MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY, APRIL 9, 1998 (1)
GENERAL MARKET ACTIVITY
Toronto Stocks End The Week In Positive Territory
TORONTO - Toronto stocks ended an abbreviated holiday week in positive territory Thursday as the market clawed back the ground lost during a two-day losing streak.
The Toronto Stock Exchange 300 composite index rose 49.5 points, or 0.7%, to 7620.64. The benchmark gained 7.91 points on the week.
About 115.4 million shares changed hands on the TSE, down from 136.7 million shares traded Wednesday. Advancers outpaced decliners 570 to 464 with 295 issues unchanged.
The market advanced on "a low inflation outlook and good earnings from Chrysler and Yahoo Inc.," said Steve Bokor, a portfolio manager with Canadian Western Capital Corp.
Bank stocks contributed the most amid optimism the industry is preparing for a wave of mergers and acquisitions.
Royal Bank of Canada (ry/tse) rose $1.40 to $87, Toronto-Dominion Bank (td/tse) climbed $1.20 to $65.40 and Bank of Montreal (bmo/tse) advanced $1.50 to $81.35. Financial services stocks accounted for 23 points to the TSE 300's gain.
Cognos Ltd. (csn/tse) soared $3.80 to $40.50, after rising as high as $43.25 intraday. ATI Technologies Inc. (aty/tse) jumped $1.10 to $68.90 after hitting a record $71.35 intraday. The Markham, Ont.-based company said its fiscal second-quarter profit more than tripled to $42.3 million, or 70› a diluted share, beating analysts' expectations by 10› a share.
Newbridge Networks Corp. (NNC/TSE) rose $1.20 to $38.55 on news of a blockbuster contract with Cable & Wireless PLC.
Among industrials, Biovail Corp. gained $4.00 to $59.15; Asbestos lost $7.25 to $20.25.
Among mines, Rio Algom rose $1.15 to $27.35; Barrick Gold fell $1.10 to $31.75. In Tokyo, the benchmark 225-issue Nikkei Stock Average rose for the fourth consecutive day as investors anticipated announcement of tax cuts and other stimulus measures.
Investors will get an opportunity to gauge the outlook for Canadian profit growth with a series of earnings reports from Alcan Aluminium Ltd., Bombardier Inc., BCE Inc. and Northern Telecom Ltd. next week.
Other Canadian markets were mixed. The Montreal Exchange portfolio rose 19.43 points, or 0.5%, to 3839.88. For the week, it rose 2.85 points. The Vancouver Stock Exchange lost 0.03 of a point to close at 638. For the week it fell 5.43 points or 0.8%
In New York, the closely watched Dow Jones Industrial Average rose 103.38 points or 1.2 percent to 8994.86, inching closer once again to the 9000-point plateau it punched through earlier this week.
For the week, the Dow gained 11.45 points or 0.13 percent.
Traders said today's activity lacked the excitement of recent sessions as investors booked off early for a long weekend.
North American markets are closed tomorrow for Good Friday.
"We are seeing the pre-holiday trading pattern," said Sean Church, chief operating officer at Priority Brokerage in Toronto. "A lot of people are traditionally tidying up their portfolios before a holiday."
Overall in Toronto, 10 of the TSE 300's 14 subindexes closed in positive territory led by a 1.3 percent jump in the banking sector. The heavily weighted sector was hot this week after merger mania gripped the market. On Monday Citicorp and Travelers Group Inc. said they plan to merge, creating the largest financial services group in the world.
Also bouying the markets was a 1.4 percent jump in consumer products, a 1.1 percent climb in industrial products and a 1.5 percent hike in the metals group.
Tempering the gains was a 1.8 percent drop in the influential gold sector as the June price for COMEX gold slipped 0.90 to 310.20.
Major overseas markets ended mainly higher.
London: British shares rose as the Bank of England decided not to raise interest rates. The FT-SE 100 index climbed 50.3 points, or 0.8%, to 6105.5, up 41.3 points, or 0.7%, on the week.
Frankfurt: Germany's blue-chip Dax index closed at 5317.22, up 47.76 points, or 0.9%, and up 93.7 points, or 1.8%, from last week.
Tokyo: Japanese shares were cheered by reports of a 10 trillion yen stimulus package. The 225-share Nikkei average closed at 16,536.66, up 160.04 points, or 1%, a rise of 1018.88 points, or 6.6%, on the week.
Hong Kong: The Hang Seng index closed at 11,342.02, up 27.56 points, or 0.2%, and up 289.34 points, or 2.6%, on the week.
Sydney: The all ordinaries index closed at 2805.8, down 7.7 points, or 0.3%, but up 35 points, or 1.3%, on the week.
Markets Brace For Profit Hit
The Financial Post
First-quarter reports for most companies are a few weeks away, but early signs point to a halt in profit growth - indeed, it may be an achievement if average profits simply match those of first quarter 1997.
But while analysts were busy scaling back their earnings estimates in the first quarter, company shares were running with the bulls. All major indexes hit record highs in Canada and the U.S.
So it seems likely stock prices will take a hit - perhaps by 5% to 10%, says one forecast - as flat earnings are rolled out.
Last fall, analysts polled by Boston-based First Call Corp. were looking for 1998 first-quarter profit growth of about 15% for companies in the Standard & Poor's 500 index. This week the estimate had tumbled to 0.5%.
"Clearly in the fourth quarter, things were starting to slow down," said Charles Hill, director of research at First Call Corp. "Now they're collapsing."
In Canada, the picture is similar, with earnings growth expected to be flat over the first two quarters, said Subodh Kumar, market strategist at CIBC Wood Gundy Securities Inc.
In the earnings game, chief financial officers and investor relations staff spend a lot of time "massaging" their earnings estimates with brokerages.
"Companies that report below expectations are going to get hit quite hard," said Kumar. The market has seen commodity prices fall and is prepared for bad news from base metals producers and oil companies, but other surprises are not priced into the market.
In fact, the bull run saw the Toronto Stock Exchange 300 composite index return nearly 13% in the quarter and the S&P 500 return 13.5%.
"The market has been telling us since the beginning of January that it's not worried about a hit to earnings from Asia," said Jim Mountain, managing director of private equity trading at ScotiaMcLeod Inc.
Yet, as First Call's Hill cautioned, the impact of Asia's downturn is just beginning to be felt. Profit in the energy sector is forecast to fall 28%, while technology firms will suffer a 9% decline, according to First Call surveys.
Deflation out of Asia has pushed the producer prices down 1.8% over the past year and lower prices will eat into profits, warned Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York.
The initial call in January was for a 4% drop in profit for the semiconductor sector, but the latest survey expects a fall of 30%. Over the same period, the profit forecast for communications equipment and computer firms has slid from positive values of 10% and 18%, respectively, to -30% and -14%.
Revival Of The Fittest
Once the boutique broker to be reckoned with in the oilpatch, Peters & Co. saw its market share eroded by tough new competitors. Then it went out and hired players like Ian Bruce and the makeover was on
The Financial Post
In his 16 years as an investment banker, Ian Bruce has worked on some of the biggest deals in the oilpatch. They include the $310-million sale of the Saskatchewan government's 50% interest in the Lloydminster heavy oil upgrader to Li Ka-shing's Husky Oil Ltd.; Canadian Occidental Petroleum Ltd.'s $1.7-billion purchase of Wascana Energy Inc.; and IPL Energy Inc.'s $1.2-billion acquisition
of Consumers' Gas Co., to name a few.
His new colleagues at Peters & Co. hope he has many more in him, and with reason. The 44-year-old Bruce, the firm's newly minted vice-chairman and director, has the kind of track record that brings in large cap clients.
But there's more to it. The appointment of the former ScotiaMcLeod Inc. Calgary managing director is a milestone in the firm's revival plan. Once the oil and gas industry's most influential, best connected and best informed specialist dealer, Peters & Co. has watched its market share slip away in recent years to bank owned dealers and new entrants like FirstEnergy Capital Corp. (formed by Peters & Co. alumni), Griffiths McBurney & Partners, Goepel McDermid Inc., and Newcrest Capital Inc.
The changes really started last summer, when Peters & Co. followed some of its new competitors into the principal trading business. Since then, the firm has added professionals in trading, institutional sales, treasury and corporate finance. In total, it has beefed up its bench strength by a dozen people and now has a staff of 60.
"Over the last number of years, we have clearly seen more competitors come into our niche," says president and chief executive Michael Tims. While the firm has consistently enjoyed excellent results, "what we decided strategically was that we were going to beef up all areas and work to improve each area."
Especially with the addition of Bruce who, as one industry observer puts it, is "a big, big coup for them."
One of his mandates is to help Peters & Co. move to the mid-sized to large oil and gas issuers that have eluded it so far, with the exception of long-time clients like Alberta Energy Co. and Ranger Oil Ltd.
There's no reason why the firm can't take a leading role in large industry financings - a role that has been historically handed to the big, bank-owned dealers, partly because of their retail capabilities, says the Manitoba native in his rapid-fire style.
"If there is a big secondary on, say, Petro-Canada ... the boutiques, if they are active traders, and they are actively following the stock and providing good research and trading volumes and knowledge, should be well represented in those deals."
He will also help the firm with the lucrative royalty and income trust business on a selective basis. "My role," he says modestly, "will evolve. I have worked hard all my life. I'll fit in. I want to fit in here, as opposed to come in and bash people around."
Where Bruce mainly fits is in Peters & Co.'s inner sanctum - the executive team consists of Tims, chairman Robert Peters, research director Wilfred Gobert, corporate finance managing director Bruce Fiell and head of trading Nirvaan Meharchand.
What they are plotting is how to get a bigger share of the lucrative investment banking business generated by the oil and gas industry.
The sector consistently ranks as one of Canada's top users of corporate finance services. It has large requirements for cash to fund programs like exploration, as well as mergers and acquisitions.
In 1997, the industry was outranked only by financial services in terms of money raised through equity financings. Oil and gas companies garnered $5.9 billion in 262 separate equity and trust offerings last year. That's roughly 15% of the $39.5 billion raised in all types of financings in Canada, according to The Financial Post DataGroup.
When equity issues by oil services companies are included, the 1997 tally increases to $8 billion, according to Peters & Co.'s estimates.
The oil and gas industry also consummated $16.3 billion in mergers and acquisitions --60% more than the record $10.2 billion set a year earlier, according to figures compiled by Calgary-based Sayer Securities Ltd.
The problem for the Peters & Co. brain trust is the firm's declining market share. Bank-owned firms like RBC Dominion Securities Inc. and Nesbitt Burns Inc. dominate the field, but newcomers like Newcrest and Griffiths McBurney have come on strong, especially in serving the needs of small-cap oil and gas exploration and service companies.
Last year, for example, Peters & Co. raised $329 million and was the lead underwriter in 18 deals. But the firm's aggressive progeny, FirstEnergy, brought in $448 million and was lead underwriter in 22 deals.
Bruce's arrival at Peters & Co. also comes when the energy sector is taking a pause from last year's hyperactivity. Low oil prices have slowed capital spending and made markets unreceptive to new equity
issues.
Merger and acquisition activity has also slowed. Producers with strong balance sheets are reluctant to take a run at weaker players when their share prices are low, while weaker players are reluctant to sell in a bad market, preferring to hang in until the good times roll again.
Bruce, a chartered accountant and professional business valuator with a B.Sc. from Queen's University and MBA from the University of Western Ontario, prefers to take the high road in assessing Peters & Co.'s prospects.
"The goal is to be leading, and leading in my view is quality of relationships, excellence, quality of people inside theorganization, quality of research capability, quality of trading capability, knowledge of what the institutions want," he says.
"And I think the firm ... has very much come back, and in a lot of the relationships hasn't slipped at all."
In the past, slippage would never have been an issue.
Founded in 1971 by Peters, a former retail broker, and analyst Ray Hugo, Peters & Co. was the country's first specialist dealer in oil and gas financings and flourished with the growth of Canada's energy sector. Initially, the firm concentrated on private placements, raising institutional money for companies that wanted to finance exploration programs or acquire producing assets. Over time, it moved into equity underwritings and eagerly bought for its own account, becoming at one point the largest single shareholder in Poco Petroleums Ltd.
Little was beyond the firm's reach. It regularly dispatched its own observers to meetings of the Organization of Petroleum Exporting Countries so its Calgary based clients could savor first-hand insights into the direction of oil prices.
If the firm suspected a particular well might have an impact on a company's stock price, it hired its own scouts - the oil and gas industry's equivalent of industrial spies - to monitor developments.
It was well connected to Premier Peter Lougheed's Conservative government, not to mention Calgary's powerbrokers.
"Early on, one of Rob Peters' strengths was that he knew everyone and he had strong relationships with people," says a competitor. "When you added the technical talent of Mike Tims, that was a tough combination to go up against."
But in recent years, Peters has taken a less active day-to-day role and moved on to other business and personal interests. Coincidentally, his former employees over at FirstEnergy have put together a highly charged, ultra-competitive powerhouse.
Observers think a makeover was due at Peters & Co. "They needed to do something," says one source. "There is such a gap between the top and where they are now. They are just preserving the franchise they have."
Bruce dismisses the street talk. He joined the firm, he said, because he admires the people and what it has done for the energy industry over the years.
He also believes the future of bank-owned dealers will be a rocky one with the proposed and rumored bank mergers.
When combined, the bank's investment dealer functions will be hard pressed to hold on to their market share, he says. "The institutional clients don't want all that muscle concentrated into one spot. The institutions want to be able to deal with other people."
Regardless of the inevitable market cycle, Bruce, a father of three who likes to work with wood in his spare time, plans to emphasize what's worked for him in the past: coming up with ideas, providing top service and drawing on the relations he built over the years, which he has casually catalogued in his two "antique" rolodexes.
Meanwhile, bets are already flying about whether the new and re-invigorated Peters & Co. will give other investment firms a run for their money.
"I was pleased to see Ian was going to join a boutique where I think his talents will be better remunerated. It makes Peters & Co. a stronger firm because Bruce is a great addition," concedes Tom Budd, now managing partner, corporate finance, with Griffiths McBurney.
And, says one staffer at FirstEnergy, "we look forward to doing business with him."
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