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A survey of North American equities heading in both directions

On the rise

Shares of National Bank of Canada (NA-T) increased 2.6 per cent after it reported higher second-quarter profit that beat analysts’ estimates on a boost from its capital markets division, even as the lender set aside more money for loans that could default.

National Bank earned $906-million, or $2.54 per share, in the three months that ended April 30. That compared with $832-million, or $2.34 per share, in the same quarter last year.

On an adjusted basis, the bank said it earned $2.54 per share. That topped the $2.42 per share analysts expected, according to S&P Capital IQ.

“National Bank generated strong financial results for the second quarter of 2024, reflecting the disciplined execution of our strategy across business segments and the diversified earnings power of the bank,” chief executive officer Laurent Ferreira said in a statement. “In what remains an uncertain macroeconomic environment, we are committed to maintaining our prudent approach to capital, credit, and costs and to generating long-term value for our shareholders.”

The bank raised its quarterly dividend by 4 cents to $1.10 per share.

National Bank is the fourth major Canadian bank to report earnings for the second quarter. Bank of Montreal also reported earnings Wednesday, posting profit that fell below analysts’ expectations. Toronto-Dominion Bank and Bank of Nova Scotia posted second-quarter results that beat analysts’ estimates. Royal Bank of Canada and Canadian Imperial Bank of Commerce report on Thursday.

- Stefanie Marotta

Ag Growth International Inc. (AFN-T) soared over 11 per cent after the Globe’s Andrew Willis reported it recently rebuffed an unsolicited takeover offer made in the wake of a slide in the Winnipeg-based farm equipment manufacturer’s share price, a sign of the challenges facing a mid-sized player in an agricultural sector dominated by far larger companies.

The board at Ag Growth International, branded as AGI, turned down a bid from an industry rival priced at a 35-per-cent-plus premium to where the company’s stock is trading, according to a source familiar with the process. The source declined to name the potential buyer, and The Globe and Mail is not naming the source because they were not authorized to speak for the company.

An AGI spokesperson had no comment on reports of offers for the company, which sold $1.5-billion worth of crop and fertilizer processing, handling and storage equipment last year.

AGI, which has an $877-million market capitalization, is a target for deeper-pocketed rivals after a drop in its stock price left it valued at a significant discount to peers in the farm equipment industry, according to investment bankers and analysts.

AGI’s stock price has fallen 25 per cent since the company announced weaker-than-expected financial results on April 29. In a report, analyst Tim Monachello at ATB Capital Markets said investors are concerned the industry is heading for a cyclical downturn, with U.S. farmers spending less than expected on equipment. He said the stock price also fell on concerns AGI could face delays on major commercial projects.

In a research report released Wednesday morning, National Bank Financial analyst Maxim Sytchev said: “For us, we believe selling now at $62/sh would not be in the best interest of long-term shareholders.”

“Ag cycle is one of the most depressed parts of the market now; buying into the likely bottom makes sense to us. While the everything rally continues, the ag cycle has been left in the dust. We believe we are closer to the bottom here, creating an interesting / compelling risk / reward skew for the sector and AFN in particular. We reiterate Outperform rating and $77 target price.”

U.S. trading app Robinhood Markets (HOOD-Q) increased after it launched its first-ever share buyback plan on Tuesday, saying it would repurchase US$1-billion worth of stocks as it looks to grow beyond its startup phase.

The company, best known for being the go-to app for retail traders, has been rolling out a series of new features to cater to its customers’ demand for sophisticated products.

The buyback underscores that Robinhood is adopting a similar approach to win over investors who might be looking for signs of maturity before backing the 11-year-old company. Buybacks are typically associated with older companies.

The repurchases would be executed over a two to three year period starting from the third quarter, Robinhood said.

Companies often buy back stock when they believe they are undervalued. Robinhood’s shares have gained nearly 61 per cent so far this year up to Tuesday’s close, but were still 58 per cent lower than the peak they touched in August 2021.

Since then, the company has bulked up its offerings. Earlier this month, it said over 1 million customers had joined the waitlist for a credit card it launched for its premium Gold subscribers in March.

It also rolled out a retirement account in late 2022 and is expected to launch trading in futures and index options later this year.

On the decline

Bank of Montreal (BMO-T) fell 8.9 per cent after it reported higher second-quarter profit but missed analysts’ estimates as the lender set aside more money for loans that could default.

BMO earned $1.87-billion, or $2.36 per share, in the three months that ended April 30. That compared with $1.03-billion, or $1.26 per share, in the same quarter last year.

Adjusted to exclude certain items, the bank said it earned $2.59 per share. That fell below the $2.77 per share analysts expected, according to S&P Capital IQ.

“We’ve delivered on our commitments with expenses down, compared with last year and last quarter,” BMO chief executive officer Darryl White said in a statement. “Our balance sheet strength is evident in a CET1 ratio above 13 per cent, robust customer deposit growth and appropriate provisioning for the credit environment, which continues to be impacted by prolonged high interest rates and a slowing economy.”

The bank raised its quarterly dividend by 4 cents from the prior quarter to $1.55 per share.

In the quarter, BMO set aside $705-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $658-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, BMO had set aside $1.02-billion in provisions.

- Stefanie Marotta

Bitfarms Ltd. (BITF-T) closed narrowly lower after confirming an acquisition proposal from Riot Platforms Inc. (RIOT-Q) for a price of US$2.30 per share and announcing a Special Committee of the Board, comprised solely of independent directors, determined it “significantly undervalues the Company and its growth prospects.”

“In order to advance discussions with Riot in a meaningful manner, the Special Committee requested customary confidentiality and non-solicitation protections to which Riot did not respond,” it added.

Colorado-based Riot also disclosed a 10-per-cent stake it recently accumulated in BITF to become its largest shareholder.

“The offer price represents a 20-per-cent premium to BITF’s share price on April 19, the day prior to RIOT’s initial proposal, which was rejected ‘without engaging in substantive dialogue’ with the Company,” said ATB Capital Markets analyst Martin Toner in a research note.

“RIOT’s offer represents US$950-million in equity value. A challenge to valuing BITF, RIOT, or the offer, is the companies’ ambitious and partially funded growth plans. In our acquisition model, we account for the remaining dilution from both companies’ growth plans, and calculate a post-growth EBITDA run rate at current BTC prices and current global hash rate. The model implies significant value creation from the deal, to which we apply a discount given BITF’s riskier geographies. This morning, Bitfarms announced that it has received additional unsolicited expressions of interest, and that it has formed a Special Committee to conduct a strategic review process. We continue to believe that at the pre-deal share price, BITF can fund its growth plan, and create shareholder value with strong execution. Our 12-month target price uses a multiple on 2025 EBITDA and assumes growth in the global hash rate and higher BTC prices. Discounting our target price to the present results in a fair value for BITF shares of US$4.50, therefore we do not believe the proposed US$2.30 offer reflects fair value.”

Emera Inc. (EMA-T) declined almost 3 per cent after announcing private equity firm KKR would acquire an indirect minority stake in its Labrador Island Link (LIL) clean energy transmission project for $1.19-billion.

Commissioned in 2023, the LIL is a 1,100-kilometre high voltage transmission line that delivers renewable energy to Newfoundland, Nova Scotia and beyond.

The transaction, which is expected to close on or about June 4, is made of $957-million in cash and $235-million for taking over Emera’s obligation to fund the rest of the initial capital investment.

Proceeds from the deal will be used to reduce Emera’s debt and support its investment opportunities in its regulated utility businesses, the companies said.

ConocoPhillips (COP-N) was lower by over 3 per cent after it said on Wednesday it would buy Marathon Oil (MRO-N) in a US$22.5-billion all-stock deal.

Under the terms of the agreement, Marathon Oil shareholders will receive 0.2550 shares of ConocoPhillips for each share of Marathon Oil common stock, a 14.7-per-cent premium to the closing share price of Marathon Oil on Tuesday.

The U.S. oil and gas industry has been riding a consolidation wave over the last two years, with 2023 being one of the most active where M&A deals worth US$250-billion were struck by companies. The momentum has carried over into this year as stock market’s continue to boom.

However, the consolidation activity is attracting increased antitrust scrutiny, with the FTC reviewing multi-billion dollar deals, including those involving Chevron, Diamondback Energy, Occidental Petroleum and Chesapeake Energy.

Bloomberg News reported in October last year that Devon Energy had held preliminary talks about combining with Marathon Oil.

Marathon Oil’s first-quarter oil production was down 2.7 per cent to 181,000 barrels per day (bpd), compared with a year earlier.

It has operations in the Bakken basin in North Dakota, in the Permian basin in North Delaware, and in South Texas’ Eagle Ford basin - basins which are prime targets for producers looking to increase their inventory.

ConocoPhillips said that it expects to achieve the full US$500-million of cost and capital synergy run rate within the first full year following the closing of the transaction.

BHP Group (BHP-N) dipped after Anglo American rejected its last-ditch request for more time to discuss a $49 billion takeover offer, dismissing it as highly complex and likely ending a five-week pursuit by the bigger rival.

Anglo had granted BHP a one-week extension until 4 p.m. GMT on Wednesday to its original May 22 deadline to submit a binding offer, after rejecting a third takeover proposal that it dismissed as difficult to execute.

BHP still has until then to make a firm offer or walk away. It declined immediate comment, but has previously indicated it would not make a hostile bid.

London-listed Anglo agreed to hold talks with BHP to try to iron out concerns over the structure of the proposed deal, namely its condition that Anglo unbundle its South African platinum and iron ore units before the takeover.

In an earlier statement, BHP said it needed more time to engage with Anglo, while outlining commitments to minimise regulatory risk in South Africa and saying it would offer a break fee if the deal failed to gain regulatory approvals.

Those commitments included job security for employees in South Africa. BHP also said it would shoulder the costs of increased South African employee ownership that is expected to be required in any demerger.

But Anglo said those commitments were not enough.

“BHP continues to restate its belief that the risks of its complex structure are not material, yet has repeatedly and consistently stated both publicly and during the engagements that it is unwilling to amend its proposed structure to assume these risks,” Anglo said in its statement.

Anglo was founded in Johannesburg in 1917 and employs more than 40,000 South Africans, so any withdrawal would be a further economic blow to the country whose miners have been cutting jobs and investment as platinum especially falls out of favour.

Shares of American Airlines (AAL-Q) slumped on Wednesday after the carrier cut its profit forecast for the current quarter, citing weakening pricing power despite expectations for record travel demand in the summer season.

American Airlines was down on Wednesday, dragging peers Delta Air (DAL-N), Southwest Airlines (LUV-N) and United Airlines (UAL-Q), which all fell.

The Fort Worth, Texas-based company revised its forecast on Tuesday and now expects second-quarter adjusted earnings in the range of US$1.00 to US$1.15 per share, compared to previous expectations of US$1.15 to US$1.45 per share.

The carrier has made a strategic shift away from lucrative corporate travel in a bid to grow its market share in smaller markets. However, excess capacity in such markets has been hurting its pricing power.

Jefferies, which had upgraded the company earlier this year over cost controls, said it was downgrading the stock to “hold” as “the strategy has not gone as planned.”

The forecast cut comes just after the Memorial Day weekend, considered to be the beginning of the U.S. summer travel season - the most profitable season for airlines

“A significant miss driven in part by close in bookings puts AAL’s ability to reap the full value of a robust summer flying season in greater doubt,” Bernstein analyst David Vernon said in a research note.

BlackRock’s iShares Bitcoin Trust (IBIT-Q) was down despite Bloomberg News reporting on Wednesday it has become the world’s largest fund for the world’s largest cryptocurrency, racking up nearly US$20-billion in total assets since listing in the U.S. in January.

The exchange-traded fund held US$19.68-billion of token on Tuesday, overtaking Grayscale Bitcoin Trust’s (GBTC-A) US$19.65-billion, report said, citing data compiled by Bloomberg.

When the nine new ETFs launched in January, Grayscale’s fund had about US$29-billion in assets.

Market analysts have been keeping a keen eye on the relative flows into BlackRock’s ETF and out of the Grayscale Bitcoin Trust since U.S. regulators approved the launch of nine new ETFs and the conversion of Grayscale’s publicly-traded trust into an exchange-traded product on January 10.

The Securities and Exchange Commission, which is led by crypto skeptic Gary Gensler, had rejected spot bitcoin ETFs for more than a decade over market manipulation worries, but approved them in January after Grayscale Investments won a court challenge last year.

This has proved a short-lived victory for Grayscale, which has been hit by steady outflows since its newly converted ETF began trading January 11.

With files from staff and wires

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/06/24 4:00pm EDT.

SymbolName% changeLast
Ag Growth International Inc
American Airlines Gp
Bank of Montreal
Bhp Billiton Ltd ADR
Bitfarms Ltd
Delta Air Lines Inc
Emera Incorporated
Grayscale Bitcoin Trust
Ishares Bitcoin Trust
Marathon Oil Corp
National Bank of Canada
Southwest Airlines Company
Riot Platforms Inc
Robinhood Markets Inc Cl A
United Airlines Holdings Inc

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