey Energy (MEE : NYSE : US$62.86), Net Change: 5.63, % Change: 9.84%, Volume: 43,018,673
Now Santa's #1 supplier! On Saturday, Alpha Natural Resources announced that it reached a deal to acquire rival Massey
Energy for $7.1 billion, creating the second- and third-largest U.S. coal producer by most key metrics (volume, revenues,
EBITDA), and the third-largest met coal producer globally. Alpha plans to issue 1.025 shares and pay $10.00 cash for every
Massey Energy share, implying $69.33 per Massey Energy share (21% premium) based on Friday's closing price. The bottom
line: according to Credit Suisse, there are benefits, but the combined entity is expensive. The brokerage comments that from a
strategic/reserve replacement perspective, it makes sense, as Alpha transitions from having the second-shortest reserve life to
the second-longest reserve life of any publicly traded U.S. coal producer (as measured by reserves/annual production).
Likewise, the assets are complementary fit in terms of geographic proximity and product mix which should give the new entity
significantly improved bargaining power with both the customer base and with the regulators in terms of future permitting
efforts. However, Credit Suisse does see challenges with this transaction, the most evident being: Alpha is paying a hefty price –
i.e. over 7.0x 2011 and 2012 EBITDA. Add in, this transaction is happening during a time of unprecedented pricing strength in
metallurgical coal (i.e. much closer to a peak than a trough obviously). Looking at the transaction from a cash flow, based on
consensus estimates Alpha is paying 9.0x 2011E CFPS and 6.8x 2012E CFPS. This bodes well for the Canadian coal producers.
Grande Cache (GCE) currently trading at around 4.3x and 3.5x 2011E and 2012E CFPS, respectively. Teck Resources
(TCK.B) is currently trading at 6.0x and 5.6x. Not surprising coal producers got a big lift yesterday. Augmenting this renewed
M&A speculation, producers were boosted by powerful cyclone threats off Australia's coast. A Bay Street analyst highlights
that this bad weather could tighten coal supplies, causing coal prices to surge. Other coal miners rose in sympathy, namely:
Arch Coal (ACI), Peabody Energy (BTU), Consol Energy (CNX) and Patriot Coal (PCX).
Honda Motor (HMC : NYSE : US$43.54), Net Change: 1.31, % Change: 3.10%, Volume: 1,254,681
Land of the rising forecast. Japan’s third-largest carmaker on Monday increased its full-year profit forecast by 6%, as rising
U.S. auto sales and Asian motorcycle demand helped offset the negative impact of a stronger yen. The maker of Accord sedans
and Civic compacts expects net income of 530 billion yen ($6.5 billion) in the year ending March 31, compared with an earlier
estimate of 500 billion yen. Honda, which gets 42% of its unit sales in North America, expects to benefit from a market
recovery in the U.S., where deliveries may rise 11% to 12.8 million vehicles this year, according to researcher J.D. Power &
Associates. The company said it expects to benefit from sales of more profitable models as customers buy more light trucks
such as the Odyssey minivan, instead of passenger cars. The automaker plans to introduce an updated Civic compact in the U.S.
around April, which will have a big impact through reduced incentives, according to some analysts. Unfortunately, Honda’s
Japan sales, which account for about a fifth of its global deliveries, have dropped for three straight months, plunging 35% in
December. Late last year, the Japanese government ended a subsidy for fuel-efficient cars, cutting demand for Honda’s Fit
compact, the country’s third best-selling car. As such, Nissan overtook Honda as the second-largest Japanese carmaker by
vehicle sales in 2010, as new models helped the company boost deliveries in all regions.
Yum! Brands (YUM : NYSE : US$46.76), Net Change: 0.36, % Change: 0.78%, Volume: 3,753,410
Chopstick-lickin’ good. Things haven’t been great for Yum! Brands in the U.S. recently. After seeing share prices surge by
40% in 2010, they recently fell on news that subsidiary Taco Bell was the target of a lawsuit surrounding the amount of beef
contained in their tacos. U.S. profits fell 2% in Q3 and the company has struggled to keep up with rival McDonald’s (MCD).
However, according to a recent Bloomberg article, things are looking more positive for the company’s operations in China.
There, Q3 profits increased 23% and it currently holds an impressive 40% market share amongst fast food chains. McDonald’s
is at 19%. Yum!’s 3,700 Chinese restaurants made up 36% of the company’s operating profit in 2010, beating the earnings of
the company’s 19,000 U.S. restaurants for the first time. One former executive anticipates China will be responsible for over
50% of the company’s performance within four years. There are currently 3,200 KFC’s and 500 Pizza Huts across the country,
with plans to grow to 20,000 total restaurants and currently Yum! is opening a new location every 18 hours. The secret to the
success? Yum! has focused on hiring local managers and creating region-specific menus to appeal to local tastes. The
restaurants are also different than their U.S. counterparts, once again focusing on regional preferences. One KFC location
features a gallery for local photographers and painters. Pizza Hut restaurants have cushioned booths and a menu that includes
wine, crushed seaweed and escargot. One diner interviewed in the article referenced Pizza Hut as his restaurant of choice to
impress a date. This is not to say that Yum!’s Chinese business is without challenges. Rising food prices and labour costs are
potential headwinds. In fact, KFC recently increased prices by CNY0.50 to CNY1.00 per item. Local competitors are beginning
to emerge and McDonald’s is making a late surge, planning to double its presence by 2013. In the meantime, it appears Yum! is
poised to make the best of what CEO David Novak calls “the best restaurant opportunity of the 21st century.”
• Archer Daniels Midland (ADM). The agricultural processor and ethanol producer reported stronger-than-expected second-quarter earnings on Tuesday as rising grain prices and robust global demand bolstered results. ADM reported a net profit of $732 million, or $1.14 per share, compared with a profit of $567 million, or 88 cents per share, a year earlier.
• General Motors (GM). The automaker is considering adding new plants in China in 2011 and after, a senior executive said on Tuesday, as it moves to meet steady demand in the world's top auto market. GM, which competes with Toyota Motor Corp (TM) and other top global manufacturers, is also planning to export a "substantial amount" of its Chevrolet Sail small cars from China to other emerging markets in the coming years, said Terry Johnsson, vice president of the automaker's China operations.
– The Federal Reserve’s average holdings of longer-term Treasurys have passed the $1-trillion mark. Prior to the financial
crisis, the Fed tended to hold up to $700 billion in Treasurys, two-thirds of which typically had a longer term than a year. But
thanks largely to its $600-billion bond-buying program...Treasury holdings have ballooned. Earlier in January, total Treasury
holdings, including short-term bills, passed the $1-trillion mark. Last week, the Fed’s holdings of longer-term U.S. debt, notes
and bonds – those with a term of more than a year – averaged $1.022 trillion. (The Wall Street Journal)
– Google’s (GOOG) Android has dethroned Nokia’s (NOK) Symbian as the most popular smartphone platform in the last
quarter of 2010, ending a reign that began with the birth of the industry 10 years ago. (Reuters)
– A drunk man in Poland found lying on a frozen park bench in his underwear survived because of the amount of alcohol in his
blood. Aleksander Andrzej, 32, was spotted in the Warsaw park, where the temperature was -5 Celsius, and taken to hospital by
police. A breath test showed he had 1,024 micrograms per 100ml, nearly 30 times the legal limit for driving, which doctors say
helped him live. They believe alcohol in his blood acted like anti-freeze. (The Metro) |
