encana

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....

ENCANA CORP. $9.45 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 842.5 million; Market cap: $8.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.8%; TSINetwork Rating: Average; www.encana.com) continues to sell less important properties as it narrows its focus on four higher-margin projects: Montney (B.C.), Duvernay (Alberta) and Eagle Ford and Permian (Texas).

These sales cut its daily output by 21.0% in the three months ended June 30, 2015, to 388,700 barrels a day (67% gas, 33% oil and natural gas liquids) from 491,800 a year earlier. As well, the company’s realized gas prices, which include the benefit of hedging contracts, fell 13.7%, while oil prices dropped 37.0%.

As a result, Encana lost $167 million, or $0.20 a share (all amounts except share price and market cap in U.S. dollars). A year earlier, it earned $171 million, or $0.23. Cash flow per share dropped 75.3%, to $0.22 from $0.89, while revenue declined 47.7%, to $830 million from $1.6 billion.

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The past year’s plunge in oil prices has forced all three of these producers to slash their costs and delay new projects. Like Imperial Oil (see page 81), Suncor and Cenovus have refineries that help offset oil’s drop. Encana doesn’t have refineries, but it has narrowed its operations to four main projects that give it a better balance between oil and natural gas. We see all three firms as buys for patient investors. SUNCOR ENERGY INC. $37 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.4 billion; Market cap: $51.8 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.1%; TSINetwork Rating: Average; www.suncor.com) gets 80% of its crude production from its huge Alberta oil sands projects. The remaining 20% comes from traditional oil and gas wells....

ENCANA $17.05 (Toronto symbol ECA; Shares outstanding: 741.2 million; Market cap: $14.0 billion; TSINetwork Rating: Average; Dividend yield: 2.1%; www.encana.com) has sold its natural gas pipelines and compression facilities in B.C.’s Montney region. The buyer is a partnership between Veresen (Toronto symbol VSN and a buy recommendation of Canadian Wealth Advisor) and investment firm KKR & Co. (New York symbol KKR).

The company received $461 million (Canadian) for these assets. The cash, along with the $1.4 billion (Canadian) it recently raised by selling new shares, will let Encana pay down its long-term debt of $7.3 billion U.S., which is a high 63% of its market cap.

Encana is still a buy.

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CANADIAN TIRE CORP., $133.55, Toronto symbol CTC.A, recently sold 20% of its financial services division to Bank of Nova Scotia (Toronto symbol BNS) for $500 million. That’s the main reason why the company’s earnings fell 3.0% in the quarter ended April 4, 2015, to $68.5 million from $70.6 million a year earlier. Per-share profits were unchanged at $0.88 on fewer shares outstanding, but that beat the consensus estimate of $0.87. Overall sales fell 2.3%, to $2.5 billion from $2.6 billion, mainly because lower gasoline prices hurt revenue at Canadian Tire’s gas stations. But if you exclude fuel-station revenue, the company’s overall sales gained 2.2%....

A holding company is a company that owns all or a substantial part of a variety of different businesses. These businesses may be private companies, or publically traded. Holding companies may own all, or a majority or a minority, of companies in which they invest. The one thing most holding companies have in common is that they trade for less than the combined value of their holdings. This “holding company discount” is a well-known phenomenon in finance. It represents a special kind of hidden asset and potential profit for investors in holding companies. When holding companies sell assets or break themselves up into their constituent parts, much if not all of the discount may disappear. In other words, holding companies can usually sell their assets for fair market value, rather than at a discount. In addition, fair market value may turn out to be be more than analysts figured they were worth. Even without a break-up, buying a holding company at a discount to its asset value puts more assets to work for you for each dollar you invest....

ENCANA $17.05 (Toronto symbol ECA; Shares outstanding: 741.2 million; Market cap: $14.0 billion; TSINetwork Rating: Average; Dividend yield: 2.1%; www.encana.com) has sold its natural gas pipelines and compression facilities in B.C.’s Montney region. The buyer is a partnership between Veresen (Toronto symbol VSN and a buy recommendation of Canadian Wealth Advisor) and investment firm KKR & Co. (New York symbol KKR). The company received $461 million (Canadian) for these assets. The cash, along with the $1.4 billion (Canadian) it recently raised by selling new shares, will let Encana pay down its long-term debt of $7.3 billion U.S., which is a high 63% of its market cap. Encana is still a buy....

ENCANA CORP. $15 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 839.6 million; Market cap: $12.6 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.3%; TSINetwork Rating: Average; www.encana.com) recently sold 98.5 million shares for $14.60 (Canadian) each, increasing the number outstanding by 13%. (All amounts except share price and market cap in U.S. dollars.)

As well, Encana has sold natural gas pipelines and compression facilities in B.C.’s Montney region for $461 million (Canadian).

It will use the total proceeds of $1.9 billion (Canadian) to pay down its long-term debt of $7.3 billion (as of December 31, 2014), which is a high 73% of its market cap.

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ENCANA $14.14 (Toronto symbol ECA; Shares outstanding: 741.1 million; Market cap: $10.3 billion; TSINetwork Rating: Average; Div. yield: 2.5%; www.encana.com) has sold 98.5 million shares for $14.60 each to raise $1.44 billion.

The company will use these funds to redeem $1.6 billion worth of notes. As of December 31, 2014, Encana’s long-term debt was $7.3 billion U.S., or a high 90% of its $10.3-billion (Canadian) market cap.

The stock sale has increased Encana’s total shares outstanding by roughly 13%. However, paying down debt will cut the company’s interest costs and help it conserve cash until oil and gas prices rebound. It could also use the savings to make acquisitions at bargain prices.

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While this split-share company dabbles in call options, investors would be better off buying the bank and oil stocks it holds separately.