CANADIAN MARKET WRAP -2 / Day Ending Wednesday 12/23/98
Investors High On QLT Stock
U.S. clearance for wider use of company's Photofrin light-therapy drug gives shares a buzz
Shares of QLT PhotoTherapeutics Inc. have taken legs after its Photofrin light-therapy drug won U.S. Food and Drug Administration clearance yesterday for wider use in lung cancer patients to help reduce pain and airway obstruction.
Last year, the drug and laser light combination was approved by the FDA for a narrow use in treating early stage lung cancer when other treatments weren't feasible.
Shares of the Vancouver company soared almost 10 per cent or $3.05 to $33.90 on the Toronto Stock Exchange after the FDA news yesterday. The stock has jumped more than 40 per cent since the beginning of November. It hit a record high of $38 in February, 1997.
The wider approval could double the market for the novel drug, analysts say. Photofrin is used along with a low-intensity laser made by Laserscope Inc. of San Jose, Calif.
QLT was already riding high after Warburg Dillon Read issued a report featuring bullish comments on a drug QLT is testing to treat age related macular degeneration, which impairs eyesight.
Investment banker Warburg issued a "strong buy" recommendation on Novartis AG of Switzerland, whose unit CIBA Vision of Atlanta is QLT's partner in developing verteporfin, known as BPD. The results of the drug's Phase III clinical trials are due to be released in the first quarter of 1999.
Macular degeneration is a leading cause of blindness among people over 50. The disease occurs when new blood vessels grow toward the macula, a very small area of the retina that is responsible for central vision.
Warburg described BPD as "very promising" and said the new drug offers revenue potential of more than $800-million (U.S.).
QLT is developing proprietary pharmaceutical products for so-called photodynamic therapy, which uses a laser light to activate the drugs and treat the disease.
Warburg said BPD should enjoy rapid growth because the procedure can be rapidly performed -- 20 to 30 minutes -- by eye physicians who have become generally accustomed to applying laser therapy in their daily practice.
The potential market for BPD was estimated at about 1.5 million people with the disease worldwide when the drug is introduced, likely in early 2000.
The Warburg report cautioned, however, that the early sharp liftoff in sales could ease somewhat after the first few years as the patient pool gradually narrows to new cases of macular degeneration.
QLT shares slumped over the summer because Photofrin continued to post disappointing sales. Analysts said the drug was hampered by the newness of its technology. Also, a side effect of the drug was that patients became very light sensitive.
Some analysts believe that BPD will be the driver of QLT's sales and profit -- and the share price. "That's where all the interest and potential is," said Ezra Lwowski, a Toronto-based analyst who follows the company for Yorkton Securities Inc.
He said all developments to date point to successful final trials on BPD, allowing the company to post higher earnings once the drug is on the market.
Yorkton had a target price of $30 (Canadian) for QLT shares, but the stock has sailed through that marker and Mr. Lwowski is not ready to flash a "sell" recommendation yet, preferring to ride the upward momentum stirred by the latest developments.
He noted that the company's Photofrin's sales should be stimulated by the latest U.S. approval for wide use.
QLT shares could ultimately drop to "fair value" of $30 a share, he said, indicating that the valuation reflects projections that QLT will earn 25 cents a share in 2001 -- its first profit -- and $1.77 a share in 2002.
Investing in biotechnology shares involves risk any time a drug is still being developed, but that risk is reduced when a company is as far along in the approval process as QLT, he said.
Michael Lorimer who follows health care stocks for Scotia Capital Markets, told clients that photodynamic therapy is one of the most promising new therapeutic techniques in medicine and QLT is a leader in the field.
In an earlier report, ScotiaMcLeod estimated the global market for BPD at $1.3-billion.
Mr. Lorimer continues to carry a "buy" billing on the stock with a one-year price target of $36. The shares, he said, could move above $40 if the final clinical trial data for BPD are rosy, but the shares could decline if the data fail to meet investor assumptions.
QLT's new photodynamic eye therapy drug is competing with a product being developed by U.S.-based Miravant Medical Technology, he said. "In our view, Miravant is two years behind QLT."
Under a profit-sharing arrangement with Novartis, QLT is going to get 35 cents of every $1 of sales of the new drug to the medical community, Mr. Lorimer said, describing the deal as "above average."
Another analyst, Viren Mehta of New York-based Mehta Partners, said it's "comforting" that BPD has been licenced by Novartis, but QLT's shares are "fully valued" at current price levels.
In the third quarter, QLT reported a wider loss as research and development spending jumped from $ to $5.9-million from the same quarter of 1997. The red ink ran to $6.4-million, compared with $3.7-million a year earlier, while revenue was $1.9-million, down from $2.6-million.
QLT PhotoTherapeutics Inc.: Vital statistics
Head office: Vancouver
TSE symbol: QLT
Business: Develops pharmaceutical products and applications that use light-activated drugs for treatment of cancer, eye diseases and other conditions
Share values
Trailing 12-month earnings a share -81¢
52-week high $33.90 / 52-week low $16.00
Last close $33.90 / Change from previous +$3.05
1-year total return 108.62% / 59-month average return 18.07%
Top mutual fund holdings % of total market value, as of Sept. 30
Navigator Canadian Technology 3.9
Cognos Stock Soars On Strong Web-Based Sales
Wednesday, December 23, 1998
Simon Tuck - Technology Reporter
Globe & Mail
Cognos Inc. hopped a ride on the Internet craze as its share price soared $6.90 or 25.5 per cent Tuesday and added another $1.80 Wednesday after the software company revealed surging sales of its Web-based programs.
Late Monday, Cognos said strong sales of its Web-based intelligence software helped push its profit up 23 per cent in its third quarter. The Ottawa software company also said sales of such computer programs could account for half of its sales in that area in the fourth quarter, up from one-third in the third quarter.
Analysts were pointing to the numbers as evidence of a comeback for Cognos, whose stock has languished since the fall of 1997, when the company warned that sales and profit would slow because its customers were confused about the impact of the Internet.
Some analysts say the company, which leads its key business intelligence market with a 24-per-cent share, now appears to have secured its lead over its major rival, Business Objects SA of France, at least for moment.
"They're now well ahead of the competition," said Howard Lis, a technology analyst at Griffiths McBurney and Partners Inc. in Toronto.
Business intelligence software allows employees to retrieve and analyze information in a corporate data base.
Cognos shares on the Toronto Stock Exchange are still a far cry from their 52-week high of $43.25, which was achieved in early April.
The company posted $76.3-million in revenue during the third quarter, a 23-per-cent increase from a year earlier and its best figure so far. Its earnings, $15.9-million or 36 cents a share, topped analysts' estimates by 1 cent.
At least three analysts -- two in Canada and one in the United States -- responded by raising their recommendations.
For Cognos, this latest step along the comeback trail has been taken only 15 months after its share price was slashed 32 per cent in a single day on Sept. 25, 1997, largely over concern about the company's ability to keep up to rivals with Web-based software and worries about customers delaying purchases as they mulled over the new products.
Those questions appear to have been answered, analysts say. Cognos's newer Web-based business intelligence tools now make up about one-third of the revenue from that product line, which accounts for about 70 per cent of the company's total sales. The quick transition to the Internet has encouraged analysts to accept the company's claim that the Web-based version will make up about half of its business intelligence revenue by the next quarter.
Like fellow Canadian software makers Open Text Corp. of Waterloo, Ont., and JetForm Corp. of Ottawa, analysts say, Cognos is demonstrating that the big money in the world of electronic commerce -- contrary to the hype -- is likely to come from selling to corporations, not consumers.
Mark Pavan, a technology analyst at Yorkton Securities Inc. in Toronto, said the corporate market will "dwarf" the consumer market as Internet-based commerce matures, despite all the attention garnered by electronic shopping.
"The real Internet opportunity, which is companies making themselves more efficient through Internet technology, is in the long term much more important than the high-profile Internet commerce we see now," Mr. Pavan said. Almost all of the big software companies in Canada that have had any success are all trying to do the same thing, that is concentrate on the corporate market, he said.
But these software companies working in the corporate market shouldn't be viewed as Internet companies in the same sense as the E-commerce retailers who have been riding the "speculative Internet bubble," Mr. Pavan said. Unlike many companies whose stock has soared on the basis of retail commerce on the Internet, these companies have substantial revenue, he said.
Other analysts say Cognos stock soared primarily because Cognos's slowing of growth last year proved to be a mere blip, not the start of a downward trend. "[The results] just gave people a lot more confidence," said Duncan Stewart, a portfolio manager at Tera Capital Corp. in Toronto.
But he said that Cognos, while ahead of Business Objects in market share, is still growing more slowly that its French rival. "The numbers were good but they weren't as good as Business Objects'. [The Internet] is what you've got to do these days."
Despite the apparent comeback, however, Cognos is not out of the woods. There's still concern that the company's market share lead is slipping and that software giants Microsoft Corp. and Oracle Corp. will also increase their focus on the lucrative business intelligence market.
Alan Rottenberg, Cognos's senior vice-president, said that's nothing new. "The market's always competitive. There's always been somebody who's supposed to catch us."
Corel, Philip top contenders for best, worst on TSE 300
With just a handful of trading days left to go, Corel Corp. is the early favourite to take top-performance honors among Toronto Stock Exchange 300 companies this year, while beleaguered Philip Services Corp. looks set to wear the goat horns.
The list of winners is dominated by technology companies, including a couple of former stock market stars like Corel that have forged a comeback this year.
Not surprisingly, the list of market mongrels is dominated by resource companies -- mining and oil outfits that have hit rough times as commodity prices crumbled and the investors' appetite for higher-risk junior plays wanes. Companies with higher-risk international operations have been singled out for punishment by investors.
As measured by percentage gain, Corel has now increased 154.4 per cent so far this year, well ahead of second-best TLC The Laser Center, which is up an impressive 142.6 per cent.
Corel, which was flirting with penny stock status just a few months ago, is riding a wave of renewed investor enthusiasm as it shows signs of turning around after a disastrous few years. The Ottawa-based software company's shares have surged from a low of $1.70 on Sept. 1 to close at $5.85 yesterday. In September, the company posted its first operating profit in eight quarters, recovering from an ill-fated attempt to take on software giant Microsoft Corp. in the office suite market.
Other notables among the high fliers include:
CGI Group Inc.: The Montreal-based company's shares have been on fire this year thanks to a rapidly expanding bottom line. CGI, Canada's largest information technology services company, earned $34.8-million for the fiscal year ended Sept. 30, up 349 per cent from the prior year. The stock closed at $27.95 yesterday, up from $11.50 a year ago.
Teleglobe Inc.: The Montreal-based international long-distance phone carrier outfit has been pleasantly surprising investors with its financial results, most recently with a robust third quarter. Teleglobe, whose monopoly over international calls in and out of Canada ended in October, is looking for more growth from its recent merger with U.S. long-distance carrier Excel Communications Inc. The stock closed at $51.50, up from around $20 at the beginning of the year.
Rogers Communications Inc.: Like Corel, Toronto-based Rogers has enjoyed a bit of a rehabilitation after languishing in market purgatory for a spell. Canada's largest cable and wireless phone outfit has been buoyed by signs of a turnaround in its mobile phone unit. The stock closed at $12.95 yesterday, better than double its 52-week low of $5.50 on Jan. 21.
ATI Technologies Inc.: The Markham, Ont.-based computer graphics equipment maker has become one of the market darlings of the Canadian technology set. Galloping growth helped garner chief executive officer K.Y. Ho entrepreneur of the year honours from Ernst & Young. The stockhas eased back in recent weeks, closing at $16.15 yesterday, down from its 52-week high of $19.65 in
June.
Notables among the TSE's flameout stocks include:
Philip Services: Pretty much everything that could go wrong has gone wrong for Philip this year. The stock -- which traded as high as $27.80 in June, 1997 -- has dropped 97.6 per cent to close at 50 cents yesterday. The Hamilton company has been sandbagged by a copper trading scandal, weakness in the scrap metal market and big writedowns of good will. Philip is currently working on a plan to restructure $1.1-billion of debt.
Fracmaster Ltd.: Weak oil prices and economic turmoil in Russia have dealt a double blow to the Calgary-based oil field services company, whose stock has slumped to $2.90 from a high of $24.50 in May.
Hurricane Hydrocarbons Ltd.: Another energy outfit that's stumbled overseas. Calgary-based Hurricane, whose stock traded for as high as $12 in January, has been hampered by low crude prices and a continuing dispute with the refinery that processes oil from its Kazakstan operations. It closed yesterday at $1.84.
Com Dev International Ltd.: This year has been a tough one for the microwave communications component marker, whose stock has tumbled to $6.55 from highs of $30.50 in January. The Cambridge Ont.-based company has been hurt by problems at its British operations that led to a $14.8-million charge against earnings in the fiscal year ended Oct. 31. Including the charge, Com Dev lost $18.4-million, compared with a profit of $18.3-million in the previous year.
THE BEST AND WORST
Top per cent gainers and losers on the TSE 300 so far this year.
GAINERS
+154.4 .....Corel Corp
+142.6 .....TLC The Laser Center
+139.9 .....CGI Group Inc
+136.8 .....Teleglobe Inc
+126.3 .....Shaw Communications B
+106.3 .....Meridian Gold
+ 98.8 .....Jean Coutu Group A
+ 95.2 .....ATI Technologies
+ 92.8 .....QLT Phototherapeutics
+ 87.7 .....Rogers Communications B
LOSERS
- 77.5 .....Remington Energy
- 77.9 .....Greenstone Resources
- 78.5 .....Com Dev International
- 80.0 .....Abacan Resource
- 83.4 .....Hurricane Hydro A
- 84.7 .....Reserve Royalty
- 86.1 .....Dayton Mining
- 86.2 .....Fracmaster Ltd.
- 91.6 .....Lytton Minerals
- 97.6 .....Philip Services
Source: Bloomberg Financial Services
No Glad Tidings For Canadian Miners
Stale metals market: Junior explorers still suffering from post Bre-X jitters
Keith Damsell - Financial Post
The front-page banner of First Marathon Securities Ltd.'s December metalsiand mining digest says it all: Where are the glad tidings?
The past 12 months have been grim for the mining sector and there are dire predictions 1999 won't be much better. Asia's economic crisis shows no signs of letting up and there is increasing concern growth rates in Europe and North America will slow in the new year.
"The mood in the world's commodity markets has turned ugly," notes the 23-page report. Metal prices are in at mess. Demand has slipped while production and inventories have climbed. Nickel and copper hover near 11-year lows, and gold continues to resist the psychological barrier of $300 (US) an ounce.
Stock prices reflect the depressed state of the miners. Major institutions have fled the sector, leaving small retail investors with the volatile stocks.
The Toronto Stock Exchange metalsg & minerals subindex has slumped 19% this year while the TSE 300 composite index has fallen 4%. The exchange's gold & precious metals subindex has rallied about 40% since Aug. 31 but still remains 7% lower than its close at the end of 1997.
The junior exploration market continues to suffer post Bre-X jitters.
The exploration-heavy Vancouver Stock Exchange composite index has lost about 40% of its value over thet past 12 months.
It is unlikely metal prices will recover any time soon. Many analysts are forecasting a stale metals market for at least the next six months. There is some hope gold may climb to $310 (US) an ounce in the new year.
"For sustainable change, you need the cycle of metals prices to change," said Dorothy Atkinson, analyst at Vancouver's IPO Capital Ltd. "The big money is waiting on the sidelines for resources to look interesting again."
Not surprisingly, investors are advised to take a long-term approach and bet on undervalued performers that would benefit the most when the sector brightens.
On the junior side, Ms. Atkinson favours solid exploration firms with advanced properties that have yet to be fully valued.
Her picks for 1999 include Madison Enterprises Corp., a Vancouver junior with "a very interesting gold deposit" in Papua New Guinea, and Vancouver-based Western Copper Holdings Ltd., a mixed metals company with good prospects across North and Central America. Madison shares (MNP/VSE) fell 5¢ Tuesday to close at $1.95, while Western Copper (WTC/TSE) gained 5¢ to $2.20.
The junior of choice for many is small gold producer Manhattan Minerals Corp. It is seeking Peru's approval to further develop the Tambo Grande property. At least three analysts are betting the project could lead to a base metals mine and are maintaining "speculative buy" ratings. In trading Tuesday, Manhattan (MAN/TSE) was down 10¢ to $2.70.f
Investors are advised to avoid juniors exploring politically unstable corners of the globe. Those pursuing fortunes in Africa, the former Soviet Union, and much of Asia are flirting with more danger in an already unstable environment. "There's enough risk now without political turmoil or some convoluted bureaucratic process to wrap you up," said Andrew Muir, analyst at Vancouver's Canaccord Capital Corp.
Most gold seniors have performed well since hitting lows ini August. With a gainiof 43%, Barrick Gold Corp. (ABX/TSE) has led the pack, rising from aa low of $20.35 on Aug. 31 to close yesterday at 28.70, down 70¢. But until gold breaks the $300 (US) an ounce barrier, enthusiasm for further stock priced gains is muted.
"Better values can be had in the relatively undervalued mid-cap producer sector," notes Michael Jalonen, analyst at Toronto's Merrill Lynch & Co. in a Dec. 3 report.
One exception is Euro-Nevada Mining Corp. The Toronto based royalty company "continues to have all the growth attributes we look for," notes John Lydall, First Marathon analyst. Its operations traditionally outperform expectations, including the low-cost Rosebud mine in Nevada. In trading Tuesday, the shares (en/tse) were down 20¢ to $24.65.
A perennial favourite of analysts is small producer Meridian Gold Inc. of Reno, Nev. Mines in Idaho and Nevada generate about 200,000 ounces annually and production will more than double in 2000 when the Elb Penon mine in Chile begins operations. Meridian shares (MNG/TSE) closed the day unchanged at $18.25.
Base metals watchers are hoping the sector has bottomed out and are forecasting a slow recovery in late 1999. Two major producers that have locked up future low-cost production are winning the best reviews: Vancouver's Cominco Ltd. and Falconbridge Ltd. of Toronto. Cominco's new Red Dog zinc mine in Alaska is "built and running ... when prices improve, the leverage is there," said David Kellar, analyst at Griffiths McBurney & Partners of Toronto. Cominco shares (CLT/TSE) fell 25¢ to $17.50.
Falconbridge, meanwhile, "can tighten down the hatches and generate some free cash flow" from northern Quebec's Raglan nickel-copper mine and the Collahuasi copper project in Chile, said David Davidson of Newcrest Capital Inc. in Toronto. The shares (FL/TSE) rose 25¢ Tuesday to $16.30.
Watch Out For Figures That Mislead
It may be true that numbers never lie, but every now and then you might catch them exaggerating. Just take a look back at the 1998 Wall Street stock market and all the commotion it has caused. Seven of the 10 biggest daily point declines in the history of the Dow Jones industrial average, dating back more than a century, occurred in 1998.
No wonder the headlines proclaimed "Crash!" and "Worldwide Financial Crisis." In August alone, the Dow suffered losses of 299.43 points on the 4th, 357.36 points on the 27th, and 512.61 points on the 31st!
Yet somehow the market came through the year in decent shape. If you use percentage change, rather than raw numbers, as a gauge, not one of those individual trading sessions made the list of the 10 worst ever -- all of which were seven per cent or more.
As of mid-December, the biggest percentage drop in 1998 was 6.4 per cent on Aug. 31. That certainly qualified as a chilling experience, but it couldn't hold a candle to the 22.6 per cent plunge on Oct. 19, 1987, or the consecutive losses of 12.8 per cent and 11.7 per cent on Oct. 28 and Oct. 29 of 1929, a market plunge that led to the Great Depression.
To keep your emotional balance in the modern markets, with all the instant means of communications extending out from them, you have to keep reminding yourself that today's numbers aren't directly comparable to those of generations past.
"It is important to keep market drops in perspective," notes the mutual fund firm of American Century Investments, in a recently published booklet entitled Taming a Bear Market: Investment Strategies for Turbulent Times.
"A decade ago, when the Dow Jones industrial average was around 2,000, a 100-point drop represented a five per cent loss. But when the Dow hovers around 8,000, a 100-point drop represents a loss of about 1.25 per cent, and can often be recovered the next day."
That's precisely what happened early last week, when the Dow fell 126.16 points one day and rebounded 127.70 points the next.
Indeed, the Dow has weathered seven single-day losses of 200 points or more in 1998 to show a net gain of better than 10 per cent heading into the last few sessions of the year.
But let's not stretch the point too far the other way, either. The last year has produced more than its share of excitement, by comparison with the trend of recent years.
Edward Kerschner, chairman of the investment policy committee at PaineWebber Inc., calculated recently that the average daily price change for the Dow this year has been 0.92 per cent, against an average since 1940 of 0.6 per cent and an average since 1970 of 0.69 per cent.
"At current market levels (9,000), the average daily Dow Jones average point change is expected to be about 60 points," Kerschner wrote recently. "Also expect one day per week to hit the 150-point mark!
"However, recent long-term averages of absolute daily price changes are not at notably high levels," he went on to say. "Hence, we have not entered a new paradigm of higher volatility -- rather merely a normal oscillation around the short-term average."
If the historical record holds, Kerschner says, "volatility for the 12-month period following periods of extreme volatility is a return to normal volatility."
While we're looking at past precedents, does a stormy spell in the market have any predictive value regarding the subsequent course, up or down, of stock prices? Alas, says Kerschner, the charts show no consistent patterns, and "the answer appears to be no."
|
