A survey of North American equities heading in both directions
On the rise
Shares of pipeline operator Enbridge Inc. (ENB-T) rose 0.4 per cent on Friday after it reported third-quarter profit that topped analysts’ estimates and said it sees further opportunities for smaller acquisitions even as it finalizes a $14-billion deal to buy three U.S. gas utilities.
Calgary-based Enbridge said the transaction with Dominion Energy was on track to close in 2024. The company also announced deals to increase its stake in German offshore wind projects for 625 million euros and buy seven U.S. renewable natural gas facilities for $1.2-billion.
CEO Greg Ebel said Enbridge would look selectively at further acquisition opportunities, as long the company stayed within its 4.5 to 5 times debt to EBITDA (earnings before interest, tax, debt and amortization) target.
“I don’t see us doing any major M&A here as we bring in the three utilities in the United States... but we see a lot of stuff,” Mr. Ebel said.
Mr. Ebel said Enbridge has $2.5-billion to $3-billion of available capacity for tuck-in acquisitions.
Enbridge operates the Mainline oil pipeline system, which ships the bulk of Canada’s crude exports to the United States. It reported an increase in earnings after transporting higher volumes of oil and other liquids.
Low U.S. inventory levels and increased exports as buyers sought alternatives to Russian oil since Russia’s invasion of Ukraine last year have boosted demand for crude, lifting profits for oil and gas transportation companies.
The company said its liquids business saw record utilization in the third quarter of 2023.
Quarterly core profit from company’s liquids pipelines rose 15.5 per cent to $2.25-billion from a year earlier, helped by a more than 1% rise in Mainline volumes to 3 million barrels per day (bpd).
The company posted an adjusted profit of 62 cents per share for the quarter ended Sept. 30, compared with the average estimate of 60 cents per share, according to LSEG data.
Magna International Inc.’s (MG-T) top executive says the six-week autoworkers’ strike in the United States cost the parts maker $310-million in sales as the industry production fell by 220,000 vehicles.
Magna, however, raised its yearly outlook and posted higher sales and profit for the third quarter, as global auto production continued its recovery after pandemic-related disruptions.
The third-quarter results, which beat expectations, sent Magna’s share price soaring by 8.6 per cent in Friday trading on the Toronto Stock Exchange.
Magna, a maker of seats, automated driving systems and other components at factories around the world, saw sales rise by 15 per cent to US$10.7-billion in the three months ending on Sept. 30, compared with a year ago. Excluding currency rates and other items, sales rose by 10 per cent. This outpaces overall car industry’s sales increase of 2 per cent, Swamy Kotagiri, chief executive officer of Magna International Inc., told analysts on a conference call on Friday.
Magna, based in Aurora, Ont., on Friday posted a profit of US$394-million, or US$1.37 a share, compared with US$289-million (US$1) in the same quarter a year ago.
The auto industry is being buoyed by fewer supply disruptions, more reliable production schedules and rising sales, said Mr. Kotagiri, warning the rosier global outlook is at risk from higher labour costs, inflation and geo-political turmoil.
The UAW strike affected targeted factories of the three Detroit-based carmakers, Ford Motor Co. Stellantis and General Motors Co. All are large buyers of Magna’s components. The strikes ended about a week ago when negotiators reached tentative deals that must be finalized in ratification votes.
In a research note, Citi analyst Itay Michaeli said: “At first glance a solid outcome with some puts/takes. Magna reports Q3 revenue of $10.7-billion (vs. our $10.4-billion) and adj. EPS at $1.46 vs. our $1.30 (consensus $1.33). The company raised 2023 Adj. EBIT margin by 15 basis points at midpoint and adj. net income guidance by $100mln midpoint, though a portion of the adj. net income raise appears related to the previously announced exclusion of certain amortization expenses. Two points to note: (1) Implied Q4 adj. EBIT margin of 5.4 per cent below the just reported 5.8 per cent Q3 margin, though some of this likely relates to the UAW strike impact (Magna relatively more exposed to D3 NA). (2) Expect some focus on Magna’s Complete Vehicle segment which reported a $5-million Q3 loss (potential read-through to Fisker).”
- Eric Atkins
Open Text Corp. (OTEX-T) surged 4.8 per cent with the release of better-than-anticipated first-quarter results after the bell on Thursday.
The Waterloo, Ont.-based company reported revenue of US$1.426-billion and adjusted EBITDA of US$495-million, both topping the Street’s expectations (US$1.39-billion and US$464-million, respectively). Adjusted earnings per share of US$1.01 was 11 US cents higher than the consensus projection.
Cloud revenues grew 11.5 per cent year over year to US$451 million.
CEO Mark Barrenechea says the strong first-quarter results set the company up for a strong fiscal 2024.
“OpenText reported a solid quarter, with revenue slightly above consensus and much better profitability,” said RBC analyst Paul Treiber. “Micro Focus is continuing to track better than expectations. OpenText is pivoting towards organic growth as a long-term strategy; this pivot would not have been possible without healthy contribution from Micro Focus, in our view, validating the merits of the acquisition. Maintain Outperform, as we believe OpenText’s valuation is likely to re-rate higher, as the company de-levers and organic growth improves.”
Pembina Pipeline Corp. (PPL-T) gained 0.8 per cent after saying it earned $346-million in the third quarter of 2023, down from $1.8-billion in the same three-month period of 2022.
The Calgary-based pipeline company says the decrease was primarily due to the benefit in 2022 from a gain on the change in ownership of the majority of Pembina’s field-based gas processing assets, which were wholly-owned prior to the creation of Pembina Gas Infrastructure last year.
On an adjusted basis, Pembina said it earned a record $1.02-billion, a six per cent increase over the third quarter of 2022. The Street had expected $972-million.
The company attributed the results to record quarterly conventional pipelines volumes, rising utilization on other key systems, and a strong contribution from Pembina’s marketing business.
Pembina says based on these results, it is raising its full-year earnings guidance range for 2023 to between $3.75-billion and $3.85-billion, up from a previous estimate of $3.55-billion to $3.75-billion.
Pembina reported third-quarter revenues of $2.3-billion, down from $2.8-billion in the prior year’s quarter.
Citi analyst Spiro Dounis: “We expect a slight positive reaction to the beat and raise. We’d call for a stronger reaction but for Marketing (not as ratable as Pipelines and Facilities) appearing to be the main driver of both positive surprises. The Peace Pipeline capex reduction was a positive surprise; very rarely do capex figures decline in midstream on large multi-period projects. PPL signing 50kbpd of extended and new long-term contracts is also a positive tailwind. We don’t view Cedar FID slipping into early ‘24 as a meaningful negative. The commentary on TMX should be somewhat reassuring to those concerned about a near-term acquisition of TMX while critical tariff issues are being addressed.”
Telus Corp. (T-T) was up 2.5 per cent after it third-quarter profit plunged 75 per cent to $137-million, even as it grew its revenue and added new wireless customers.
The Vancouver-based telecom attributed the lower profit to higher restructuring costs relating to its ongoing cost efficiency program and its recent workforce reduction, as well as higher depreciation, amortization and financing costs. (The company announced in August when it reported its second-quarter results that it was trimming its global headcount by 6,000 people.)
Telus reported $5-billion of revenue for the three-month period ended Sept. 30, up 7.2 per cent from the same period last year when it had $4.67-billion in revenue.
After adjusting for restructuring costs and other items, the telecom had $373-million of profit, down 20.8 per cent from a year ago when it had $471-milion in adjusted earnings.
The adjusted earnings amounted to 25 cents per share, down from 34 cents per share during the same quarter last year.
Analysts had been expecting 24 cents per share of adjusted earnings and $5.08-billion of revenue, according to the consensus estimate from S&P Capital IQ.
Telus added 160,000 net new wireless customers during the quarter, an increase of 10,000 over the previous year.
Mobile phone ARPU, which stands for Average Revenue Per User, declined by 29 cents, or 0.5 per cent, to $59.19, which the telecom attributed to “lower base rate plan prices from increased promotional activity and market aggression affecting both new and existing customers, which first escalated in the second quarter of 2023 and continued through the third quarter.”
“During the third quarter, we continued to execute against our cost efficiency program, across our business, as outlined with the release of our second quarter results in August,” chief financial officer Doug French said in a statement.
“While these efforts will continue into the fourth quarter of 2023 and into early 2024, this significant program will drive permanent cost reductions across our organization, supporting our growth profile and cash flow generation, as well as our dividend growth program and balance sheet deleveraging.”
- Alexandra Posadzki
RioCan Real Estate Investment Trust (REI.UN-T) was higher by 1.4 per cent after saying fair value losses left the company with a net loss of $73.5 million in its most recent quarter.
The Toronto-based real estate company says the third-quarter loss compared with a net income of $3.2-million it reported a year prior.
It attributed the loss in the period ended Sept. 30 to fair value losses of $199.5-million on investment properties that reflect current market conditions resulting from rising interest rates.
Funds from operations totalled $135.4-million, or 45 cents per diluted unit, a slight increase from $134.8-million a year ago, or 44 cents per diluted unit.
RioCan’s committed occupancy rate for the quarter was 97.5 per cent, up from 97.3 per cent a year ago.
Retail occupancy hit 98.3 per cent, up from 97.8 a year prior.
First Quantum Minerals Ltd. (FM-T) gained 11.1 per cent after it said on Friday production at the Cobre Panama mine remains uninterrupted hours before Panama’s congress passed a law banning new mining concessions after protests, including blockades of key roads.
Protesters have expressed concerns over the contract signed by the government and the company late last month, arguing it is tainted by corruption and too favorable to the Canadian miner, as well as harmful to the environment.
The company said it remains “confident” with respect to its legal position in Panama.
The ban would not hurt current operations of First Quantum as its contract was approved before the passing of the law.
The bill was welcomed by citizens, but they have said they will keep protesting since it does not change the status of First Quantum’s contract.
The Cobre Panama mine accounts for 1 per cent of global copper output and is operated by a local unit of First Quantum.
Paramount Global (PARA-Q) shares surged 15.6 per cent on Friday, after the media company narrowed the 2023 loss forecast for its fast-growing streaming business as investments peaked a year ahead of target.
After years of chasing subscriber growth through hefty investments, streamers are now prioritizing profitability in the face of investor pressure, leading businesses including Disney+ and HBO Max to raise prices and introduce ads to boost revenue.
The companies had also rallied on Thursday, with Paramount gaining 10 per cent, after positive results from streaming device maker Roku (ROKU-Q) raised hopes of a rebound in the advertising market.
“We now expect DTC (direct-to-consumer) losses in 2023 will be lower than in 2022 – meaning streaming investment peaked ahead of plan,” Paramount CEO Bob Bakish said.
Despite the industry’s focus pivoting to profitability, analysts do not see a clear path to that target, with brokerage Needham believing that Paramount could be bought by a larger streaming competitor.
“At an $7 billion market cap plus about $14 billion of net debt, we believe PARA is too small to win the streaming wars,” Needham analysts said.
On the decline
Restaurant Brands International Inc. (QSR-T) slid 2.4 per cent in the wake of missing market estimates for quarterly sales on Friday as still-high inflation pressured consumer spending at its Burger King chain, signaling that the brand’s turnaround efforts were falling short.
Weaker household budgets are forcing some customers to cut back on restaurant food and instead rely on cheaper, home-cooked meals, a trend that has dented traffic across the U.S. restaurant industry over the past few months.
The Tim Hortons owner’s results contrast a strong third-quarter performance from rival McDonald’s, which has been doubling down on menu upgrades, promotions and pricing - eroding market share at Burger King and other chains.
The weak sales come despite Burger King executing a $400 million turnaround plan by streamlining menus, targeting younger consumers through better advertising and improving restaurant technology.
Traffic and customer spending at Burger King’s U.S. locations moderated in the quarter ended September from the previous three months, brokerage Wells Fargo said in late October.
Total same-store sales at the Burger King division rose 7.2 per cent in the third quarter, missing estimates of 8.71 per cent, according to LSEG IBES data.
Meanwhile, the company’s Canada-focused Tim Hortons chain has been attracting more customers with its coffees and new cold drinks, helping drive its comparable sales growth of 6.8 per cent above estimates of 6.5 per cent.
Toronto-based Restaurant Brands posted an adjusted profit of 90 US cents per share, beating estimates of 86 US cents.
Total revenue at the company rose to US$1.84-billion in quarter ended Sept. 30, from US$1.73-billion a year earlier, compared with estimates of US$1.87-billion.
In a note released shortly after the release, Citi analyst Jon Tower said: “Investors were mixed on shares heading into the print, with many still believing in the long-term global unit growth/BK turnaround story, but cognizant of the weakening U.S./global backdrop --- and results generally delivered on that mixed bag, with comp growth decelerating on 1-year/vs. 2019 basis in key segments (Tim Hortons Canada, BK U.S., BK INTL) but upside in total adjusted EBITDA (albeit the timing on expense spend and year-over-year 1 times laps are difficult to tease out). In aggregate, net unit growth still lags pre-COVID levels (4.2 per cent year-over-year), but key drivers of growth continued to demonstrate progress (e.g., NROs at BK ROW both ticking higher year-over-year) as the company continued to optimize its BK US portfolio. With global comps decelerating and recent share performance (up 8.5 per cent over the past month vs. S&P 500 up 2 per cent) we expect shares take a breather in the near term the stock’s relative multiple already sits ahead of historical averages.”
Shares of both Cameco Corp. (CCO-T) and Brookfield Renewable Partners LP (BEP.UN-T) were lower after Britain’s competition regulator on Friday cleared their $7.9-billion deal to acquire nuclear power plant equipment maker Westinghouse Electric.
The Competition and Markets Authority (CMA), which had started looking into the deal in August, said it will not refer the merger for a deeper probe.
The deal was announced in October last year on the heels of an uptick in interest in nuclear power amid an energy crisis in Europe and soaring crude oil and natural gas prices.
Apple (AAPL-Q) fell 0.5 per cent on Friday after it disappointed Wall Street with a forecast that indicated growth will stay subdued in the quarter where the holiday season usually drives its strongest sales.
The stock was down 1.5 per cent in early trading, having fallen more than 3 per cent before the bell. The world’s most valuable firm was on course to lose US$40-billion in market value, if the losses hold.
The iPhone maker on Thursday predicted quarterly sales that were below market estimates, blaming weak demand for iPads and wearables, especially in key market China.
The projection fanned fears about broader holiday demand, with estimates including those from the U.S. National Retail Federation and Deloitte predicting the slowest rise in sales in the crucial shopping period in years due to sticky inflation.
“Apple’s revenue growth has stalled over the past few quarters - and appears likely to continue to stagnate over the next year,” said brokerage Bernstein, noting the holiday quarter usually sets the tone for Apple’s fiscal year that runs until September.
At least 11 analysts cut their price targets on the stock, pushing down the median price target to US$196.5, according to LSEG data. Apple currently trades at nearly 26 times its 12-month forward earnings estimates, among the lowest in the so-called “Magnificent Seven” stocks.
“We view management’s flat sales guidance as proof the company cannot rely on iPhone sales to drive shares higher, as it has in the past,” D.A. Davidson analyst Tom Forte said.
The iPhone, Apple’s main revenue generator, saw its sales rise in the September quarter and is also forecast to post an increase in the last three months of 2023.
CEO Tim Cook also insisted the iPhone 15 models were doing well in China, as he sought to allay Wall Street fears that Apple was losing market share to a resurgent Huawei and other local smartphone sellers. “In mainland China, we set a quarterly record for the September quarter for iPhone,” Cook told Reuters.
Several analysts cheered the remarks. “The Street will breathe a sigh of relief on this front,” Wedbush Securities analyst Dan Ives said.
He was also positive on the outlook for the services business, whose strong growth in the September quarter had helped the company top quarterly revenue expectations.
With files from staff and wires