acquisition

NEW GOLD INC., $3.00, symbol NGD on Toronto, has four mines: Mesquite in the U.S., Cerro San Pedro in Mexico, the Peak mine in Australia and the New Afton mine in B.C. The company also owns 30% of the El Morro copper/gold project in Chile, 100% of the Blackwater property in B.C. and 100% of Ontario’s Rainy River project. New Gold has just agreed to sell its El Morro stake to Goldcorp (Toronto symbol G) for $90 million in cash, 4% of El Morro’s gold production when a mine is built, and the cancellation of a $93-million loan from Goldcorp....

TORONTO-DOMINION BANK, $52.91, Toronto symbol TD, reported that its earnings rose 5.4% in its fiscal 2015 third quarter, which ended July 31, 2015, to $2.3 billion from $2.2 billion a year earlier. Earnings per share rose at a slower rate of 4.3%, to $1.20 from $1.15, on more shares outstanding. These figures exclude several unusual items, such as investment gains and a recovery of costs related to a lawsuit settlement. On that basis, the latest earnings beat the consensus estimate of $1.18. Earnings at the Canadian banking division (63% of the total) rose 7.9%, thanks to strong loan demand and gains from its wealth-management and insurance businesses. The U.S. banking division’s earnings (27%) jumped 16.5%, largely because the low Canadian dollar enhanced this business’s profits. The wholesale banking division (10%) saw its earnings rise 10.6% on higher trading volumes, stronger demand for corporate loans and higher advisory fees on mergers and acquisitions....

Selling software to call centres has made Enghouse Systems a rising growth stock, but we see plenty of risk in its flurry of acquisitions.

Extendicare Inc., $7.76, symbol EXE on Toronto (Shares outstanding: 87.6 million; Market cap: $670.3 million; www.extendicare.com), owns and operates 57 long- and short-term senior-care facilities that can house 8,118 residents. It also manages a further 95 facilities that are home to 6,195 residents. About 73% of the company’s residents are in Ontario and 16% are in Alberta. The rest are in Manitoba and Saskatchewan. Through its ParaMed Home Health Care division, Extendicare operates 47 branches in six provinces (Ontario, B.C., Alberta, Manitoba, Quebec and Nova Scotia). That total includes recently acquired Revera Home Health (see below). ParaMed’s 10,900 staff members provide nursing care, occupational, physical and speech therapy and assistance with daily activities to accommodate clients who live at home....

POTASH CORP. OF SASKATCHEWAN $34 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 834.7 million; Market cap: $28.4 billion; Price-to-sales ratio: 4.5; Dividend yield: 5.8%; TSINetwork Rating: Average; www.potashcorp.com) has offered to buy leading German fertilizer producer K+S AG for around $8.6 billion U.S.

K+S has rejected the offer, as it feels the price discounts the potential value of its new Legacy potash mine in Saskatchewan, which will open in 2016. As a result, K+S has indicated that Potash Corp. would have to raise its bid by roughly 22%.

In response, Potash Corp. may launch a hostile takeover offer. However, German regulators would probably block an acquisition, particularly if Potash Corp. plans to close some of K+S’s mines. Potash Corp. is still a hold.

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Successful expansion in Ireland is just one reason Great-West Lifeco gets our nod as one of Canada’s top financial blue chip stocks.

SIERRA WIRELESS, $27.31, symbol SW on Toronto, makes modules and software that connect products—including smart electricity meters and vehicles—to the Internet. This is known as machine to machine, or more generally as the Internet of Things. In the three months ended June 30, 2015, the company’s revenue rose 17.0%, to a record $158.0 million from $135.0 million a year earlier (all figures except share price in U.S. dollars). Sierra continues to add new clients. Excluding one-time items, the company earned $8.6 million, or $0.26 a share, compared to just $2.6 million, or $0.08, a year earlier. Sierra sold more high-margin cloud-based services to large customers during the latest quarter. It also cut costs....

In response to a question by a Member of his Inner Circle, Pat McKeough looks at the prospects of one of Canada’s biggest, and oldest, retailers, Hudson’s Bay Company. With five banners in North America, including several leading luxury chains in the U.S., the company has added one of Germany’s largest department store chains. Pat examines the costs and risks of such a big acquisition, but also looks at some of the advantages this growth stock could unlock with its European takeover.
For a recent report on a Canadian growth stock that has achieved rapid growth in the past year, read AirBoss of America gets big profit bounce from rubber products.

Q: Hi, Pat: Could I have your latest recommendations on Hudson’s Bay Co.? Regards.

A: Hudson’s Bay Co. (symbol HBC on Toronto; www.thebay.com) has five main banners:

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ACI WORLDWIDE $22.65 (Nasdaq symbol ACIW; TSINetwork Rating: Speculative) (402- 390-7600; www.tsainc.com; Shares outstanding: 117.8 million; Market cap: $2.7 billion; No dividends paid) reported revenue of $265.8 million in the three months ended June 30, 2015, up 4.3% from $254.8 million a year earlier. The company earned $0.26 a share, up sharply from $0.12. Cost-cutting measures helped improve the latest quarterly results. ACI’s growth by acquisition has increased its goodwill and intangible assets to $1.0 billion, or a high 37.0% of its market cap. The company is well positioned to benefit from the global shift toward online payments. However, the stock trades at a high 30.2 times ACI’s forecast 2015 earnings of $0.75 a share. Any major problems integrating its acquisitions could sharply cut that estimate....

INTACT FINANCIAL $92.22 (Toronto symbol IFC; TSINetwork Rating: Speculative) (416-341-1464; www.intactfc.com; Shares outstanding: 131.5 million; Market cap: $12.2 billion; Dividend yield: 2.3%) is Canada’s largest provider of property and casualty insurance. Its brands include Intact Insurance, Canada BrokerLink and belairdirect. In the three months ended June 30, 2015, Intact’s revenue rose 6.0%, to $2.34 billion from $2.21 billion a year earlier. Revenue improved across all of the company’s insurance lines and geographic regions. Its $197-million acquisition of Canadian Direct Insurance in early 2015 also added to its sales. Canadian Direct offers home, auto and travel insurance, mainly in Alberta and B.C. Earnings rose 1.9%, to $210 million, or $1.56 a share, from $206 million, or $1.53. Intact continues to write more-profitable insurance policies and cut its operating costs....