canadian tire

PENGROWTH ENERGY TRUST, $10.26, Toronto symbol PGF.UN, earned $78.3 million, or $0.30 a unit, in the three months ended September 30, 2009. That’s down 81.5% from $422.4 million, or $1.69 a unit, a year earlier. Cash flow per unit fell 42.7%, to $0.63 from $1.10. Revenue fell 37.3%, to $325.3 million from $518.7 million. These declines mainly reflect lower oil and natural-gas prices. On a combined basis, Pengrowth’s average selling price dropped 33%. As well, its average daily production fell 4%. That’s partly because of a maintenance shutdown at the Sable Offshore Energy Project last summer. The trust owns 8.4% of this business, which operates three offshore-drilling platforms south of Nova Scotia. In October, Pengrowth raised $285 million in a unit issue. It put these funds toward its $1.3-billion long-term debt, which is now a manageable 40% of its market cap. The trust also cut its monthly distributions by 30%, to $0.07 a unit from $0.10. The new annual rate of $0.84 yields 8.2%. Distributions accounted for 44% of Pengrowth’s cash flow in the latest quarter....

Shoppers Drug Mart, $43.70, symbol SC on Toronto (Shares outstanding: 217.4 million; Market cap: $9.5 billion), continues to upgrade its stores. It is also moving some stores to larger locations. Shoppers Drug may benefit from higher spending on prescription drugs by aging baby boomers. However, the company faces a lot of competition from other expanding drugstore chains, such as Jean Coutu Group (symbol PJC on Toronto) in Quebec and Edmonton-based Katz Group. It also competes with food and department stores with pharmacies. These include Loblaw, Safeway, Wal-Mart and Costco. In the three months ended June 30, 2009, Shoppers’ revenue rose 8.5%, to $2.3 billion from $2.1 billion. Earnings gained 7.5%, to $136.1 million or $0.63 a share, from $126.6 million, or $0.58 a share....

CANADIAN TIRE CORP., $58.37, Toronto symbol CTC.A, will sell its mortgage portfolio to National Bank of Canada for close to its book value of $167 million. When the deal closes in the fourth quarter of 2009, it will generate a $6-million pre-tax charge for the retailer. To put this in context, Canadian Tire earned $103.0 million, or $1.26 a share, in the second quarter, excluding unusual items. Getting out of the mortgage business should lower Canadian Tire’s risk. It will also help the company focus on expanding its Canadian Tire Financial Services division, which offers high-interest savings accounts, guaranteed investment certificates, tax-free savings accounts and credit cards. This business has accumulated over $2.1 billion in deposits since Canadian Tire launched it in 2006....

RIOCAN REAL ESTATE INVESTMENT TRUST $17 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 234.2 million; Market cap: $4 billion; Price-to-sales ratio: 5.4; SI Rating: Average) is Canada’s largest real-estate income trust, with properties in all 10 provinces. RioCan specializes in big-box outdoor malls, and owns 247 retail properties, 13 of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities. The trust also owns office buildings and residential complexes. These represent 4% of its net leasable area of 36.2 million square feet. RioCan’s revenue rose 31.3%, from $581.7 million in 2004 to $763.8 million in 2008, mainly due to strong interest from retailers for big-box-style malls. These malls now account for 45% of RioCan’s holdings....

Real estate investment trusts (REITs) may get more attractive in the next year or so as income trusts start to disappear. Ottawa will start taxing income-trust distributions in 2011. As a result of this change, many trusts will convert to regular corporations and pay corporate taxes. That will give them less cash to distribute to shareholders. REITs will remain exempt from the income-trust tax, as long as they get most of their cash flow from properties in Canada. It’s likely that income-seekers will look to REITs to replace income trusts and provide a hedge against inflation. Real estate is a cyclical business, and rental income from the underlying properties can suddenly dry up during economic slowdowns. To cut your risk, you should focus on well-established REITs with long histories of maintaining their distributions during cyclical downturns....

TRANSCANADA CORP. $32 has started building a gas-fired power plant near Phoenix, Arizona, that should start operating in May 2011. The $500-million U.S. cost is equal to 60% of the $319 million, or $0.51 a share, that TransCanada earned in the three months ended June 30, 2009. TransCanada has a 20-year deal to sell the plant’s power to an Arizona utility. This cuts the project’s risk. Best Buy. CANADIAN TIRE CORP. $58 is the subject of a “mini-tender” offer from a private investment firm that wants to buy 1.28% of the retailer’s class-A non-voting stock at $54.00 a share, or about 7% below the current price. Investors should ignore this offer. Canadian Tire is still a Best Buy. IGM FINANCIAL INC. $42 reported that as of August 31, 2009, its assets under management fell 3.0%, to $114.7 billion from $118.2 billion a year earlier. IGM’s fees rise and fall with the value of the mutual funds and other securities it manages, so the company’s revenue and earnings suffer when the value of these assets drops. However, IGM’s large sales force puts the company in a good position to grow as the economy and stock markets continue to rebound. Best Buy.

CRESCENT POINT ENERGY CORP. $35.67 (Toronto symbol CPG; Shares outstanding: 159.3 million; Market cap: $5.7 billion; SI Rating: Extra Risk) has made a couple of big acquisitions in Saskatchewan. The company has bought privately held Wave Energy for about $665.3 million in stock. It has also purchased producing assets from Provident Energy Trust for $258.5 million in cash. Crescent Point plans to issue new shares, and put the $230-million proceeds toward paying for the Provident assets. In total, these acquisitions add about 16% to Crescent Point’s production. They should also raise its cash flow per share....

CANADIAN TIRE CORP., $59.20, Toronto symbol CTC.A, reported quarterly profits that were higher than the year-earlier period, despite lower sales. Cooler-than-normal weather in Ontario and Quebec hurt demand for seasonal goods, such as barbecues and patio furniture. But sales of home-improvement products, like paint, were stronger. In the three months ended July 4, 2009, the retailer’s earnings per share rose 8.6%, to $1.26 from $1.16 a year earlier. These figures exclude unusual items, like gains and losses on asset sales. On this basis, the latest earnings were much better than the $1.02 a share that analysts were expecting. The higher earnings were mainly the result of Canadian Tire’s new inventory-management systems, which improved the productivity of its stores. Revenue fell 5.1%, to $2.3 billion from $2.45 billion a year earlier. Same-store sales at its main retail division (which includes Canadian Tire stores and the PartSource auto-parts chain) fell 2.7%. As well, lower gasoline prices caused a 21.4% revenue drop at Canadian Tire’s gas-station division, despite the fact that its sales volume rose by 1.3%....

CANADIAN PACIFIC RAILWAY LTD., $47.90, Toronto symbol CP, reported higher profits for its latest quarter, as a gain on the sale of an investment helped it overcome a 24% drop in freight volumes caused by the recession. In the three months ended June 30, 2009, CP’s earnings rose 1.7%, to $157.3 million from $154.7 million a year earlier. Earnings per share fell 7.0%, to $0.93 from $1.00, on more outstanding shares. (In February, CP sold 13.9 million shares at $36.75 each. That increased the total outstanding by about 9%). The latest earnings included a $68.7-million gain on CP’s sale of part of its stake in the Detroit River Tunnel Partnership, which operates a rail tunnel between Detroit and Windsor, Ontario. CP now owns 16.5% of this business, down from 50%. The sale freed up cash that CP used to pay down debt, while preserving its right to keep operating the tunnel. CP’s $4-billion long-term debt is now a manageable 49% of its $8.2 billion market cap....

Consumers’ Waterheater Income Fund, $6.34, symbol CWI.UN on Toronto (Units outstanding: 49.5 million; Market cap: $314 million), owns a portfolio of about 1.3 million installed gas-fired water heaters. These are mainly rented to residential customers in Ontario. About 40% of the 3.4 million households connected to the Ontario natural-gas system rent from the fund. These are mainly located in the Greater Toronto Area. Direct Energy (formerly part of Enbridge Inc.) services the fund’s water heaters and gets 35% of most rental revenue. In June 2006, Direct Energy sold its 19.9% equity interest in the fund. Enbridge started the water-heater rental program in the late 1950s, to encourage Ontario customers to switch to natural gas. This, in turn, would build year-round demand for Enbridge’s gas supply. Through the rental program, homeowners can install and maintain their water heaters with no capital outlay. The Canadian water-heater rental market is mainly limited to Ontario....