canadian tire

CANADIAN REIT $28 (Toronto symbol REF.UN; SI Rating: Extra Risk) has acquired eight retail properties from Canadian Tire for $137.3 million. Canadian Tire has subsequently leased all of the properties for an initial term of 15 years at current market rental rates. The acquisition includes one property in each of British Columbia, Ontario and Nova Scotia, plus three in Alberta and two in Quebec. CREIT focuses on acquiring properties in prime locations, usually near major metropolitan centres. That attracts strong tenants, maintains high occupancy rates and delivers a reliable stream of rental income....

MAPLE LEAF FOODS INC. $9.80, Toronto symbol MFI, fell 10% this week after it temporarily closed a plant in Toronto due to possible contamination of packaged meat products with listeria bacteria. The closure of the plant should give Maple Leaf time to identify the source of the problem and fix it. The company is also recalling all products produced at the plant since June 2, 2008. Maple Leaf’s swift and comprehensive action should limit any permanent harm to its reputation. However, the company will probably face the customary class-action lawsuit. Maple Leaf Foods is still a buy for long-term gains....

CANADIAN TIRE CORP. $50.10, Toronto symbol CTC.A, fell 7% this week after it reported second-quarter earnings that fell short of earlier forecasts. In the three months ended June 28, 2008, earnings before inventory writedowns and other one-time items fell 13.9%, to $94.7 million or $1.16 a share from $109.8 million or $1.35 a share a year earlier. Overall revenue grew 6.5%, to $2.45 billion from $2.3 billion, mainly due to strong gains at its finance and gas station operations. Same-store sales at its main retail stores fell 0.5%, as cooler-than-normal spring weather hurt sales of patio furniture and other seasonal merchandise. The company expects earnings to improve in the second half of 2008, partly due to the installation of new credit card scanners that let customers make small purchases without a signature. Speeding up checkout lines should improve customer traffic, and encourage repeat visits. Canadian Tire is a buy....

CANADIAN TIRE CORP. $53 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.5 million; Market cap: $4.3 billion; SI Rating: Above average) aims to open its new 1.5 million square foot distribution centre near Montreal in early 2009. This new facility will supply 300 Canadian Tire stores throughout Ontario, Quebec and Atlantic Canada. The $240 million cost of this facility is equal to 59% of the $410.1 million or $5.03 a share that Canadian Tire earned in 2007 before unusual items. But it should lower Canadian Tire’s costs, and help it compete with larger retailers such as Wal-Mart....

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....

TECK COMINCO LTD. $45.00, Toronto symbol TCK.B, has agreed to buy the 80.1% of FORDING CANADIAN COAL TRUST $89.90, Toronto symbol FDG.UN, that it does not already own. Fording unitholders will receive $82.00 U.S. in cash and 0.245 of a Teck class B subordinate voting share per unit. Fording’s units are trading about 5% below the implied value of the offer of $95.07, which indicates that a higher bid is unlikely. Teck’s offer is worth about $14.1 billion, including $1.5 billion in new shares. The purchase price is a high 67% of Teck’s market cap of $21 billion. However, Fording’s main asset is the Elk Valley coal project in British Columbia, which Teck currently manages. That eliminates the possibility of an unpleasant surprise. As well, full control of Fording will immediately add to both earnings and cash flow. Teck aims to complete the takeover by the end of October. Teck is a buy. Fording investors should hold, and tender their units to get the full amount without paying brokerage fees....

CANADIAN TIRE CORP. $56 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.5 million; Market cap: $4.6 billion; SI Rating: Above average) operates 473 stores that specialize in automotive, household and sporting goods. It also operates gas stations, casual clothing stores (Mark’s Work Wearhouse) and auto parts stores (PartSource). Canadian Tire has had great success in the past few years with its re-designed stores, which improve customer satisfaction and encourage repeat visits. It now plans to test two new formats this year: a store for smaller cities and rural markets that is about one-third the size of a typical Canadian Tire outlet; and a “smart” store featuring in-store boutiques and self-service checkouts. Meanwhile, higher fuel costs and harsh winter weather hurt customer traffic in the company’s core markets of Ontario and Quebec. In the three months ended March 29, 2008, earnings before unusual items fell 4.2%, to $0.68 a share from $0.71 a year earlier. Revenue rose 5.9%, to $1.8 billion from $1.7 billion, mostly due to strong gains at its gas station and finance operations. Same-store sales fell 4.0%....

Canadian Tire is much larger than Hart Stores, but earnings at both retailers have suffered lately. However, Canadian Tire’s iconic status and Hart’s focus on smaller communities are competitive advantages that will spur long-term growth. CANADIAN TIRE CORP. $56 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.5 million; Market cap: $4.6 billion; SI Rating: Above average) operates 473 stores that specialize in automotive, household and sporting goods. It also operates gas stations, casual clothing stores (Mark’s Work Wearhouse) and auto parts stores (PartSource). Canadian Tire has had great success in the past few years with its re-designed stores, which improve customer satisfaction and encourage repeat visits. It now plans to test two new formats this year: a store for smaller cities and rural markets that is about one-third the size of a typical Canadian Tire outlet; and a “smart” store featuring in-store boutiques and self-service checkouts....

RioCan Real Estate Investment Trust $22 (Toronto symbol REI.UN Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 212.0 million; Market cap: $4.7 billion; SI Rating: Average) is Canada’s largest real estate investment trust. It owns 214 retail properties, including 12 under development, comprising an aggregate of almost 55 million square feet. RioCan specializes in “New Format” shopping centres. These are large, outdoor malls made up of “Big Box” stores in the suburbs of larger cities. They feature plenty of room for parking and future expansion. RioCan also operates smaller outdoor shopping centres, as well as enclosed malls in urban areas. The trust’s revenue rose from $474.5 million in 2003 to $719.9 million in 2007. Its earnings fell from $1.03 a unit (total $174.4 million) in 2003 to $0.69 a unit ($134.9 million) in 2005, but rose to $0.83 a unit ($163.8 million) in 2006. In 2007, a non-cash charge of $144 million related to changes in the way Ottawa taxes REITs cut earnings to $0.16 a unit ($32.4 million). If you exclude this adjustment, RioCan would have earned$0.85 a unit in 2007. Cash flow per unit grew from $1.26 in 2003 to $1.51 in 2007....

Real Estate Investment Trusts (REITs) are among the most stable of the royalty and investment trusts. That’s because they own non-depleting assets, and can lock in lease rates and financing costs for long terms. The best REITs have good management, well-located properties and balance sheets strong enough to weather an economic downturn. They have high-quality tenants, and carefully match their debt with their leases. They also have room to build or expand on existing properties. We don’t think you should overindulge in REITs. But if you stick with the highest-quality issues, like RioCan, you’ll likely make steady returns with low risk....