pension plan
A: WSP Global Inc., $40.00, symbol WSP on Toronto (Shares outstanding: 99.7 million; Market cap: $4.0 billion; www.wspgroup.com), is a consultant on engineering projects for public- and private-sector clients around the world. It employs about 34,000 people, mainly engineers, technicians, scientists, environmental experts and architects. It has more than 500 offices across 40 countries. WSP has a long history of using acquisitions to expand. As a result, its revenue soared from $651.0 million in 2011 to $6.1 billion in 2015. Mainly due to the costs of integrating these new businesses, the company’s earnings fell from $1.91 a share (or a total of $50.1 million) in 2011 to $1.15 a share (or $46.3 million) in 2012. Earnings then rose to $1.38 a share (or $71.7 million) in 2013. They then dropped again to $0.98 a share (or $62.8 million) in 2014....
BOMBARDIER INC. (Toronto symbols BBD.A $1.52 and BBD.B $1.43; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $2.3 billion; Priceto- sales ratio: 0.2; Dividend suspended in February 2015; TSINetwork Rating: Speculative; www.bombardier.com) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. It’s also a leading maker of passenger railcars. The company recently formed a joint venture with the government of Quebec to build its new CSeries passenger jets. Under the deal, the province will pay $1.0 billion for 49.5% of this business (all amounts except share prices and market cap in U.S. dollars)....
Bombardier and BlackBerry (see box) continue to struggle with strong competition and shrinking sales. However, both are developing new products that should spur growth. As well, their sizable cash holdings help cut their short-term risk. BOMBARDIER INC. (Toronto symbols BBD.A $1.52 and BBD.B $1.43; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $2.3 billion; Priceto- sales ratio: 0.2; Dividend suspended in February 2015; TSINetwork Rating: Speculative; www.bombardier.com) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. It’s also a leading maker of passenger railcars. The company recently formed a joint venture with the government of Quebec to build its new CSeries passenger jets....
BOMBARDIER INC. $1.35 (www.bombardier.com) recently sold 30% of its railcar business to Caisse de dépôt et placement du Québec, which manages the province’s public pension plan, for $1.5 billion U.S. It also sold 49.5% of its CSeries passenger jet business for $1 billion U.S. However, its debt of $9.0 billion U.S. is now a high 4.8 times its depressed market cap of $2.7 billion (Canadian). As a result, we’ve cut Bombardier’s TSINetwork Rating, from “Extra Risk” to “Speculative”. Hold. PENGROWTH ENERGY INC. $0.72 (www.pengrowth.com) has sold its Jenner oil property in Alberta for $78 million. This is part of its plan to sell $600 million of its less-important properties, and apply the proceeds to its long-term debt of $1.86 billion (as of November 30, 2015), which is a high 4.8 times its $391.0-million market cap. However, low oil prices will hurt its ability to keep paying down debt, which is why we’ve cut Pengrowth’s TSINetwork Rating, from “Average” to “Speculative”. Hold. RESTAURANT BRANDS INTERNATIONAL INC. $46 (www.rbi.com) has raised its quarterly dividend by 8.3%, to $0.13 U.S. a share from $0.12 U.S. The new annual rate of $0.52 U.S. yields 1.5%. Hold....
CANADIAN PACIFIC RAILWAY LTD., $198.88, Toronto symbol CP, has offered to buy U.S.-based railway Norfolk Southern Corp. (New York symbol NSC). The combined firm would be North America’s largest railway, with more than 56,000 kilometres of track. Buying Norfolk would also give CP greater access to ports on the U.S. Gulf Coast and Atlantic Ocean. Norfolk shareholders would receive $46.72 U.S. a share in cash and 0.348 of a CP share (or roughly 50% in cash and 50% in stock). That would give them 41% of the combined company....
APACHE CORP., $48.97, New York symbol APA, fell 8% after rival oil producer Anadarko Petroleum (New York symbol APC) withdrew its merger offer. Savings from eliminating overlapping functions would have helped the combined firm cope with weak oil prices.
Meanwhile, Apache produced 486,409 barrels of oil equivalent a day in the three months ended September 30, 2015, up 6.8% from 455,295 a year earlier. The gain mainly came from improving efficiency at the company’s international operations, including its offshore wells in the North Sea.
However, lower oil prices resulted in a $0.05-a-share loss, compared to a profit of $1.27 a share a year earlier. Even so, that was much better than the consensus estimate of a $0.36-a-share loss. Revenue dropped 56.5%, to $1.5 billion from $3.4 billion.
OUR RECOMMENDATION: Apache is still a hold.
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Meanwhile, Apache produced 486,409 barrels of oil equivalent a day in the three months ended September 30, 2015, up 6.8% from 455,295 a year earlier. The gain mainly came from improving efficiency at the company’s international operations, including its offshore wells in the North Sea.
However, lower oil prices resulted in a $0.05-a-share loss, compared to a profit of $1.27 a share a year earlier. Even so, that was much better than the consensus estimate of a $0.36-a-share loss. Revenue dropped 56.5%, to $1.5 billion from $3.4 billion.
OUR RECOMMENDATION: Apache is still a hold.
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Here’s a phenomena you may have noticed: Current economic problems sometimes provide solutions for problems inherited from previous years or decades.
For example, from the late 1990s through the mid-2000s, many employers and economists worried about a coming labour shortage. The baby boomers, who make up a large part of the North American workforce, are nearing retirement age. Specialists were leaving the workforce faster than they can be replaced. Younger people tend to switch jobs more often than older workers. They are also slow to accept entry- or low-level jobs. They are reluctant to go into apprenticeship or industrial-training programs.
Employers and economists worried about the risk of falling productivity and rising wages. After all, employers were likely to bid up wage levels, to attract scarce new workers who would need expensive training. This could provoke severe inflation.
Then the 2007-2009 recession and stock-market slide came along. It solved the problem, at least temporarily. Joblessness rose, as businesses re-structured and made do with fewer workers. Insecurity led many boomers to work longer than they planned. They felt their savings, investments and pensions were inadequate for their retirement needs. They also worried about the financing of the Canada Pension Plan and U.S. Social Security.
After all, soaring numbers of retirees were entitled to income from these plans, due to the retirement of the boomers and extended lifespans from modern medicine. At the same time, growth in the worker/taxpayer population was slowing. This was partly due to a continuing drop in the birth rate—the so-called “birth dearth”. So, fewer working taxpayers would have to support a growing number of pensioners.
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For example, from the late 1990s through the mid-2000s, many employers and economists worried about a coming labour shortage. The baby boomers, who make up a large part of the North American workforce, are nearing retirement age. Specialists were leaving the workforce faster than they can be replaced. Younger people tend to switch jobs more often than older workers. They are also slow to accept entry- or low-level jobs. They are reluctant to go into apprenticeship or industrial-training programs.
Employers and economists worried about the risk of falling productivity and rising wages. After all, employers were likely to bid up wage levels, to attract scarce new workers who would need expensive training. This could provoke severe inflation.
Then the 2007-2009 recession and stock-market slide came along. It solved the problem, at least temporarily. Joblessness rose, as businesses re-structured and made do with fewer workers. Insecurity led many boomers to work longer than they planned. They felt their savings, investments and pensions were inadequate for their retirement needs. They also worried about the financing of the Canada Pension Plan and U.S. Social Security.
After all, soaring numbers of retirees were entitled to income from these plans, due to the retirement of the boomers and extended lifespans from modern medicine. At the same time, growth in the worker/taxpayer population was slowing. This was partly due to a continuing drop in the birth rate—the so-called “birth dearth”. So, fewer working taxpayers would have to support a growing number of pensioners.
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Spinoffs are a great way for companies to unlock hidden value, as the former parent and newly independent firm tend to outperform groups of comparable stocks for several years. But in the cases of Agilent and NCR, we prefer the parent companies to their former subsidiaries for new buying. AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 332.0 million; Market cap: $12.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.1%; TSINetwork Rating: Average; www.agilent.com) split into two publicly traded firms on November 1, 2014. One company kept the Agilent name and stock symbol and focuses on testing equipment for medical research labs. The other firm, called Keysight Technologies (see right), makes testing systems for electronics....
CENOVUS ENERGY INC. $19 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 833.2 million; Market cap: $15.8 billion; Price-to-sales ratio: 1.0; Dividend yield: 3.4%; TSINetwork Rating: Average) gets 35% of its revenue from its Western Canadian oil sands properties and conventional oil and gas wells. Chief among these assets are its 50%-owned Christina Lake and Foster Creek oil sands projects; ConocoPhilips (New York symbol COP) owns the remaining 50%.
Refining supplies the remaining 65% of Cenovus’s revenue. The company ships its oil to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these operations. Cenovus’s refineries help cut its exposure to falling oil prices, as cheaper crude lowers their operating costs.
Cenovus still plans to spend $1.8 billion to $2.0 billion on expansions and upgrades in 2015, unchanged from its previous estimate. These projects should add 50,000 barrels a day to its production by the end of 2016.
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Refining supplies the remaining 65% of Cenovus’s revenue. The company ships its oil to its 50%-owned refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) owns the other 50% of these operations. Cenovus’s refineries help cut its exposure to falling oil prices, as cheaper crude lowers their operating costs.
Cenovus still plans to spend $1.8 billion to $2.0 billion on expansions and upgrades in 2015, unchanged from its previous estimate. These projects should add 50,000 barrels a day to its production by the end of 2016.
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MANITOBA TELECOM $28.80 (Toronto symbol MBT; Shares outstanding: 78.9 million; Market cap: $2.3 billion; TSINetwork Rating: Average; Dividend yield: 4.5%; www.mts.ca) gets 60% of its revenue from its MTS division, which has 1.3 million TV, telephone and wireless users in Manitoba. The other 40% comes from Allstream, which sells phone and Internet services to businesses across Canada.
In May 2015, the company completed a strategic review of its operations. As a result, it now plans to cut 25% of Allstream’s workforce and reduce the subsidiary’s capital spending by 20% to 30% in 2015. These moves should save Manitoba Telecom $50 million annually by the end of 2016.
In addition, the company will contribute $120 million to its underfunded employees’ pension plan, eliminating the need for additional payments over the next two years. It has also cut its dividend by 23.5%: the new annual rate of $1.30 a share yields 4.5%.
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In May 2015, the company completed a strategic review of its operations. As a result, it now plans to cut 25% of Allstream’s workforce and reduce the subsidiary’s capital spending by 20% to 30% in 2015. These moves should save Manitoba Telecom $50 million annually by the end of 2016.
In addition, the company will contribute $120 million to its underfunded employees’ pension plan, eliminating the need for additional payments over the next two years. It has also cut its dividend by 23.5%: the new annual rate of $1.30 a share yields 4.5%.
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