pengrowth

PENGROWTH ENERGY TRUST, $10.28, Toronto symbol PGF.UN, fell 7% on Friday after it cut its monthly distribution by 30%, to $0.07 a unit from $0.10. The new annual rate of $0.84 yields 8.2%. Pengrowth wants to conserve cash to pay down its $1.4-billion long-term debt, which is equal to 50% of its $2.8-billion market cap. The distribution cut should save Pengrowth roughly $93 million a year. The trust also wants to spend more on developing its oil and natural-gas properties in western Canada. These have large, proven reserves, so there is little risk in investing in them. The extra cash will also help Pengrowth buy other nearby properties....

ENERPLUS RESOURCES FUND $24.50 (Toronto symbol ERF.UN; Units outstanding: 166.0 million; Market cap: $4.1 billion; SI Rating: Extra Risk) is one of North America’s largest oil and gas trusts. Its production is 60% of natural gas and 40% oil. Enerplus continues to build a well-diversified portfolio of properties. It aims to balance these between low-risk, shorter-term assets that generate steady cash flow (such as conventional oil and gas and shallow-gas properties), and higher-risk, longer-term assets (including shale gas and oil sands). The trust’s long-term debt of $713.7 million is just 17.4% of its market cap. It pays out only around 55% of its cash flow as distributions, and yields 8.8%. Ottawa will start taxing income trusts in 2011. However, Enerplus has over $2.5 billion in tax losses that it can use to delay its conversion to a dividend-paying corporation until 2013 or later....

CGI GROUP INC., $12.78, Toronto symbol GIB.A, rose roughly 10% this week in response to computer-maker Dell Inc.’s (Nasdaq symbol DELL) friendly takeover of Perot Systems Corp. (New York symbol PER). Like Perot, CGI sells information-technology and business-process services to a wide range of clients. Dell is paying a premium of over 60% for Perot. This helped spur investor interest in other computer-outsourcing stocks, including CGI. However, insiders control 53% of CGI’s votes through multiple-voting class “B” shares. That makes a hostile takeover unlikely....

CANADIAN IMPERIAL BANK OF COMMERCE, $64.11, Toronto symbol CM, set aside roughly $3 billion in August 2005 to settle a class-action lawsuit related to its involvement with failed energy company Enron Corp. In its 2008 fourth quarter, which ended October 31, 2008, the bank recorded a $486-million tax benefit related to this settlement. The Canadian Revenue Agency is now challenging this deduction, and may take CIBC to court. If CIBC wins, it will recognize a further tax gain of $214 million. If it loses, it will have to pay $826 million. To put these figures in context, CIBC earned $434 million, of $1.02 a share, in the three months ended July 31, 2009. That’s a big improvement over the $71 million, or $0.11 a share, it earned a year earlier. However, if you exclude several unusual items, such as writedowns of securities, earnings per share fell 21.9%, to $1.29 from $1.65. On that basis, analysts were expecting $1.41 a share....

PENGROWTH ENERGY TRUST $9.27 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 258.4 million; Market cap: $2.4 billion; Price-to-sales ratio: 1.0; SI Rating: Average) saw its cash flow per unit fall 48.1% in the three months ended June 30, 2009, to $0.56 from $1.08 a year earlier. Despite hedging gains, Pengrowth’s average realized selling price for its oil and gas fell by 39%. This was the main reason for the lower cash flow per unit. The trust’s monthly distribution of $0.10 a unit (for an annual yield of 12.9%) accounted for just 54% of its cash flow, so it seems safe for now. Pengrowth is a buy.

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $26.35 (Toronto symbol BA.UN: Units outstanding: 127.2 million; Market cap: $3.4 billion; SI Rating: Above average) reports that its revenue fell 1.2% in the three months ended March 31, 2009, to $828 million from $837.5 million. Lower local and long distance revenue declines offset strong demand for high-speed Internet and data services. However, earnings rose 10.1%, to $82.5 million or $0.51 a unit from $74.2 million or $0.46 a unit a year earlier. The gains came from higher-profit-margin Internet growth and cost cutting....

PENGROWTH ENERGY TRUST $9.33 (Toronto symbol PGF.UN; Units outstanding: 257.8 million; Market cap: $2.4 billion; SI Rating: Average) produces oil and gas in western Canada and off the Nova Scotia coast. Its average daily production of 80,284 barrels of oil equivalent is weighted 51% to oil and 49% to natural gas. Pengrowth’s revenue fell 29.4% in the three months ended March 31, 2009, to $323 million from $457.6 million. Cash flow per unit fell 57.5%, to $0.37 from $0.87. Low oil and gas prices also prompted Pengrowth to cut production. Pengrowth’s $1.7-billion long-term debt is a somewhat high 71% of its market cap. But it’s just over three years’ cash flow. The trust distributed 82% of its cash flow as distributions in the latest quarter, but it should average about 62% this year. The units trade at 4.2 times Pengrowth’s estimated 2009 cash flow of $2.20 per unit. The trust yields 12.9%....

These three royalty trusts have seen their revenue and cash flow fall because of lower oil and natural-gas prices. Nevertheless, with their reasonable debt and low payout ratios, all three are well positioned to withstand these lower prices — and to prosper when oil and gas rise again. ARC ENERGY TRUST $17.53 (Toronto symbol AET.UN; Units outstanding: 234 million; Market cap: $4.1 billion; SI Rating: Speculative) produces oil and gas in western Canada. ARC’s average daily production of 64,325 barrels of oil equivalent (this measurement includes natural gas) is weighted 50% to oil and 50% to natural gas. ARC’s revenue fell 44.8% in the three months ended March 31, 2009, to $225.2 million from $407.9 million. Cash flow per unit fell 44.9%, to $0.54 from $0.98. Lower oil and natural-gas prices were the main reason for the declines....

BANK OF MONTREAL, $43.80, Toronto symbol BMO, earned $358 million in its second quarter, which ended April 30, 2009. That’s down 44.2% from $642 million a year earlier. Earnings per share fell 51.2%, to $0.61 from $1.25, on more shares outstanding. If you exclude writedowns of securities it holds and severance costs related to the layoff of 1,100 employees, the bank would have earned $0.91 a share. That beat analysts’ forecasts of $0.90, and the stock gained over 5%. The recession forced Bank of Montreal to set aside $372 million for bad loans in the latest quarter, up 146.4% from $151 million a year earlier. Still, that’s down 13.1% from $428 million in the first quarter. Moreover, the staff cuts, which amount to 3% of the bank’s total workforce, should save at least $118 million a year....

PENGROWTH ENERGY TRUST $8.64 (Toronto symbol PGF.UN) reported that its cash flow for the first quarter of 2009 fell 57.5%, to $0.37 a unit from $0.87 a year earlier. Higher interest expenses, performance bonuses and royalties were the main reasons for the drop. Still, its $1.20 distribution rate seems secure, and yields 13.9%. Buy. IMPERIAL OIL LTD. $41 (Toronto symbol IMO) will make a final decision on whether to proceed with its 70%-owned Kearl Lake oil-sands project by the end of June. (Imperial’s parent, ExxonMobil Corp., owns the other 30%.) Lower oil prices have reduced labour and material costs. If it goes ahead, Kearl’s reserves should last 40 years. Best Buy. MOLSON COORS CANADA INC. $50 (Toronto symbol TPX.B) continues to profit from MillerCoors, last year’s joint venture that merged its U.S. brewing operations with those of SABMiller. Thanks to savings from combining bottling facilities and distribution networks, Molson Coors’ first-quarter earnings rose 75.2%. Best Buy.