cae

RESEARCH IN MOTION LTD., $21.36, Toronto symbol RIM, rose earlier this week on speculation that activist investor Carl Icahn is planning to buy a stake in the company.

Mr. Icahn has a long history of pushing companies to make changes that help increase shareholder value. In RIM’s case, that may involve splitting the company into two separate firms. One would sell BlackBerry smartphones and email servers to corporate clients, and the other would focus on consumer products. Icahn may also push RIM to increase its earnings by licensing more of its wireless technology patents.

The company’s two co-founders own 11% of the outstanding shares. That would hinder any radical changes. Still, Mr. Icahn’s involvement would draw investor attention to RIM’s value.

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CAE INC. $10 (www.cae.com) has won $100 million of new contracts. That’s about 6% of CAE’s annual revenue of $1.6 billion. Under these deals, CAE will build and service flight simulators and other equipment for the U.S. and German air forces. Demand for CAE’s products should continue to rise, because it costs much less to train pilots on simulators than on actual aircraft. As well, the company gets half of its revenue from military clients. That cuts its exposure to the cyclical airline industry. Best Buy. CENOVUS ENERGY INC. $34 (www.cenovus.com) has started up the third phase of its 50%-owned Christina Lake oil-sands project in Alberta; ConocoPhillips owns the other 50%. When it reaches full production in 2012, this phase will add 40,000 barrels a day to Christina Lake’s current daily production of 16,000 barrels. Future phases will push up daily production to 218,000 barrels. Buy. MOLSON COORS CANADA INC. $43 (www.molsoncoors.com) plans to invest an extra $280 million in its U.K. breweries over the next five years (all amounts except share price in U.S. dollars). These upgrades will cut these breweries’ power and water use. To put the cost of this plan in context, Molson Coors earned $231.6 million, or $1.23 a share, in the quarter ended June 25, 2011. Buy.

BANK OF MONTREAL, $59.24, Toronto symbol BMO, recently completed its purchase of U.S. banking firm Marshall & Ilsley Corp. for $4.0 billion in stock. In addition, Bank of Montreal paid an additional $1.7 billion U.S. for all of the preferred shares and warrants that Marshall & Ilsley sold to the U.S. Treasury under the Troubled Asset Relief Program. Adding Marshall & Ilsley more than doubled the number of branches that Bank of Montreal operates in the U.S., and added 2 million customers. The bank will also save over $300 million U.S. a year by combining these new operations with its existing U.S. banking business....

CANADIAN IMPERIAL BANK OF COMMERCE, $74.13, Toronto symbol CM, is buying 41% of U.S.-based American Century Investments, which sells mutual funds and wealth management services to institutional and individual investors. CIBC will have a 10.1% voting interest in this private company. The bank is paying $848 million U.S. for this investment. That’s equal to 1.2 times the $678 million (Canadian), or $1.60 a share, that CIBC earned in its second fiscal quarter, which ended April 30, 2011. The purchase should close by the end of October 2011, and add $0.15 a share to CIBC’s fiscal 2012 earnings. American Century has $112 billion U.S. in assets under management, so this purchase looks like a bargain for CIBC. That’s largely because American Century’s founder will still hold a majority stake in the company. Even so, it’s likely that CIBC will eventually gain control of this business. The purchase also lets CIBC offer other financial services to American Century’s high-quality clientele....

POTASH CORP. OF SASKATCHEWAN $56 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 854.8 million; Market cap: $47.9 billion; Price-to-sales ratio: 6.4; Dividend yield: 0.5%; TSINetwork Rating: Average; www.potashcorp.com) sells its potash fertilizer to customers outside of North America through Canpotex, a marketing and exporting firm that is equally owned by Potash Corp. and rival producers AGRIUM INC. $85 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $13.4 billion; Price-to-sales ratio: 1.1; Dividend yield: 0.1%; TSINetwork Rating: Average; www.agrium.com) and Mosaic Co. (New York symbol MOS). Canpotex recently agreed to sell potash to China for $470 U.S. a tonne. That’s 4.4% higher than the previous contract, and higher than the consensus forecast price of $450 U.S. a tonne. This contract should make it easier for Canpotex to demand similar prices from buyers in India and other countries. Potash Corp. is still a hold, but Agrium is a buy....

PLEASE NOTE: Our next Hotline will go out on Friday, July 8, 2011. SNC-LAVALIN GROUP INC., $58.88, Toronto symbol SNC, rose 9% this week in response to its purchase of certain assets of Atomic Energy of Canada Ltd. from the federal government. The purchase mainly consists of Atomic Energy’s Candu nuclear-reactor division. All of Canada’s reactors use the Candu design and technology. The division has also sold reactors to Argentina, Romania, India, South Korea and China....

Three of Canada’s big-five banks, BANK OF NOVA SCOTIA, $58.49, Toronto symbol BNS, CANADIAN IMPERIAL BANK OF COMMERCE, $84.40, Toronto symbol CM, and TORONTO-DOMINION BANK, $84.15, Toronto symbol TD, have joined a new consortium called Maple Group Acquisition Corp. Other members of this group include National Bank and five major pension funds. Maple wants to buy a controlling interest in TMX Group Inc. (Toronto symbol X), which operates the Toronto Stock Exchange, the TSX Venture Exchange and the Montreal Exchange. In February 2011, TMX accepted a takeover offer from the London Stock Exchange Group. Under the terms of that offer, TMX shareholders would own 45% of the combined company, which would be the world’s second-largest stock exchange by market cap....

CAE INC. $12 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 256.8 million; Market cap: $3.1 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.3%; TSINetwork Rating: Average; www.cae.com) was, like Bombardier (see left), a one-time favourite of momentum traders. But it fell out of the broker/media limelight after airlines cut their flight-simulator orders in the wake of 9/11. However, the company continues to benefit from its expansion into pilot training, which it began in 2000. This has cut CAE’s reliance on simulator sales, and given it more predictable revenue streams. CAE now trains over 50,000 pilots each year at its 24 training centres around the world....

The stock market put on a huge rise from mid-2010 through February this year, and this left it ripe for a setback. Japan’s earthquake/tsunami/nuclear plant breakdown provided the trigger for that setback. Events in Japan have been horrific for the victims, of course. The Japanese situation could still weigh on the market for weeks or months to come. However, the damage to Japan is far too isolated and local to put the worldwide economic recovery at risk. World economic growth could slow temporarily while multi-national companies re-think their hiring and investment plans, and consumers re-think major purchases. After they complete their re-thinking, businesses and consumers may speed up their spending to make up for lost time. The outcome of Japan’s nuclear problems could have a big impact. If radiation leakage is widespread, it could spur much more environmental opposition to the nuclear industry. That could shift demand from nuclear to natural-gas power plants, particularly since shale gas discoveries and technology have vastly expanded natural gas reserves in North America and around the world. (One key beneficiary would be our long-time favourite, Encana – see below.)...

CAE INC. $13 (www.cae.com) has formed a 50/50 joint venture with Lider Aviacao, Brazil’s largest helicopter operator. Starting in 2012, this new business will use CAE’s simulators to train Brazilian helicopter pilots. Meanwhile, CAE earned $40.7 million in its 2011 third quarter, which ended December 31, 2010. That’s up 8.0% from $37.7 million a year earlier. Earnings per share rose 6.7%, to $0.16 from $0.15, on more shares outstanding. Revenue rose 7.4%, to $411.3 million from $382.9 million. Revenue from CAE’s civilian division rose 9%, as a 21% rise in revenue from pilot-training services offset a 9% drop in flight-simulator sales. Revenue from military customers rose 6%. Best Buy. IGM FINANCIAL INC. $48 (www.igmfinancial.com) continues to benefit from rising stock markets, which have pushed up demand for its mutual funds. As well, the company’s fee income has risen along with the value of the investments it manages. In 2010, it earned $2.79 a share before writedowns and other one-time items, up 18.7% from $2.35 in 2009. Best Buy. BANK OF NOVA SCOTIA $59 (www.scotiabank.com) has raised its quarterly dividend by 5.1%, to $0.52 a share from $0.49. The new annual rate of $2.08 yields 3.5%. Best Buy.