Pescod on Crude

CRUDE OIL
$72.75
+1.33
At $70 a barrel for crude oil there are more
than a few people in the oil patch a little grateful
for what is going on there considering how ugly
things are in natural gas.

With 4 million barrels of production locked
in, in Saudi Arabia and inventory still signifi-
cantly above average levels in the United
States, the price of oil still looks like it could be
vulnerable to some bumps along the way but
for those looking for a little hand-holding about
oil this is probably the chart that will do it for
you.

This shows the production coming out of
Cantarell which was the second biggest oil field
in the world named after a fisherman who found
oil floating to the surface offshore Mexico.
Cantarell is the jewel in the crown of Mexico’s
national oil company Pemex.
The chart to the left shows you what is hap-
pening to this old producer...it’s declining pro-
duction recently at unbelievable rates of as
much as 35,000 barrels a month. One doesn’t
know if it could continue to drop at a level like
this but if it did this field would stop producing
within two years.

That has many implications first of all for
Mexico, suggesting that Mexico an exporter of
oil wouldn’t be able to do that within two years,
plus the national economy of Mexico is so
much dependent on the one third of its’ reve-
nue it collects from Pemex that if Pemex is in
trouble try and balance Mexico’s budget.
Cantarell is all about peak oil and suggests
that down the road oil does have a future.

Globe/CP say Delphi sees a future in owning Fairmount

Globe/CP say Delphi sees a future in owning Fairmount

2009-08-24 05:04 ET - In the News

Also In the News (C-FMT) Fairmount Energy Inc

The Globe and Mail reports in its Saturday edition that Delphi Energy is buying Fairmount Energy. A Canadian Press dispatch to The Globe reports that Delphi will swap 0.3571 of a common share for each common share of Fairmount.

The deal is worth $14.5-million, including the assumption of $7.3-million of debt and transaction costs of $1.4-million. The friendly bid will be mailed to Fairmount shareholders on Aug. 28 and will expire 35 days later, the Calgary-based oil patch junior said. The deal is backed by the boards of both companies.

Directors and senior executives of Fairmount holding more than 23.4 per cent of the company's shares have agreed to tender their stock to the bid under lockup arrangements. Delphi stock jumped a nickel Friday to close on the Toronto Stock Exchange at $1.05.

Fairmount stock shed half a penny to close on the TSX at 39.5 cents. Schachter Asset Management president Josef Schachter recommended buying Delphi stock in The Globe on Nov. 19 when it could be had for $1.20. Aston Hill Financial vice-president Joanne Hruska was bullish on Delphi in The Globe on Dec. 7, 2007, when it was worth $1.72. Mr. Schachter said buy Delphi in The Globe on June 5, 2007. It was then trading at $1.96.

Beaten down Weston, Loblaw cheap at the moment

Beaten down Weston, Loblaw cheap at the moment


Dianne Maley
Wednesday, August 26, 2009

The Source:

Paul Gardner, partner and portfolio manager, Avenue Investment Management Inc.

The Idea:

Buy shares of George Weston Ltd.

Given how much stocks and bonds have rallied from their recent lows – 40 per cent to 50 per cent in some cases – good buys are difficult to find, Mr. Gardner says.

“You have to hope the economy comes out of recession because that's what the markets are pricing in.”

An ideal investment candidate would be a company with a strong balance sheet, trading at an attractive price that has the ability to grow. “That's where Weston comes in,” he says. At just shy of $57 a share and yielding 2.6 per cent, “It's a value trade,” he says. Weston shares traded in the $80 range as recently as 2007.


Weston's main asset is the grocery retailer, Loblaw Cos. Ltd., which accounts for about $44 of Weston's $57 share price, he estimates. Weston has $10 a share in cash, largely from the sale of its U.S. bakery business. Add about $2 a share for the real estate under Loblaws stores and, “You're getting what's left, the bakery business in Canada, for next to nothing.” That business earned $1.50 of Weston's earnings before interest, taxes, depreciation and amortization (EBITDA) last year.

Loblaw, at about $33, is also looking cheap, Mr. Gardner figures. After subtracting the value of the company's real estate, which accounts for about $25 of a Loblaw share, “in a way you're getting Loblaw for next to nothing” too, he says. Loblaw shares have been held back over the past few years because of management and supply chain problems, issues Mr. Gardner thinks have been largely resolved. This year, the shares have been lifted along with the market but are still well below their historic highs.

“They've worked on the supply chain and warehousing problems, renovated stores and initiated real change on the operational side,” he notes. The company's second quarter earnings “surprised on the upside,” although it warned of a difficult second half.

Loblaw is also expanding into the ethnic food market, announcing the purchase of T&T Supermarket, with 17 stores, in July. (Loblaw also owns Zehrs, Fortinos and Real Canadian Superstores.) T&T's big takeout Chinese food business “gives them some higher margins.”

The Payoff:

A potential double-digit capital gain in a relatively short time if the economy recovers, price cutting abates and Loblaw and George Weston shares come to be looked on more favourably by the market, Mr. Gardner says. What would a more “normal valuation” for Weston be?

“I don't like to put a number on it, but you could see a 30-per-cent return over the next year and a half.”

The Big Risk:

Fierce price cutting among grocery retailers squeezes profits more than expected at Loblaw as the economy struggles, leading to a long stretch of disappointing earnings and depressing the share price of both Loblaw and its parent, Weston.

Why Listen to Paul Gardner?

Mr. Gardner has more than 20 years' experience in the investment business, much of it on the fixed-income side. Avenue Investment Management is an independent investment counsellor and portfolio manager for individuals with $500,000 or more to invest.

© Copyright The Globe and Mail

TSX may rise with commodity prices, eyes CIBC

CANADA STOCKS-TSX may rise with commodity prices, eyes CIBC


08:12 EDT Wednesday, August 26, 2009

TORONTO, Aug 26 (Reuters) - Toronto's main stock index may rise at the open on Wednesday, bolstered by higher commodity prices, while investors will also digest quarterly results from Canadian Imperial Bank of Commerce .

The S&P/TSX composite index <.GSPTSE> finished Tuesday's session 1.21 percent higher at 10,920.53, boosted by financials as Bank of Montreal reported solid results.

Quarterly results from the country's big banks this week remain the key focus for market direction. Financials are the most heavily-weighted group on the TSX, about a third of the weighting.

Here is some of the news that may affect the market.

CIBC

Canadian Imperial Bank of Commerce, the country's fifth-largest bank, reported a higher quarterly profit, mainly on strong performance of its core retail and wholesale banking businesses and lower expenses. [ID:nN24133906]

ELDORADO GOLD

Eldorado Gold Corp said it will buy Sino Gold Mining for C$2.0 billion, in an all-share transaction to give it greater exposure to China's growing gold industry. The offer was worth A$7.24 per Sino Gold share, a premium of 21.3 percent, based on the companies' closing share prices on Tuesday. [ID:nSYD472825]

COMMODITIES

Gold rose towards $950 an ounce as the dollar weakened against the euro, boosting interest in the precious metal as an alternative asset. [ID:nLQ723905] Oil prices recovered early losses but remained below the 10-month high hit in the previous session. [ID:nSP475982]

CAE

Flight simulator maker and aviation training company CAE Inc said it received a series of military contracts valued at more than C$100 million. Key customers included Eurocopter, Airbus Military and L-3 Communications Holdings Inc , the company said. [ID:nBNG489391]

RESEARCH ROUNDUP:

Following is a summary of research actions on Canadian companies reported by Reuters on Wednesday. For more, please double click [RCH/CA]

* Genuity raises Bank of Montreal price target

* RBC raises Alimentation Couche Tard price target

($1=$1.09 Canadian)

(Reporting by Ka Yan Ng, Editing by Chizu Nomiyama)