By Jeff Sanford
Toronto, Ontario — January 2, 2017 — The financial news is starting to flow again after the slow down of the holidays. This time around we look at AutoCanada’s ongoing consolidation of the dealership business, Uni-Select’s expected earnings in 2017, and much, much more!
– As the new year dawns a report from Europe notes that, “…global stocks rose on the first day of 2017.” Trading volumes were thin, obviously, as many markets remained closed on January 2. But the bump in prices is good news, hopefully a harbinger of what is to come in the year ahead.
– The major North American equity markets finished off the final trading day of 2016 down somewhat. In Toronto the S&P/TSX composite index was down 134.53 points on Friday to 15,287.59. That level represents a 17.5 percent increase in the index over the entire course of 2016. The Dow Jones industrial average was also down on the final trading day, falling 57.18 points to 19,762.60. Markets enjoyed a late-in-the-year run-up after Donald Trump was elected on November 8th. Overall the Dow was up 13 percent over all of 2016.
– AutoCanada was the subject of a positive US-based investment analysis last week. An analyst south of the border had made a New Year’s resolution, “… to expand my horizons and learn what new companies are out there …” The analyst went on to explain that he had, “… decided to get a leg up by looking at AutoCanada Inc.” As the analyst explained, the stock represents, “… an interesting story. The company is currently in the process of consolidating the car dealership business in Canada. As of the end of 2014, the company owned a total 48 car dealerships, which increased to 54 by the end of 2015. As of the end of the third quarter of 2016, the number totaled 60 dealerships.”But the analyst goes on to note that, “In 2014, shares touched a high above $90 per share on the expectation of very large increases in profit due to the consolidation. It didn’t happen.”
The price of oil plunged. The Alberta economy slowed. The expected round of consolidation was delayed, according to the report. “When a company opts for the strategy of consolidation to become a dominant market player, the reality is that consolidation takes time. The integration takes even longer. If everything goes well, then the profitability will follow … Whether investors like it or not, there will be purchases of dealerships that take much longer to bear fruit than what is otherwise expected. In the past year, this has led AutoCanada to write down a significant amount of goodwill and/or intangible assets, which caused a significant loss to shareholders,” says the analyst. “The good news is, the loss was due to a write down and not due to a decrease in the company’s operations. Although things did slow down in western Canada, the business remains excellent, and AutoCanada continues to sell and service automobiles without fail.” That is, the company is ready to grow in the years ahead as the economy recovers. “Given the dividend cut earlier this year, this situation could be similar to a loaded spring ready to bounce at some point down the road. In tough times, most people will favour fixing an old vehicle instead of buying a new one. But that can’t go on forever, and eventually, demand will come back.”
– On the last day of 2016, analysts at Desjardins upped their expectations for earnings for Uni-Select in the fourth quarter of the year. A research report issued on Friday says it expects Uni-Select to, “… post earnings of $0.43 per share for the quarter, up from their prior forecast of $0.41.” Desjardins currently has a ‘buy’ rating on the stock and a price target of $36.00. Looking forward to the year ahead, Desjardins analysts issued estimates for Uni-Select’s full-year earnings in 2017. According to the report the company can be expected to generate earnings of $1.94 over the course of the coming year. For the full-year in 2018 earnings can be expected to come in at $2.02 per share.
– 2016 was a tough year for Fenix Parts, but that’s somewhat expected for a relatively new company. After an IPO in the spring of 2015, the company’s share price has dwindled. Complex accounting procedures around the merger of the several different companies that were brought together under the Fenix brand has led to some setbacks at the new company. But at least one headline recently suggested that Fenix heads, “…into the beginning of 2017 hoping that the recent 6 month downtrend will reverse itself.” Over the past year the price of the stock wound down to less than three dollars a share. But according to the firm that aggregates price targets from investment banks, “… the consensus price target for the company is $7.69.” Let’s hope the company can fulfil those expectations in the year to come.
Related Market Notes
– The loonie rose by half a cent to USD 74.48 cents on the last day of trading in 2016. Over the course of the year, the Canadian dollar rose from USD 68.21 cents on January 20, 2016 to a high of USD 80.02 cents in April 2016.
– Could the Canadian natural gas sector enjoy a solid 2017? Some think so. According to one story, “Many think natural gas is poised for another strong year in 2017 …” An analyst from Canadian investment advisor, GMP FirstEnergy said in a year-end note to clients that, “For Canadian natural gas producers, the future has brightened considerably from what seemed to be bleak prospects just 12 months ago.” According to the analyst, natural gas is in for “a multi-year bullish price run.” That the price of natural gas will rise in 2017 will not be good news for collision repair centres that heat with natural gas. But the rise in the price of this commodity would be good for Alberta. Another investment bank recently released a report on natural gas claiming that surplus storage in the US was “evaporating” and that, “storage levels in the country were set to dip below their five-year average …” If this were to happen it would be “… another bullish signal for prices.” Higher prices would be a boon for Canadian natural gas producers.
Commenting on the coming years of 2017 and 2018 the analyst suggested that these could, “… prove to be one of the most immense challenges in terms of growing U.S. domestic natural gas supplies since the late 1960s.” The GMP analyst suggests prices could improve in the future he is not “convinced that American natural gas producers can meet the rising demand for the commodity on their own.” According to the analyst, “The supply story remains the foundation of our price bullish view on the market for the next two years at a minimum …”
The price of natural gas has more than doubled since 2015. Natural-gas futures advanced 59 percent over 2016 to end the year at $3.724. “Nearly half of those gains came just in the fourth quarter and its five-month winning streak is the longest since 2011 … The market’s gains are its largest for any year since 2005,” according to a report. Overall, natural gas finished just behind finished just below zinc (which was up 60 percent in 2016) as, “… the best performing commodity of 2016.”
