MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED., DECEMBER 3, 1997 (1)
Stock Markets
Bay Street ekes out gains
Bay Street stocks advanced for a fourth successive day, led by oil producers on higher crude prices. Wall Street staged a comeback from intraday weakness to end on a positive note
By THE FINANCIAL POST
The Toronto Stock Exchange 300 composite index rose 13.69 points, or 0.2%, to 6681.15.
Volume on the Toronto Stock Exchange was 125.8 million shares, compared with Tuesday's volume of 130.1 million shares.
"Oil producers are beginning to rally after being oversold ahead of winter," said Philip Strathy, a portfolio manager with Strathy Investment Management Ltd. "The drillers are leading on anticipation of strong demand for their services, with higher crude prices prompting exploration." Precision Drilling Corp. (PD/tse) rose $3.70 to $40.10, Petro-Canada (PCA/TSE) climbed $1.30 to $26.35 and Talisman Energy Ltd. (TLM/TSE) rose $1.30 to $43. Crude oil for January delivery firmed US4› to US$18.80 on the New York Mercantile Exchange. Traders initially expected prices to fall after the American Petroleum Institute said crude supplies in the U.S. -- the world's largest energy consuming nation -- rose 4.3 million barrels to 321.89 million barrels. Then, the U.S. Energy Department reported a 0.6% decline in heating oil and distillate fuels, allaying concern that plentiful supplies would push prices lower.
Telecommunications tempered the broader Toronto market's advance as bad news soured the outlook for related shares. Newbridge Networks Corp. (NNC/TSE) fell $2.70 to $61.55 after it said it will fire 280 employees, mostly at its troubled U.S.-based UB Networks unit, prompting concern that profit may be disappointing. Rival Northern Telecom Ltd. (NTL/TSE) dropped $2.40 to $132.70 to help send the sector lower. The two companies dominate the telecommunications equipment group and their shares typically rise or fall in tandem.
Banks fell against a backdrop of higher bond yields. Royal Bank of Canada (RY/TSE) tumbled 15› to $80.20, even though it reported its fiscal fourth-quarter profit to Oct. 31 rose 19% to $1.35 a share, from $1.09 for the same period last year. The results bettered the average estimate of $1.32 a share by eight analysts surveyed by IBES International Inc. Bank of Montreal (BMO/TSE) fell 35› to $64.15 and Bank of Nova Scotia (BNS/TSE) dropped 20› to $64.80.
Other Canadian markets closed mixed. The Montreal Exchange market portfolio rose 7.92 points, or 0.2%, to 3394.44. The Vancouver Stock Exchange composite index fell 5.54 points, or 0.9%, to 625.81.
In New York, the Dow Jones industrial average rose 13.18 points, or 0.2%, to 8032.01, after coming back from an intraday low of 7961.64.
Volume on the New York Stock was 629.6 million shares, compared with Tuesday's 580.8 million shares. The Nasdaq composite index rose 8.76 points, or 0.6%, to 1615.13. The Standard & Poor's 500 composite index gained 5.09 points, or 0.5%, to 976.77.
A confident earnings outlook gave Merck & Co. (MRK/NYSE) a big advance. Shares of the drug maker rose US$3 1/4 to US$98. Company officials said they were comfortable with analysts' 1997 earnings forecasts.
More surprising, the stock of some technology companies with discouraging things to say about their profit outlook held up. 3Com, the networking products company that said late Tuesday its inventory reduction plan would hurt profit performance in the current quarter, was not made to suffer. Its shares (COMS/NASDAQ) fell 3/8 to
US$34 15 1/816, recovering from being down almost 10% from Tuesday's closing level.
AT&T Corp. (T/NYSE) rose 3/4 to US$57 and Philip Morris Co. (mo/NYSE) gained US$1 1 1/816 to US$45 3/8.
"It would seem that holiday shoppers are planning to stuff their stockings with blue-chip stocks," said Charles Crane, chief market strategist for Key Asset Management. "I'm astonished to see that investors are flocking back to the same stocks that were identified several weeks ago as having some real risks in this marketplace."
The major overseas markets closed mostly lower.
London: British shares slipped as the rally of the previous two sessions fizzled. The FT-SE 100 index fell 6.9 points to 4970.7.
Frankfurt: German shares finished only slightly higher, weighed down by intraday losses on Wall Street. The Dax index rose 9.93 points, or 0.2%, to 4082.89.
Tokyo: Japanese stocks ended with moderate losses. The 225-share Nikkei average fell 324.78 points, or 1.9%, to 16,585.51.
Hong Kong: Stocks closed slightly lower after seesawing throughout the day. The Hang Seng index closed dropped 8.77 points to 11,207.58.
Sydney: Australian shares scooted higher as investors went Christmas shopping. The all ordinaries index rose 37.6 points, or 1.5%, to 2562.4.
Thursday Morning's Look At World Markets
HONG KONG (AP) - South Korean share prices soared Thursday after the International Monetary Fund agreed to a bailout loan, but Japan's market fell sharply. Hong Kong shares rose. South Korea's key index gained 26.50 points, or 7 percent, to close at 405.81 points. Trading volume was the highest ever, with 111.1 million shares traded. The won strengthened to 1,170 to the dollar, up from 1,196 won Wednesday. "The won-dollar market is expected to stabilize for a while with the
funds provided by the IMF and other international organizations,' said Han Suk-chul, a senior analyst at KFB Securities Co. The won has lost about 30 percent of its value this year. The IMF is believed to have demanded extensive financial and corporate reforms as a condition for the US $57 billion rescue loan to South Korea. The terms have not been disclosed, however.
Hong Kong's stock market also rose 2.4 percent. On Wednesday, it had slipped slightly. Analysts said the rally was technical, caused by fund managers with big cash positions putting money into blue chips now that interest rates appear to have steadied.
Tokyo stocks fell for the third consecutive session because of persistent worries about the health of financial institutions. The Nikkei average of 225 selected issues ended the session down 278.72 points, or 1.7 percent, at 16,306.79 after a 324.78-point fall Wednesday. Koji Omi, chief of the Economic Planning Agency, told reporters that Japan's economy is at a standstill, abandoning the agency's previous assurances that the economy is heading for recovery. Banking and brokerage issues were among the losers following reports that the Finance Ministry ordered 289 securities companies to investigate whether they had engaged in illegal off-the-book trading.
In other markets:
BANGKOK - In its first gain in a week, the Stock Exchange of Thailand index rose 11.39 points to 388.77 points. Investors were optimistic that the government will liquidate dozens of insolvent finance companies, a condition for more IMF bailout funds.
JAKARTA - The Jakarta Stock Exchange index closed up 12.244 points or 3 percent to 401.926 points. Investors bought back some big-capitalized shares following the central bank's denial of rumors that it plans to freeze dollar accounts.
TAIPEI - The main index rose 147.62 points, or 1.9 percent, to close at 8,050.13, completing a recovery from Monday's 5.1-percent plunge on the back of the opposition Democratic Progressive Party's victory in local elections.
LONDON - Share prices on the London Stock Exchange were higher at midday Thursday. At noon, the Financial Times-Stock Exchange 100-share index was up 79.9 points at 5,050.6. The US dollar rose against other major currencies in early European trading Wednesday. Gold prices fell. London dealers fixed a recommended gold price of US $289.85 per ounce at midmorning, down from the closing price of US $292.60 bid Wednesday.
HOT STOCKS
ISG Technologies Inc. (ISGTF/NASDAQ), up 5 1/864 to US$2 7/8, on volume of 141,400 shares. ISG and Sterling Diagnostic Imaging Inc., of Greenville, S.C., said they have signed a "multi-year, multi-million dollar" agreement for Sterling to license ISG's new line of image diagnosis and review software. Sterling will integrate ISG's viewing and reading applications into its system, which medical specialists use to electronically review images from devices like X-ray machines, computed tomography scanners and magnetic resonance imagers.
Telesystem International Wireless Inc. (TIW/TSE), up $1.15 to $21.75, on volume of 707,050 shares. The TSE will add Telesystem shares to its TSE 200 and TSE 300 indexes, replacing KWG Resources Inc. Once a company is included in an index, institutions are more inclined to buy its stock. Yesterday's trading -- about four times the average daily volume of 178,000 shares -- included three blocks of more than 100,000 shares. Trading in KWG stock was halted five days ago pending the outcome of inquiries about the whereabouts of many millions of dollars belonging to KWG affiliates.
Cognos Inc. (CSN/TSE), up $2.95 to $29.80, on volume of 159,980 shares. The stock rose after Cognos said it plans to make software that will work with technology being developed by Microsoft Corp. That is important for Cognos because it could allay concern that the company will be hurt by Microsoft's move into its area of expertise, Bloomberg reported.
Quebecor Printing Inc. shares (IQI/TSE) closed down 15› yesterday at $20.65. Quebecor shares (QBRa/TSE) closed up 15› at $27.65. -Quebecor Printing Inc. is making its biggest strategic move in the European commercial printing market with a US$317-million cash bid for Britain's Watmoughs (Holdings) PLC.
Royal Bank Of Canada shares (RY/TSE) closed yesterday down 15› to $80.20. Royal Bank powered its way to the top of the profit heap yesterday, reporting net income of $1.68 billion ($5.01) in the fiscal year ended Oct. 31. The earnings, 17% higher than last year's $1.43 billion ($4.09), pushed Royal past Bank of Nova Scotia, which last week set the bank profit record at $1.51 billion. The strong showing prompted Royal to raise its quarterly dividend to 42› a share from 39›. In fiscal 1998, now under way, Royal's objective is to boost earnings per share by another 10% to 15%.
Toronto-based MDC Communications Corp. (MDZ/TSE) closed yesterday at $7.80, unchanged. The company signed a five-year, $50-million deal with British Airways PLC to run the airline's document systems. MDC, which provides marketing services and produces security tags, formed a partnership with Britain's Astron Group PLC to make internal and external passes and manage BA's document inventory. It is MDC's first foray into document management, said Miles Nadal, president and chief executive. "This is a very important strategic initiative." MDC is working to diversify its revenue base beyond its marketing roots. This year, its cheque-printing division signed agreements with Royal Bank of Canada, Canadian Imperial Bank of Commerce and Toronto Dominion Bank.
Montreal-based CGI Group Inc.(MSE/GIB.A) closed at $46, up $2.95. The company beat analysts' estimates for its fiscal year by 18%. The technology consulting company said net income in fiscal 1997 ended Sept. 30 was up 186% to $7.8 million (40› a share) on revenue of $231.9 million. A year earlier, net income was $2.7 million (16›) on revenue of $122 million. Analysts were expecting 30› to 34› a share. Net income in the fourth quarter was $2.9 million (14›) on revenue of $72.4 million, compared with $572,000 (6›) on revenue of $38.5 million. CGI has benefited from a trend toward outsourcing by corporate technology departments, as well as the increasing attention being paid to the year 2000 software problem. In October, it bought Teleglobe Inc.'s insurance systems group, which brought CGI a significant part of the outsourced business of the property and insurance industry in Canada.
Milkyway Networks Corp. (MKY/TSE) closed down 5› yesterday at $1.12. Milkyway second-quarter loss was capped by an even larger restructuring charge, the company revealed yesterday. The results were announced after the close of markets.Milkyway. The company reported a net loss of $6.3 million (67› a share), including a restructuring charge of $3.2 million during the quarter ended Oct. 31, on revenue of $555,146. During the quarter a year ago, its loss was $1.4 million (15›) on revenue of $1.4 million. Milkyway warned investors on Nov. 11 its quarter sales were well below expectations. It immediately laid off 20 workers -- 25% of its staff -- and announced the resignation of Hung Vu, the founder, president and chief executive officer.
C-MAC Industries Inc. (Les Industries C-MAC Inc.) (TSE/CMS) shares closed down $0.50 to $19.50. The international microelectronics group, is buying a 50% stake in AMP Inc.'s Greenville, N.C., printed circuit board plant for about $20 million in cash. The plant makes high-end boards for the telecommunications equipment market, mainly in North America, and has 510 employees and annual sales of about $70 million. "We said we needed a specialized U.S. circuit board maker after we lost the battle for Circo Craft Co. Inc. in 1996," said Robert Coallier, C-MAC's chief financial officer. "We already buy from this plant and the injection of working capital will help it keep up technologically and expand sales to component and original equipment makers." The deal will be signed by Jan. 1. AMP, based in Harrisburg, Pa., is a leading global supplier of electronic interconnect equipment with 1996 sales of US$5.5 billion.
Angoss Software Corp. (ANC/ASE) closed down $0.02 to $0.12 yesterday. SLM Software Inc. (ESP/TSE) closed up $1.00 to $12.00. Hummingbird Communications Corp. is rumored to be the white knight suitor for Angoss Software Corp. Sources said Hummingbird is in due diligence with Angoss, which has said it has a better deal for its shareholders than SLM's hostile takeover bid. Angoss shareholders have until Dec. 12 to accept SLM's offer, which Angoss's board of directors has recommended against. Angoss considers SLM's bid -- originally 12› a share but lower now because of the formula used -- to be too low. Analysts agreed that although a buyout by Hummingbird makes sense, the timing is tricky. Hummingbird plans to acquire Andyne Computing Ltd., which makes software used to manipulate and interpret data, but that deal will not be official until after an Andyne shareholder meeting Dec. 22. It is not likely Hummingbird will make an open bid for Angoss until after that because Angoss's software works with Andyne's. If the Andyne deal were to fall through, Hummingbird would have little use for Angoss's software.
Shares of Tesma International Inc. (TSMa/TSE) closed yesterday at $20.75, up 25›. Despite record sales, first-quarter profit fell significantly at Tesma after the auto parts maker paid an out-of-court settlement in a patent infringement suit. The Concord, Ont.-based company incurred a charge of $9.1 million in the three months ended Oct. 31 to cover its settlement with Stant Manufacturing Inc. of Richmond, Ind. Stant claimed Tesma had infringed on a patent it held for gas caps. Under terms of the settlement, Tesma is continuing to produce the caps until the end of model year 2001 in return for paying Stant licence and royalty fees. Tesma revenue rose 13% in the quarter to $153 million from $136 million a year earlier, but net income fell to $3.5 million (13› a share) from $6.7 million (35›). The decline in earnings was in line with what the company had predicted when it announced the settlement in October. Operating income jumped 35% to $16.1 million from $11.9 million. Tesma, a former unit of Magna International Inc., makes powertrains and fuelling and cooling systems. Revenue growth came from 4% growth in North American vehicle production, increased content per vehicle and its acquisition of German aluminum die and mould caster Eralmetall GmbH last January.
Canada's biggest real estate company, TrizecHahn Corp. (TSE/TZH) closed up $0.75 to $35.25. The company is taking over Chicago's Sears Tower, the world's third-tallest skyscraper. TrizecHahn announced Wednesday it has bought both the 1,454-foot, 110-storey landmark building and an adjacent parking garage for $110 million US, the assumption of $4 million in liabilities and a $734 million mortgage. The tower boasts 3.5 million square feet of office and retail space and is 91 per cent occupied, said TrizecHahn. The purchase is the most high profile of the more than $1.5 billion of property acquisitions TrizecHahn has made this year and solidifies the company's position as a dominant real estate player in North America.
Thursday, December 4, 1997
Bissett & Associates' Buy & Sell
Level of consumer confidence helps guide selection
By SONITA HORVITCH The Financial Post
David Bissett, chief executive officer at Calgary-based Bissett & Associates, is emphasizing select consumer products companies and some real estate stocks for the firm's small-cap portfolio.
"The resurgence of consumer confidence and spending is one of our investment themes," the small-cap specialist said.
Another theme is the strengthening real estate sector. "The low interest rates have helped this sector recover and it is particularly strong in Western Canada."
Of the small-cap segment, Bissett "does not buy into the thesis" that the recent decline in small caps will mean investment interest in them is over for the time being. The pension funds continue to recognize it as a growth sector of the Canadian market and want to own small-cap stocks, he said.
Bissett & Associates recently launched a micro-cap fund which holds companies with a market capitalization of less than $75 million. The fund will be capped at $50 million to ensure availability of candidates and liquidity of holdings, said Bissett.
Consumer products producers that Bissett & Associates likes are:
Shermag Inc. (SMG/TSE) which closed recently at $17.25 and has a 52-week trading range of $17.40 to $12.80. The designer and manufacturer of wooden home furnishings is based in Sherbrooke, Que. Its products are sold in Canada and the U.S. Gene Vollendorf, equity analyst at Bissett, noted that Shermag has expanded its senior management strength to manage its high growth rate. On the production front, the company is a low-cost manufacturer relative to its U.S. competitors. It is expanding its sawmill capacity to control the cost of supply. On the U.S. marketing side, Shermag has three distinct and comprehensive distribution channels, said Vollendorf.
Dorel Industries Inc. (DIIb/TSE) $34.15 ($36.50-$17.25). The Montreal based company makes ready-to-assemble furniture and accessories. The products are sold in Canada, the U.S. and Europe. It is a consolidator in its sector in Canada, buying up smaller furniture manufacturers, said Vollendorf. Its size ensures economies of scale to compete internationally. Finally, Dorel has "excellent distribution channels in the U.S." Wal-Mart Stores is one of its major customers.
Bissett's real estate pick is:
Tonko Development Corp. (TAK/TSE) 90› ($1.25-70›). The Calgary-based company acquires, develops and manages commercial and light industrial income-producing properties. One of its focuses is on neighborhood strip shopping centres. It buys properties at attractive prices from older investors wishing to retire. It recently bought a prominent Banff retail property. "It will add value in the form of solid property management."
Another area where Bissett is finding opportunities is the food processing industry in Western Canada. His top pick is: Ridley Canada Ltd. (RCL/TSE) $13.65 ($15.10-$11.65). Based in Winnipeg, the company manufactures animal feed products in North America. It is a consolidator in the industry, said Bissett. The company does a large amount of business in Asia and Russia.
In the oil services sector, Bissett particularly likes:
Kelman Technologies Inc. (KTI/TSE) $2.15 ($3.25-68›). The Calgary based company provides seismic data processing and data storage and retrieval services. It is a niche business, said Bissett, and Kelman is a leader in the field.
Bissett has sold Ainsworth Lumber Co. Ltd. (ANS/TSE) $2.50 ($7.40-$2.20), which produces plywood, oriented strand board (OSB) and pulp chips in British Columbia for sale in North America, Europe and Japan. The company has had to deal with declining chip prices, excess capacity in the OSB market and the collapse of the Japanese market. It has completed a high-cost bond issue to finance capacity additions. "The company is not expected to be profitable and there are other areas which offer more potential," he said.
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