pengrowth
BCE INC. $33 (www.bce.ca) earned $621 million before unusual items in the three months ended September 30, 2010, down 4.3% from $649 million a year earlier. Because of fewer shares outstanding, earnings per share fell 2.4%, to $0.82 from $0.84. The company had a lower tax bill in the year-earlier period. This was the main reason behind the lower earnings. Best Buy. ROYAL BANK OF CANADA $54 (www.rbc.com) continues to expand in Asia. It recently paid an undisclosed sum for the Hong Kong-based wealth management business of Belgium bank BNP Paribus Fortis. This purchase will help Royal profit from China’s growing middle class, who are preparing for retirement. Buy. PENGROWTH ENERGY TRUST $12 (www.pengrowth.com) saw its cash flow per share fall 14.3% in the latest quarter, to $0.54 from $0.63 a year earlier. That’s because unusually wet weather cut its combined oil and natural-gas production by 3.7%. Buy.
PENGROWTH ENERGY TRUST $12.42 (Toronto symbol PGF.UN; Units outstanding: 320.1 million; Market cap: $4.0 billion; SI Rating: Average; Dividend yield: 6.8%; www.pengrowth.com) produces oil and natural gas in western Canada and off the Nova Scotia coast. Its production is weighted 51% to oil and 49% to gas. In the three months ended June 30, 2010, revenue rose to $337 million from $335.6 million a year earlier. Cash flow per unit was unchanged at $0.56. Higher oil and gas prices offset a drop in production. Poor weather hurt Pengrowth’s production and drilling levels. The trust will convert to a dividend-paying corporation on December 31, 2010. The change is in response to Ottawa’s new tax on income-trust distributions, which comes into effect on January 1, 2011. After the conversion, the company will be called Pengrowth Corporation....
ENCANA CORP., $28.26, Toronto symbol ECA, fell 7% this week after the company reported lower-than-expected earnings. In the three months ended September 30, 2010, Encana earned $98 million, or $0.13 a share (all amounts except share price in U.S. dollars). These figures exclude a $331-million gain on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $140-million foreign-exchange gain. On this basis, the latest earnings fell well short of the consensus estimate of $0.19 a share. They were also down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...
On January 1, 2011, Ottawa will impose a tax on distributions of income trusts and royalty trusts. (Royalty trusts are a form of income trust. They profit from royalties associated with the sale of oil, natural gas or minerals.) The new tax will put income and royalty trusts on an equal tax footing with regular corporations. However, as we note in a just-published issue of The Successful Investor, one royalty trust has an enviable advantage when it comes to dealing with the new tax.
This royalty trust’s tax losses will help maintain its high yield through 2011 and beyond
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PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 291.3 million; Market cap: $3.2 billion; Price-to-sales ratio: 2.1; Dividend yield: 7.6%; SI Rating: Average) is one of North America’s largest energy royalty trusts. Its main properties are in Alberta, B.C. and Saskatchewan. The trust also holds interests in other energy projects, such as its 8.4% stake in the Sable Offshore Energy Project, which operates three offshore-drilling platforms south of Nova Scotia. Roughly 60% of Pengrowth’s production is natural gas. The remaining 40% is oil. Investors see this a negative in light of today’s low gas prices. However, a colder-than-normal winter could cause gas prices to shoot up again. Pengrowth’s focus on proven properties with large reserves and predictable production rates also tempers its risk.
New properties spurred revenue jump
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BCE INC. $32 has raised its quarterly dividend for the fourth time in less than two years. The new annual rate of $1.83 a share, up 5.2% from $1.74, yields 5.7%. Best Buy. MOLSON COORS CANADA INC. $47 earned $1.25 a share in the second quarter of 2010. That’s up 12.6% from $1.11 a share a year earlier (all amounts except share price in U.S. dollars). The higher earnings mainly resulted from ongoing cost cuts, as well as savings from its MillerCoors brewing joint venture in the U.S. Sales rose 10.5%, to $1.3 billion from $1.2 billion. Best Buy. PENGROWTH ENERGY TRUST $10 reported that in the three months ended June 30, 2010, its combined oil and natural-gas production fell 8.1% from a year earlier. That’s because unusually wet weather in western Canada hindered its drilling operations. However, the average selling price for its oil and gas rose 9.0%. That pushed up its cash flow by 12.1% in the quarter. Buy.
PENGROWTH ENERGY TRUST $9.97 (Toronto symbol PGF.UN; Units outstanding: 291.3 million; Market cap: $2.9 billion; SI Rating: Average; Dividend yield: 8.4%) has agreed to buy the 82% of Monterey Exploration (Toronto symbol MXL) that it doesn’t already own for $366 million in Pengrowth units. Monterey produces oil and natural gas at properties in Alberta and B.C. Pengrowth is particularly interested in Monterey’s unconventional gas holdings in northeastern B.C. Monterey should increase Pengrowth’s average daily production by 9% by the end of 2010. Moreover, Monterey’s reserves should last 10.8 years....
PENGROWTH ENERGY TRUST, $9.76, Toronto symbol PGF.UN, has agreed to buy the 82% of Monterey Exploration Ltd. (Toronto symbol MXL) that it doesn’t already own. The deal should close in September 2010. Monterey produces oil and natural gas at properties in Alberta and British Columbia. Pengrowth is particularly interested in Monterey’s unconventional gas holdings in northeastern B.C. Monterey lacks the financial resources to develop these assets. That’s why it accepted Pengrowth’s offer. The trust will pay $366 million in units to take full control of Monterey. That includes $30 million of Monterey’s debt, which Pengrowth will assume....
ARC ENERGY TRUST $19.86 (Toronto symbol AET.UN; Units outstanding: 250.9 million; Market cap: $5.0 billion; SI Rating: Speculative; Dividend yield: 6.0%) produces oil and natural gas in western Canada. Its average daily production of 67,207 barrels of oil equivalent (including gas) is weighted 46% to oil and 54% to natural gas. In the three months ended March 31, 2010, ARC’s revenue rose 39.5%, to $314.1 million from $225.2 million a year earlier. Cash flow per unit rose 16.7%, to $0.63 from $0.54. Increased production and higher oil and gas prices pushed up results. ARC currently yields 6.0%. The trust plans to convert to a conventional corporation on January 1, 2011. However, it has over $2.2 billion in tax losses it can use to delay paying corporate taxes. As well, it will probably pay out only 45% of its cash flow as distributions this year. That low payout ratio will help it maintain its current high yield....
PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 290.8 million; Market cap: $3.2 billion; Price-to-sales ratio: 2.2; Dividend yield: 7.6%; SI Rating: Average) plans to convert to a corporation before the end of 2010. However, the trust has $2.8 billion of tax credits it can use to offset the income taxes it will have to pay starting January 1, 2011. As a result, Pengrowth plans to maintain its annual payout of $0.84 a unit for several years. In the three months ended March 31, 2010, Pengrowth’s daily production fell 5.8%, to 6,806 barrels of oil equivalent (which includes natural gas) from 7,226 barrels a year earlier. However, its selling price per barrel rose 17.8%, to $52.49 from $44.57. As a result, Pengrowth earned $0.37 a unit in the latest quarter. That’s a big improvement over the $0.21 a unit it lost a year earlier. Cash flow per unit rose 37.8%, to $0.51 from $0.37....