MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY DECEMBER 15, 1997 (1)
Tuesday, December 16, 1997
Wholesale Selling Hits TSE
Bay Street ended lower, hit by selling across the board, except in the gold group. On Wall Street, the Dow Jones industrial average ended a bruising five-session losing streak
The Toronto Stock Exchange 300 composite index fell 57.19 points, or 0.9%, to 6584.7 after slumping as much as 1% just two minutes before the close of trading. Canadian Pacific Ltd. and BCE Inc. together cut 16.5 points from the benchmark index, amid swelling concern that slower Asian economic growth will erode corporate profits.
The Paris-based Organization for Economic Co-operation and Development said it sees tumbling currencies and rising interest rates in Asia reducing economic growth among the world's most industrialized nations this year and next.
BCE (BCE/TSE) dropped 75› to $45.65 and Newbridge Networks Corp. (NNC/TSE) slid $1.75 to $48 to pace the decline. Telecommunications-equipment maker Northern Telecom Ltd. (NTL/TSE), which slipped $3.90 to $124.75, and Newbridge extended their losses on concern that weak Asian economies will erode company profits. BCE owns 52% of Nortel.
On the broader TSE, decliners outpaced advancers 679 to 397. Volume on the TSE was 118.5 million shares, up from 117.1 million shares traded Friday.
Analysts said Canadian Pacific Ltd. (CP/TSE) was the single biggest drag on the TSE 300. The stock tumbled $2.35 to $37.45 as its 87%-owned oil and gas subsidiary PanCanadian Petroleum Ltd. (PCP/TSE) dropped 75› to $23.25.
Banks failed to maintain early gains as investors debated whether Friday's 50-basis point rise in interest rates was enough to stabilize the C$.
Canadian Imperial Bank of Commerce (CM/TSE) fell 20› to $46.30, Bank of Montreal (BMO/TSE) slid 20› to $65.60 and Bank of Nova Scotia (BNS/TSE) fell 40› to $67.40.
"There is just a bad sentiment in the Canadian market," said Philip Strathy, a portfolio manager with Strathy Investment Management Ltd. "The boost in interest rates just came too late and there was no follow through."
The gold & precious metals subindex was the sole gainer of the TSE's 14 subgroups. Barrick Gold Corp. (ABX/TSE) rose 75› to $24.40 as the price of bullion rose US$1.70 to US$284.50 an ounce on the Comex division of the New York Mercantile Exchanges.
In New York, the Dow Jones industrial average rose 84.29 points, or 1.1%, to 7922.59.
The Nasdaq composite index erased early losses to end a heavily traded session virtually unchanged - down 0.02 of a point at 1536.56. But given recent weakness of the index, which had lost 6.9% over the previous four sessions, the day was something of a moral victory for tech-sector investors.
The Standard & Poor's 500 composite index jumped 10 points, or 1.1%, to 963.39.
Volume on the New York Stock Exchange rose to 603.1 million shares, up from 579.9 million shares traded Friday.
Banking issues led the overall market, bolstered by a sub-6% yield on the U.S. Treasury's 30-year bond.
Even though its fourth-quarter earnings projections were lowered by Goldman Sachs & Co, J.P. Morgan & Co. (JPM/NYSE), a Dow component, rose US$21 11/16 to US$119 3/4, Bankers Trust New York Corp.(BT/NYSE) gained US$3 3/4 to US$130 5/16, and Chase Manhattan Corp. (CMB/NYSE) climbed US$1 3/16 to US$112 1/4.
The tech sector was mixed, with large-cap computer-related stocks generally outperforming smaller issues. Aside from their recent battering, tech stocks were greeted by a wave of downgrades. Among those that were downgraded but still posted gains, Intel Corp. (INTC/Nasdaq) rose US$1 5/8 to US$72 1/8 and Texas Instruments Inc. (TXN/NYSE) jumped US$1 7/16 to US$42 1/2.
The major overseas markets closed mixed.
London: British investors were said to be gearing up for the traditional yearend rally as the FT-SE 100 index closed sharply higher on the back of heavy gains in the bank and oil sectors. It closed at 5121.8 points, up 76.6 points or 1.5%.
Frankfurt: German stock prices fell late in the day. The Dax index closed at 4060.04 points, down 22.56 or 0.6%.
Tokyo: Japanese stocks rallied near the close to end little changed after being in negative territory for most of the session. The 225 stock Nikkei average closed at 15,909.39 points, up 5.09 points.
Hong Kong: Stocks reversed Friday's gains on the heels of dipping futures contracts. The Hang Seng index closed at 10,435.15 points, down 179.15 points or 1.7%.
Sydney: The all ordinaries index posted its first rise in five sessions, as buying support for Australian industrial stocks countered an ailing resources sector. It closed at 2500.9 points, up 6.9 or 0.3%.
HOT STOCKS
Canadian Pacific Ltd. (CP/TSE), down $2.35 to $37.45, on volume of 1.6 million shares. Canadian National Railway Co. (CNR/TSE), down $2.05 to $68.25, on volume of 115,362 shares. Both companies are facing hard bargaining with their railway unions, who have made it clear they expect a slice of company profits. In addition, a major U.S. investor in Canadian Pacific may have been selling stock yesterday, a company officer told a media briefing. RBC Dominion Securities Inc. sold more than 780,000 and bought almost 690,000 Canadian Pacific shares. The broker crossed five blocks totalling 520,000 shares for prices between $38.80 and $37.50 each.
George Weston Ltd. (WN/TSE), up $2.35 to $121.45, on volume of 19,970 shares. The gain lifted the stock's advance to $14 in the past month. The company's Maplehurst Bakeries Inc. division said yesterday it will buy Quaker Oats Co.'s frozen bagel businesses for an undisclosed sum. Sales of the businesses are expected to be about US$49 million this year.
Newbridge Networks Corp. (NNC/TSE), down $1.75 to $48, on volume of 2.3 million shares. The company is almost $50 off its 52-week high of $95 and is now just $10.40 above its 52-week low, and is still trading at an price-earnings multiple of 55.9.
Gold Reserve Corp. (GLR/TSE), up 50› to $4.25, on volume of 651,396 shares. The company said the Venezuelan government has issued its Venezuelan subsidiary a hard rock mining title for the gold, copper and molybdenum beneath the Brisas alluvial gold concession.
Western Copper Holdings Ltd. (WTC/TSE), up $1.20 to $5.05, on volume of 837,335 shares. The stock has bounced wildly, closing at between $2.24 and $5.25 since Nov. 10 when it said it had encounterd massive sulfides at the El Salvador project in Mexico. There was no news yesterday, but the stock rose on strong buying by Yorkton Securities Inc.
Sun Media Corp. (SMI/TSE), unchanged at $13.50, on volume of 1.7 million shares. Yesterday was the first day of trading for the company, which owns 80% of The Financial Post. About 23 million shares were sold for $13.50 each in the company's initial and secondary public offerings.
Lodestar Energy Inc. (LEIa/ASE), up 14› to $1.04, on volume of 35,400 shares. Torrington Resources Ltd. (TRN/TSE), unchanged at $4.10 on volume of 1,000 shares. The two energy companies have agreed that Torrington will take over Lodestar, paying $1.15 cash for each Lodestar class A share and 0.4 of a Torrington share for each Lodestar class B share.
MARKET EYE
No-Change Nasdaq Provides News Of The Day
By WILLIAM HANLEY - The Financial Post
As impressive as the Dow Jones industrial average's 1.08% surge was yesterday, the Nasdaq composite's flat performance after being well off for much of the day caught the most attention behind the scenes.
After six straight losing sessions involving a total retreat of more than 6% and news that a prominent Wall Street analyst was cutting estimates for PC sales growth this year and next, some big Nasdaq names slumped again yesterday after an early rise.
The Street has wrestled with high valuations for the star techs - valuations that looked even higher in view of the crisis in Asia, where computer companies were looking for vibrant sales growth. Companies like Intel Corp., Oracle Corp. and even mighty Microsoft Corp. have been caught in the selloff, suffering through their own individual bear markets. Canada's Newbridge Networks Corp. and Northern Telecom Ltd. have been caught in the downdraft, too.
Granted, some of the technology valuations were right out of the bubble manual. But the techs began to look oversold on a short-term basis.
We might see a nifty bounce out of here even though the technology issues are looking highly priced and vulnerable over the longer term.
The Financial Post's weekend feature detailing the 50 Best Managed Private Companies made interesting reading - especially on Bay Street.
It is a handy reference for those beating the bushes for initial public offering candidates - and there are prospects aplenty in the 50 Best.
Apparently, the new breed of fast-growing companies that the Street is stalking is known as the "gazelle." Likely among the several thousand companies reckoned to be gazelles in Canada are the next Newbridges and Cotts.
The market for initial public offerings may have faltered in recent weeks, but the Sun Media Corp. issue choreographed by CIBC Wood Gundy Capital has not put a foot wrong. The shares (sme/tse) - issue price $13.50 - began trading yesterday, hitting $13.85 and going as low as $13.30 before closing even in a market that was generally struggling.
CIBC Wood Gundy was responsible for about half the first day's trade, more active on the buy side than the sell in seeing that the issue got a good send-off.
We knew it was possible to lose your shirt on the TSE. But is the exchange getting into the haberdashery business?
Seems there are now two TSEs. One is the Toronto Stock Exchange, the other the Toronto Suit Exchange, which has been riding the coattails of the stock market as the "TSE" in TV and print advertising.
The exchange is aware of the "TSE" and its advertising, but an official says it is not clear what, if anything, the response might be.
Meanwhile, both outfits have goods for sale at what some observers might suggest are bargain prices. Now let's see. What's your inside leg?
Share Buybacks Gain Popularity
Firms capitalizing on slumping prices
Tuesday, December 16, 1997
By Janet Mcfarland
The Globe and Mail
Canadian companies have announced a flurry of stock buybacks in the past few days, most of them in the struggling natural resources sector where share prices are slumping.
In the past three business days, at least nine companies listed on the Toronto Stock Exchange announced they will buy up their shares on the open market, in what are known as normal course issuer bids. Companies typically have a year to buy the shares once a bid is approved by the TSE.
"There's been a whole lot of them coming along during this period of time," said Fred Ketchen, director of equity trading at ScotiaMcLeod Inc. of Toronto.
Among the bigger deals announced recently, Barrick Gold Corp. said Thursday that it will buy as many as 10 per cent of its outstanding shares over the next year, worth $753-million at its current stock price; Canadian Fracmaster Ltd. said Friday it will buy up to 5 per cent of its outstanding shares, worth $42.5-million at current prices.
Barrick chief executive officer Peter Munk said his company's shares are cheap. The price of gold has fallen to 18-year lows, and Barrick's share price has slipped with it, closing yesterday at $24.30 a share, down from a 52-week high of $41.50 on Dec. 20, 1996.
"The shares are trading in a price range that does not reflect the value of the company's mining and financial assets, and future business prospects," Mr. Munk said in a release. "We have the financial strength to undertake this program."
Share buybacks help create a liquid market for unpopular stock, and help boost share prices by reducing the number of shares in circulation. That, in turn, boosts earnings per share. Many shares trade as a ratio to their earnings per share, so the price rises as earnings increase, Mr. Ketchen said.
He said many companies have reported strong earnings this year and can afford the purchases. "After the kinds of earnings that we have seen so far this year, there is a fair amount of money sitting in the treasuries of these companies."
Satellite technology company NII Norsat International Inc. of Surrey, B.C., said it is using its available cash to boost public confidence in its stock.
"From our perspective, it's gotten to the stage where we think our stock is very much undervalued," said vice- president Derick Walker. "We want to send a strong message to the market that we have confidence in our own stock. Obviously we've got some spare cash, so it makes sense to buy some stock back at this point."
Norsat announced yesterday that it has received TSE approval to buy up to 945,325 shares, or 5 per cent of the total outstanding, over the next six months. Shares of Norsat closed yesterday at $1.70, a43-per-cent reduction from their high this year of $3 in May. At current market values, the share buyback is worth $1.6-million.
Mr. Walker says Norsat has been hunting for a good acquisition, but has no imminent deals. If a deal arises in the future, the company could still issue new shares.
"What are we going to do in the interim? You're either going to earn 2 per cent on your cash, or you can buy back some of your stock."
Market analyst Dunnery Best said the current crop of issuer bids is heavily weighted in the natural resources sector, which is getting "slaughtered" in the markets in recent days as concerns about the Asian economic crisis grow.
"I've noticed a lot of commodity plays -- the oil and gas side, the base metals side and the forestry side have announced share repurchases," said Mr. Best, senior vice-president at Midland Walwyn Capital Inc.
But he said other industry sectors also have done buybacks, beginning earlier this year. Many of the larger telecommunications companies, such as Northern Telecom Ltd. and BCE Inc. for example, have bought back their shares this year.
Retail giant Canadian Tire Corp. Ltd. repurchased 6.3 million of its shares in the first 10 months of this year; Seagram Co. Ltd. bought 6.3 million in October alone; Nova Corp. purchased 13.5 million between April and October while Methanex Corp. bought 11.3 million in the same period.
"It's the best thing they can do with shareholders' funds," Mr. Best said. "It's better to do that than raise dividends."
Issuer bids have become increasingly common over the past 10 years as a favoured way of supporting shareholder values. Conversely, direct payments, such as special dividends, have fallen in popularity, Mr. Best said.
He said the buybacks are more tax advantageous because dividends are paid from a corporation's after-tax profit, and become taxable income for shareholders.
"It [a dividend] is not a very efficient way to put money into people's pockets."
But Mr. Ketchen at ScotiaMcLeod warned that there can be a danger. Several years ago, the TSE issued a directive warning companies not to announce issuer bids and then make no purchases in subsequent months.
"The stock exchange is very watchful of that kind of thing because if you're going to file an issuer bid, they want you to do something. They don't want you to file an issuer bid for the sole purpose of raising a flag and saying we're here and we're going to buy our own stock, and then never do it."
Although the market response is not always dramatic, announcements of coming purchases tend to give shares a boost. Shares of Barrick Gold, for example, climbed $1.20 on Thursday to $22.90 after its buyback was announced.
Share buy-backs announced in the past week include Barrick Gold, Canadian Fracmaster, Intertape Polymer, Westurne Inc, Alliance Comm, Southwestern Gold, Int'l Thunderbird, Accord Financial and NNI Norsat Int'l. |
