The following business stories were produced for Dan Westell’s Journalism and the world of business course in the semester of Winter 2017.
Stats Canada story on GDP
By: Daniela Olariu
Canada’s real gross domestic product climbed in November, recovering from the drop in October as mining, oil and gas, and manufacturing and construction outweighed a slowdown in the real estate business.
Canada’s GDP, the broadest value of goods and services produced in an economy, rose 0.4 per cent in November, bouncing back from October’s 0.2 per cent drop according to Statistics Canada. November’s growth topped the predicted 0.3 per cent increase by economists surveyed.
Goods-producing industries led the way with a 0.9 expansion, almost offsetting a one per cent decline in October, while service-producing industries rose 0.2 per cent.
There were several key goods industries that showed strong comebacks after a disappointing October. Manufacturing activities leaped 1.4 per cent after a 1.7 per cent drop in October which pushed the output of petroleum and coal products, food, machinery, computer and electronic products. Mining and oil and gas extraction also rose 1.4 per cent, after slipping 0.5 per cent in October. And construction climbed 1.1 per cent, reversing a 0.6 per cent drop the previous month.
Graph information source: Stats Can
According to BMO economist Robert Kavcic, the November GDP is a healthy monthly report that shows how Canada is recovering from previous years. “The numbers are consistent with an economy that is churning out modest underlying growth. But it certainly is a meaningful improvement from conditions that we saw going into 2016,” he said in a phone interview. “The November GDP shows us how Canada is indeed in the process of recovering from the oil shock that ravaged the Canadian economy in 2015 and 2016.”
Kavcic hopes that with stronger numbers heading into 2017, “perhaps a stronger labour market is also forthcoming.”
On the other hand, the utilities sector declined three per cent month-over-month, reflecting a decline in demand due to unseasonably warm weather across Western Canada.
The real estate sector was also one of the few that declined in November. While it fell just 0.2 per cent, it was its first month-over-month decline in two years. Statistics Canada attributed this decline to new strict government mortgage-lending rules which went into effect in mid-October.
According to Gregory Klump, chief economist at the Canadian Real Estate Association, these are signs that a housing market slowdown could happen in the near future. “Home sales are unlikely to benefit the Canadian economy as much in 2017 as they did in 2016,” he said.
Klump believes the Canadian housing market’s direction will become more clear in the coming months. He also warned that U.S. President Donald Trump’s new policies could slow Canadian economic growth. “It remains to be seen whether the Trump administration’s policies will have a positive or negative effect for Canada’s economy.”
Corporate announcement story
By: Daniela Olariu
Paramount Resources Ltd. has upped its operational activities and predict it will continue to exceed expectations this year with more wells in the pipeline.
According to a recent press release, the company’s sales volume increased to over 15,000 barrels of oil equivalent per day (or boe per day) in late January from about 12,000 boe per day in the fourth quarter of 2016.
The company predicts that sales volume this year will average around 20,000 boe per day with an expected average of over 30,000 boe per day in the fourth quarter of 2017. The sudden sales volume increase in the second half of the year is due to the company’s plan to expand the Karr Gold Creek 6-18 compression and dehydration facility plus two new wells.
Paramount is involved in the exploration, development, production, processing, transportation and marketing of natural gas, liquid gas and crude oil. The company’s properties are primarily located in Alberta, British Columbia and Northwest Territories. It also holds a portfolio of investments in other public and private entities.
In addition to the expansion of the 6-18 Facility, the independent Calgary-based oil and natural gas company plans to spud – the process of beginning to drill a well – an additional seven wells to the 20 they have already spudded. The company is calling this the “Karr Program,” and aim to complete up to 22 of the 27 wells by the end of the year.
Chart information source: Paramount Resources Ltd.
The press release had a positive impact on Paramount’s common shares as they increased by nine per cent to $17.85 (as of March 1) from $16.29 on Feb. 14. Paramount’s Class A Common Shares are listed on the Toronto Stock Exchange under the symbol “POU.”
At Raymond James Ltd., Paramount’s analyst ratings have upgraded from “outperform” to “strong buy.”
“We are only four wells into what will be more than 20 wells by mid-year 2017,” energy analyst Kurt Molnar said in a note to clients. “If new wells keep coming in like the first four then we think there is upside to production guidance and leverage to consider.”
By: Daniela Olariu
Upon analyzing Aecon Group Inc. on the Bloomberg terminal, the construction and infrastructure development company would be a good investment, with the stock price expecting to rise in the future.
Some of the key indicators that make this company a good investment are growth in finance and a decrease in debt, and a positive reaction from several analysts.
Over a five-year period, Aecon’s stocks has fluctuated but maintained a positive outlook. According to it’s 52-week range, stocks reached a high of $19.20 on Aug. 15, 2016 and a low of $13.07 on Nov. 4, 2016. The average stock price is $14 and yesterday it was trading at $16.90.
Aecon is a Canadian-based construction and infrastructure development company that provides services to private and public sector clients. It operates through infrastructure, energy and mining. It produces a number of construction materials including asphalt and aggregate materials, and pre-construction and pre-fabrication materials developed in eight company-owned fabrication facilities across the country.
Aecon’s financial information on the Bloomberg terminal revealed that the company saw growth in both revenue and earnings for 2016. The revenue increased to $3.2 billion in 2016 from $2.9 billion in 2015. Similarly, the earnings rose to 88 cents a share in the fourth quarter of 2016 from 38 cents in the fourth quarter of 2015, with a predicted 94 cents a share increase by the end of this year. The company has also been working to reduce its debt. It was at a high of $613 million in 2013, it then shrank to $444 million in 2014, $322 million in 2015 and it has dipped to a current $310 million. This portrays how the company is on a path to recover from debt. In Aecon’s total return analysis, its annual dividend increased from 46 cents to 50 illustrating that there is an increase in the company’s net profits out of which dividends are paid.
When looking at the overall economic climate in Canada, the economy grew in the fourth quarter from 2.0 to 2.6, a GDP growth of 0.6 per cent in the final three months of last year. This portrays that the economy is doing fairly well and Aecon is taking advantage of its success. In terms of interest rates, the probability of a hike is at 0.8 per cent for the next meeting in April. Thus, the low probability of an interest hike is working in favour for the company. The Canadian dollar weakened yesterday and was trading at $0.75 U.S. by the end of the day. For Aecon, this is a good thing since the longer the loonie stays low, the more the company’s export prices fall and it can be more competitive on the international market.
Based on research in the Bloomberg terminal, analyst recommendations are currently positive. There are 11 buys (91.7 per cent), one hold (8.3 per cent) and no sells. This indicates that most people are advocating investing in Aecon shares. The consensus rating (on a scale of one (Sell) to five (Buy)) is sitting at a high of 4.83. At the National Bank of Canada and Raymond James Ltd., analyst ratings for Aecon are “outperform,” and at Desjardins Securities and Paradigm Capital Inc. the recommendation is “buy.” Overall, analysts have a positive view on investing in the company.
When comparing Aecon to its competitors, the competitors have a higher market cap. For example, Tutor Perini Corp. is at $2.07 billion and SNC-Lavalin is at $7.98 billion while Aecon is almost hitting the $1 billion market cap but not quite with $983.67 million. In terms of the price-earnings ratio (p/e), Aecon is at 21.15 p/e while most of its competitor’s range around 17 p/e, except for SNC which is at 22 p/e. The high p/e suggests that investors are expecting higher earnings growth in the future. Despite the high p/e, investing in the company currently looks promising based on all of its other factors.
Aecon’s shares are listed on the Toronto Stock Exchange under the symbol “ARE.”
Company Profile on SNC-Lavalin
By: Daniela Olariu
Despite a soft end to 2016, SNC-Lavalin is projecting higher profits from most of its operations this year with several contract opportunities around the world.
The Montreal-based company predicts that performances from all segments, expect mining, will drive a 13 to 32 per cent improvement in earnings from its core engineering and construction operations.
“We expect 2017 to be another good year for SNC-Lavalin,” said Erik Ryan, the Executive Vice-President of Strategy, Marketing and External Relations over a phone interview. “The 2016-year end results were very good overall and we’ve done a number of things to improve the efficiency of the business which set us up really well for 2017.”
Ryan explains how the company has improved their safety performance and had a quick return on ethics and compliance, which was positive. In terms of the wider business capital, Ryan said it operated really well and they got fantastic results from their investment in highway 407 ETR. “These are all things that go towards the building blocks in preparation for us to produce the results that we want in 2017,” he said.
Founded in 1911, SNC-Lavalin is an international engineering and construction services provider. It designs and builds structures such as chemical and petroleum plants, power generation and transmission systems, bridges, highways, mass transit systems, and water treatment plants. It also provides operations and maintenance services, oversees management and financing and invests in infrastructure facilities. The company operates through four segments: mining and metallurgy, which provides solutions for a range of projects in the aluminum, gold, copper, iron ore, nickel, fertilizers and sulfur product sectors; oil and gas, which includes projects in the upstream, midstream and downstream sectors for oil and gas and resources companies; power, which includes projects and services in hydro, nuclear and thermal power generation, renewable power generation and energy from waste; and infrastructure, which is divided into the infrastructure and construction and operations and maintenance sub-segments.
In terms of its geographic reach, the company operates in more than 100 countries around the world. More than half of its revenues are made domestically in Canada, with the rest evenly split between the Middle East, Africa, Europe, the U.S., Latin America and the Asia/Pacific region.
The operational profit for the year ended Dec. 31, 2016 was $404 million from infrastructure and construction compared with $497 million in the fiscal 2015 fourth quarter, $1.14 billion from oil and gas compared with $1.22 billion, $71 million from mining and metallurgy compared with $127 million, $413 million from power compared with $503 million and $244 million from operations and maintenance compared to $245 million. This portrays how operations for each sector generated less profit in the 2016 fourth quarter compared to the 2015 fourth quarter, which ultimately led to a decrease in the company’s 2016 revenue.
Graph information source: SNC-Lavalin
According to Ryan, the company expects to increase the revenue for 2017 from higher infrastructure spending in North America, nuclear opportunities in Argentina, China and Romania and higher oil and gas activities in the Middle East and the U.S. However, it forecasts that earnings from mining and metallurgy will remain flat because of softer commodity prices. Its investment in highway 407 ETR near Toronto is also expected to generate higher returns.
In terms of financial performance, the Executive Vice-President and Chief Financial Officer Sylvain Girard said the company’s revenues have been generally on the rise for the past five year, with the exception of 2013 when business took a slight dip.
“In fiscal 2014, net sales rose four per cent to $8.2 billion largely due to businesses gained through our acquisition of engineering and construction company Kentz,” Girard said through an e-mail interview. “The move aligned with our goal to expand in the highly profitable oil and gas sector.” He concludes that this increase was partially offset by a slowdown in operations and maintenance.
According to the company’s 2016 fourth quarter press release, profit for the year ended Dec. 31, 2016 was $255.5 million or $1.7 per share, compared with $404 million or $2.7 per share in fiscal 2015. Revenue was $8.5 billion compared with $9.6 billion in fiscal 2015. For the full year, profit fell 37 per cent and revenues declined 12 per cent in comparison to 2015. Profit for the fourth quarter ended Dec. 31, 2016 was $1.6 million or one cent per share, compared with $49.2 million or 33 cents per share in the fiscal 2015 fourth quarter. Revenue was $2.2 billion compared with $2.6 billion in the previous year. This is a 97 per cent decrease in profit and a 17 per cent drop in revenue in comparison to the fourth quarter of 2015. Girard attributed this decline to a loss of the company’s core engineering and construction business, partially offset by higher earnings from capital investments including highway 407. He also stated that “these results include a loss of $40 million from the disposal of the company’s real estate facilities management business and $88 million in restructuring costs at its local French operations.”
Graphs information source: SNC-Lavalin
Despite the decrease in profit and revenue for 2016, the company’s shares were not largely impacted by the 2016 fourth quarter results. SNC-Lavalin shares closed at $57.79 compared to $58.13 the previous day, a less than one per cent decrease.
According to Devin Dodge, an analyst from BMO Capital Markets, the $1.70 to $2-per-share earnings guidance for the year missed his forecast of $2.28 per share. Despite this, his recommendation for the company remains “buy” because of the positive outlook it has for 2017.
“SNC is shortlisted on $15 billion worth of new transit projects due to be awarded in 2017,” he said. “It also has global nuclear build opportunities and is in talks of taking over WS Atkins.”
According to the company’s 52-week range, stocks reached a high of $59.63 on Dec. 21, 2016 and a low of $44.84 on May. 4, 2016. Analyst recommendations are currently positive, with 10 buys, three holds and no sells and a consensus rating sitting at 4.54. This indicates that three out of four analysts advocate to invest in SNC shares. The company’s P/E ratio is 31.14 which proves that investors believe in the company’s prospects for future growth. SNC-Lavalin’s shares are listed on the Toronto Stock Exchange under the symbol “SNC.”
In a press release distributed after the markets closed yesterday, SNC-Lavalin announced that it is buying British-based WS Atkins (ATK) in a deal worth $3.6 billion or $35.88 per share – the company’s largest takeover. Atkins is a multinational engineering and design consultancy known largely for its expertise in transportation, infrastructure and aerospace and defense.
Maxim Sytchev, an analyst from the National Bank of Canada, said this is the de-risking event that he and the market has been looking for. He explains that SNC had been scouting for an acquisition opportunity to build its core engineering and construction business as it tries to put behind prior bribery scandals.
“The fear of SNC going after Amec or WorleyParsons is fully removed,” he said. “This deal will allow SNC to diversify its revenue outside of Canada and away from oil and gas. It improves the company’s overall margins and balances its business portfolio.”
SNC-Lavalin closed at $54.5 a share yesterday, prior to the company’s large announcement.