bombardier

This downturn is going a lot further down that I ever expected. I still see it as a financial panic, rather than an indicator of the depth of the recession that now seems to have started. In other words, the market drop reflects a drying up in lending activity and fear of a depression, rather than a drying up in business activity. In the depths of a market downturn, some observers always predict that we are on the verge of another 1930s depression. In the 1930s, however, the U.S. and other governments did all the wrong things. They raised taxes, raised tariffs and did nothing to halt bank failures. The U.S. and other governments are doing all the right things to revive lending and credit, in my view. They are injecting funds into the financial system, arranging takeovers of failing financial companies, and moving to protect depositors. Eventually these efforts will pay off. Lending will then swiftly revive, and the market will go through a sharp recovery. There is no way to tell when that will happen, but you can bet that it will spur widespread disbelief, and warnings that it is just a temporary reprieve and that the downturn will soon resume....

TERANET INCOME FUND $11.47, Toronto symbol TF.UN, is now the target of a hostile $11.00-a-unit takeover offer from the Ontario Municipal Employees Retirement System. As part of the deal that established Teranet as a public company in June, 2006, the Ontario government capped the amount a single investor can own at 25%. So, any takeover would require government approval. (Teranet has an exclusive license from the Ontario government to operate the province’s electronic land registry system until 2017.) Despite this hurdle, Teranet’s units are trading above the offer price. That suggests that investors feel a higher offer is likely....

BOMBARDIER INC. (Toronto symbols BBD.A $7.52 and BBD.B $7.50; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $12.8 billion; SI Rating: Extra risk) will probably win a contract to build over 200 streetcars for Toronto’s transit system now that rival Siemens AG has withdrawn its bid....

SNC-LAVALIN GROUP INC. $54 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.0 million; Market cap: $8.2 billion; SI Rating: Average) continues to win new infrastructure contracts. It recently received a $300 million contract to build two natural gas compression plants in France. The company will also participate in the construction of a $200 million U.S. hydrogen plant at an oil refinery in California. These are small jobs next to SNC’s annual revenue of about $7 billion, but add to its current backlog of $10.0 billion. SNC now trades at 29.0 times its projected 2008 earnings of $1.86 a share. That’s expensive considering much of its income comes from engineering projects with uneven revenue streams. SNC-Lavalin is a hold....

TRANSCANADA CORP. $38.00, Toronto symbol TRP, and U.S.-based oil producer ConocoPhillips each own half of the proposed Keystone pipeline project, which will transport crude oil from Alberta’s oil sands to the United States. Due to strong interest from oil shippers, the partners now plan to extend the pipeline from the U.S. Midwest to refineries in the Gulf Coast region. They will also expand Keystone’s total capacity. This $7 billion U.S. expansion will increase the total cost of the project to $12.2 billion U.S. TransCanada’s share of that total comes to $6.1 billion U.S., which is equal to 2.4 times its 2007 cash flow of $2.6 billion (Canadian) or $4.93 a share. Keystone will reduce TransCanada’s reliance on its traditional gas pipeline business. The partners aim to complete this extension by the end of 2011....

CANADIAN IMPERIAL BANK OF COMMERCE $58.24, Toronto symbol CM, moved down this week after Moody’s Investors Service downgraded the credit ratings of several bond insurers. These insurers provide CIBC and other banks with guarantees on securities they hold, such as bonds backed by U.S. subprime mortgages. The downgrades could lead to fresh writedowns of about $1 billion. In the three months ended April 30, 2008, CIBC lost $1.1 billion or $3.00 a share, mainly due to a $1.7 billion (after-tax) writedown of illiquid securities. However, CIBC still has enough capital to conduct its operations and satisfy regulatory requirements. Even the $3.48 dividend seems secure, and it yields 6.0%. CIBC is a buy....

BOMBARDIER INC., Toronto symbols BBD.A $8.71 and BBD.B $8.72, rose 7% this week after reporting first quarter fiscal 2009 earnings and revenues that exceeded expectations. In the three months ended April 30, 2008, earnings per share jumped to $0.12 from $0.04 a year earlier (all amounts except share price in U.S. dollars). Revenue rose 20.0%, to $4.8 billion from $4.0 billion, due to strong demand for business aircraft, regional jets and railcars. Thanks to its improving outlook, Bombardier plans to resume quarterly dividend payments of $0.025 (Canadian) a share. That implies an annual yield of 1.1%. The class B subordinate voting shares will also receive an additional priority payment of $0.0015625 (Canadian) a share per year, payable quarterly. That gives the class B shares an annual yield of 1.2%. Bombardier is a buy for aggressive investors. The higher yielding ‘B’ shares are the better choice....

BOMBARDIER INC. (Toronto symbols BBD.A $6.63 and BBD.B $6.67; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $11.3 billion; SI Rating: Extra risk) is the world’s third-largest maker of passenger aircraft, after Boeing and Airbus. This division supplies 55% of total revenue, and 75% of earnings. The remainder comes from Bombardier’s transportation division, which makes passenger railcars. The company focuses on smaller planes, such as short-range regional and business jets. It’s now considering building bigger planes, such as the CSeries jet, which would seat between 110 and 130 passengers. That would put it in direct competition with Boeing and Airbus.

New plane has big potential

Demand for a plane like this could be huge, considering that the CSeries would consume 20% less fuel than current models. As well, many airlines will have to replace thousands of similar-size planes in the next few years....

BCE INC. $33.60, Toronto symbol BCE, fell sharply this week after Quebec’s Supreme Court ruled in favour of a lawsuit launched by the company’s bondholders to block the takeover. The bondholders felt it reduced the security of their investments. BCE and the Ontario Teachers’ Pension Plan, which heads a private group that has agreed to buy BCE for $42.75 a share, plan to appeal this ruling to the Supreme Court of Canada. That will likely delay the takeover beyond the June 30, 2008 target date. It could also force the consortium to re-price or scrap the takeover. Depending on the circumstances, BCE may receive a $1 billion or $1.24 a share break-up fee from the consortium if the deal falls through. That’s equal to 3% of its market cap of $30 billion. The company could use that cash to expand its wireless and high-speed Internet services, or increase its $1.46 dividend (4.3% yield). BCE could also unlock some of its value by spinning off some of its operations....

BOMBARDIER INC. $6.32 (Toronto symbol BBD.A) earned $0.26 a share in its fiscal year ended January 31, 2008, up 85.7% from $0.14 in the prior year (all amounts except share price in U.S. dollars). Revenue grew 17.5%, to $17.5 billion from $14.9 billion. Aircraft deliveries rose 10.7% in fiscal 2008, to 361 from 326. Revenue at Bombardier’s train division grew 18.2%, thanks to strong demand for passenger railcars in China and India. Buy. INDIGO BOOKS & MUSIC INC. $13 (Toronto symbol IDG) is doing a good job attracting users to its website with online community groups based on authors and genres. Since their launch in October 2007, these groups now have over 100,000 members. Features like this help build customer loyalty and spur sales. Buy. TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A) has increased its quarterly dividend 14.3%, from $0.07 a share to $0.08. The new annual rate of $0.32 yields 1.8%. Buy....