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A look at North American equities heading in both directions

On the rise

Royal Bank of Canada (RY-T) turned higher in late trading, closing up 0.4 per cent on news it is buying HSBC Bank Canada for $13.5-billion in cash in the largest deal ever reached between two domestic banks in the country.

The transaction, which is subject to regulatory and government approvals, would see RBC consolidate its position as Canada’s largest bank. The purchase price represents a multiple of 9.4 times HSBC Canada’s estimated 2024 earnings.

RBC expects it would reap about $740-million of pre-tax cost savings annually, and incur acquisition and integration costs of $1-billion. RBC will also purchase HSBC’s preferred shares and subordinated debt for a total of about $2.1-billion.

Why selling HSBC Canada, the country’s most lucrative bank deal in decades, is unusually challenging

HSBC Canada has $134-billion of assets as of Sep. 30, with about 130 branches and 4,200 full-time staff.

The banks expect the transaction would close late in 2023. At that time, RBC expects its common equity Tier 1 (CET1) ratio - a key measure of its capital reserves and resilience - would be above 11.5 per cent.

As part of the agreement, all of HSBC Canada’s earnings from June 30 until the deal closes would accrue to RBC.

- James Bradshaw

Shaw Communications Inc. (SJR.B-T) was narrowly higher with the premarket release of fourth-quarter 2022 fiscal results.

The Calgary-based company reported earnings per share of 34 cents, missing the Street’s expectation by 2 cents and 16 cents less than the same period a year ago. Revenue slid 1.5 per cent year-over-year to $1.356-billion.

Shaw Communications wireless growth slows as company awaits verdict on $26-billion takeover by Rogers

Shaw also said it remains optimistic the company will be able to complete its deal to be bought by Rogers Communications Inc. despite opposition from the Competition Bureau.

Brad Shaw, the company’s executive chair and chief executive, says the company remains committed to the deal that would also see Videotron Ltd. acquire Shaw’s Freedom Mobile wireless business.

See also: Competition Tribunal hearing shifts to potential cost savings generated by proposed Rogers-Shaw merger

Shares of gold miners gained on Tuesday, tracking rising prices for the precious metal as a retreating U.S. dollar made it cheaper for consumers.

Gold prices rose 1 per cent on Tuesday, helped by a retreat in the dollar and hopes for less aggressive rate hikes from the U.S. Federal Reserve going forward.

Spot gold gained 0.6 per cent to $1,751.21 per ounce and U.S. gold futures settled 0.5 per cent higher at $1,748.4.

The U.S. dollar was steady, while benchmark 10-year yields were off their highs for the day.

With the bulk of rate hikes from the Fed being priced in, investors are now seeing light at the end of the tunnel in terms of an end to the hikes, said David Meger, director of metals trading at High Ridge Future.

TSX-listed stocks rising include Barrick Gold Corp. (ABX-T) and Newmont Corp. (NGT-T) as well as Agnico Eagle Mines Ltd. (AEM-T) and Kinross Gold Corp. (K-T)

Up to Monday’s close, spot gold had fallen 4 per cent year-to-date, while gold futures lost 4.1 per cent.

U.S.-listed shares of Chinese companies such as Alibaba Group Holding Ltd. (BABA-N), Pinduoduo Inc. (PDD-Q) and Inc. (JD-Q) rose after regulators lifted a ban on equity refinancing for listed firms, the latest support measure for a cash-squeezed sector that has been a key pillar of the world’s No. 2 economy.

The move will make it easier for developers to obtain fresh funding, analysts said, but reviving demand from homebuyers would remain challenging amid persisting COVID-19 curbs that have triggered rare street protests across many Chinese cities.

The shares and bonds surged after China Securities Regulatory Commission (CSRC) said on Monday it would broaden equity financing channels, including private share placements for China and Hong Kong-listed developers, lifting a ban in place for years.

The move is the latest regulatory easing as Beijing steps up support for the property business, a sector that accounts for a quarter of the Chinese economy. Many developers have defaulted on debt obligations and have now halted construction.

Hubei Fuxing Science and Technology Co said late on Tuesday it plans to launch a private placement of shares to fund real estate development, becoming the first China-listed developer to announce such a move after lifting of the ban.

The company will target 35 investors in the share sale, which will not exceed 30 per cent of the current capital base, it said in an exchange filing. That size is worth as much as 1.37 billion yuan (US$191-million) as per its current market value.

China’s CSI 300 Real Estate Index closed up 9.4 per cent, marking its biggest daily jump ever.

On the decline

Suncor Energy Inc. (SU-T) declined 1.7 per cent on Tuesday after announcing before the bell it has decided to keep its Petro-Canada retail business after a comprehensive review that included what it would mean to sell the operations.

The company said instead it will look to improve its retail operations including expanding strategic partnerships in non-fuel related businesses such as quick service restaurants, convenience stores, loyalty partnerships and energy transition offerings.

Suncor undertook a review of Petro-Canada after reaching a deal earlier this year with activist investor Elliott Investment Management LP, which had expressed frustration with the company’s performance.

Andrew Willis: Fate of Petro-Canada rests with Suncor’s need for speed

Suncor chair Mike Wilson says the company’s board concluded that keeping and optimizing the retail business will generate the highest long-term value for shareholders.

“Petro-Canada is a unique, differentiated, and strategic asset due to its strong national network and best in market consumer brand and loyalty program,” Wilson said in a statement.

The review included an analysis of the business, including an assessment of the value of Suncor’s integrated model, studies of the future of retail in Canada and Petro-Canada’s growth plans.

Suncor said the board also reviewed preliminary indications of interest in the retail business.

On Tuesday, it also forecast higher capital expenditure for 2023 as the energy company counters high inflation, rising interest rates and geopolitical unrest.

Suncor had already raised its full-year 2022 capital expenditure forecast once in August, citing inflationary pressures and increased spending on safety improvement.

The company said higher capital expenditure also includes costs related to its acquisition of Canadian miner Teck Resources’ stake in the Fort Hills oil sands project in Alberta, which is expected to close in 2023.

Suncor estimates 2023 spending to be between $5.4-billion and $5.8-billion, higher than its 2022 forecast of $4.9-billion to $5.2-billion.

The Calgary-based firm expects total 2023 production to be between 740,000 and 770,000 barrels of oil equivalent per day (boepd), compared with 740,000-760,000 boepd a year earlier.

Bank of Nova Scotia (BNS-T) lost 2.5 per cent on Tuesday after reporting lower fourth-quarter profit as expenses increased and the bank set aside more money to cover loans that could default, putting pressure on earnings from retail and investment banking.

Scotiabank earned $2.1-billion, or $1.63 per share, in the quarter that ended Oct. 31. That compared with $2.6-billion, or $1.97 per share, in the same quarter last year.

The bank’s fiscal fourth-quarter results included several charges that reduced earnings, including a $340-million loss from the sale of investments in Venezuela and Thailand, a $66-million restructuring charge, and $98-million in costs to expand the bank’s Scene+ loyalty program.

On an adjusted basis, the bank said it earned $2.06 per share, which was ahead of the 1.99 per share anticipated by analysts, according to Refinitiv.

Scotiabank kept its quarterly dividend unchanged at $1.03 per share.

Canada’s third-largest bank is the first major lender to report earnings for the fiscal fourth-quarter, and came into earnings season facing comparatively low expectations from analysts. The bank is also in the midst of a transition in leadership, as incoming chief executive officer Scott Thomson prepares to join as the bank’s president on Dec. 1. He will formally take over as CEO on Jan. 31, when current CEO Brian Porter retires.

Banks to give financial update in Q4 results ahead of possible recession next year

In a research note, Credit Suisse analyst Joo Ho Kim said: “While Scotia’s Q4 results were ahead of us and consensus, the underlying results were weaker than expected as the beat was largely driven by lower taxes, and PTPP earnings growth actually missed our estimates (reflecting lower than expected NII in particular). Importantly, all bank margins were down again this quarter (4 basis points quarter-over-quarter), as better than expected performance from International Banking (up 13 basis points quarter-over-quarter) was offset by lower-than-expected results from Canadian Banking (down 3 basis points quarter-over-quarter). Loan growth was solid including very strong commercial loan growth from Canada (up 25 per cent year-over-year), as well as good continued pick-up in overall growth from IB (up 12 per cent year-over-year, constant currency). Operating leverage was negative at the all-bank level (down 1.7 per cent) for the quarter, reflecting the miss against our NII estimate.”

- James Bradshaw

TC Energy Corp. (TRP-T) dropped over 6 per cent after it forecast higher adjusted core earnings for 2023 and a significant rise in costs related to its long-delayed Coastal GasLink pipeline.

First announced in 2018, the 670-km pipeline is being built to transport natural gas to the LNG Canada facility on the west coast of British Columbia, Canada’s first LNG export terminal.

It has faced several delays including COVID disruptions, demonstrations from environmentalists and indigenous First Nations as well as disputes with the Canadian government over costs.

Costs related to the project had prompted TC Energy to raise its 2022 capital expenditure forecast to about $9.5-billion in November. It now expects “a material increase” in the project’s funding requirements too as the company continues to grapple with rising labor costs and shortages.

The pipeline is about 80-per-cent complete with mechanical in-service expected by the end of next year, TC Energy said.

The company expects adjusted core earnings for 2023 to be 5 per cent to 7 per cent higher than the previous year.

Pipeline operator TC Energy posts higher quarterly profits, looks to sell $5-billion of assets next year

Despite the challenging macro environment, about 95 per cent of the projected adjusted core earnings are under long-term take-or-pay contracts which insulate it against rising inflation and interest rates, the company said.

“Although Phase One of Coastal GasLink has been challenged by cost performance, we do not expect any impact on the sustainability of our dividend growth rate of 3 per cent to 5 per cent or our ability to accelerate our deleveraging target from 2026,” Chief Executive François Poirier said in a statement.

Bombardier Inc. (BBD.B-T) finished 0.3 per cent lower after it said on Tuesday that NetJets, operator of the world’s largest fleet of private jets, will buy four Global 8000 business jets from the planemaker in a deal valued at $312-million.

The Berkshire Hathaway-owned (BRK.B-N, BRK.A-N) private aircraft firm will be the fleet launch customer for the Global 8000s, and operate 24 of the new line by upgrading its entire in-service Global 7500 fleet.

Montreal-based Bombardier launched the Global 8000, its new long-range business jet, in May this year to compete better at a time when private jet operators are expanding their fleet to meet growing demand from the ultra-rich.

“With inventory sold out through 2023 in the U.S., we are continuing to invest in further expansion for prospective owners in North America and across the globe,” said Patrick Gallagher, NetJets’ president of sales, marketing, and service.

The order for the four aircraft is valued based on 2022 list prices, Bombardier said.

Canadian National Railway Co. (CNR-T) was flat, finishing down 0.1 per cent after announcing late Monday Ed Harris is returning as executive vice-president and chief operating officer.

The Montreal-based rail company says Mr. Harris will succeed Rob Reilly effective immediately.

CN president and CEO Tracy Robinson said in a statement that Mr. Harris will provide leadership and experience as CN moves into the next phase of its operating plan, and help provide mentorship for the next generation of leaders.

The company says Mr. Harris has worked in the industry for 40 years, holding leadership positions at CN as well as at Canadian Pacific Railway, CSX and Illinois Central.

CN says Mr. Reilly joined CN in 2019 and led the company through the pandemic and supply chain challenges.

The company did not provide any details around the reason for Mr. Reilly’s departure.

Desjardins Securities analyst Benoit Poirier said: “We do not view this announcement as a sign of needed change at CN resulting from negative circumstances, but rather as a continuation of the positive operational improvements since Mr. Harris and new CEO Tracy Robinson joined the fold. CN’s train speed in 3Q averaged 20.2 miles per hour, up 5 per cent quarter-over-quarter following a 16-per-cent increase in 2Q. Both train speed and dwell metrics posted their best 3Q numbers in three years, and are on pace to deliver similar results thus far in 4Q. Ms. Robinson has made operations improvement through scheduled railroading and car velocity a top priority since joining CN (visited hump yards and flat switching yards, worked on train departures, connections, block integrity, etc), so this latest move does not come as a surprise.”

See also: CN Rail, CP Rail post record grain shipments in October as farmers bounce back from last year’s drought

Saputo Inc. (SAP-T) fell 5.9 per cent after Spruce Point Capital Management LLC, a New York-based investment management firm, issued a report saying the company’s shares face up to 40-60-per-cent downside risk, or $13.75 – $20.50 per share.

In Crying Over Spilled Milk, it said:Spruce Point is incredulous when it comes to Saputo’s 2022 Promise and claims that “Business Ethics and Transparency” carry the lowest weight towards ESG matters. We believe that without unquestionable and irreproachable ethics and transparency, all other matters related to financial and environmental reporting should be heavily discounted and viewed with extreme skepticism. Saputo claims to have made progress in increasing transparency and disclosures to investors last fiscal year”

With files from staff and wires