Author: Consultant

Tourmaline Oil Corp. TOU-T +2.46%increase has signed an agreement to buy Bonavista Energy Corp. in a deal worth $1.45-billion.

Under the acquisition, Tourmaline Oil will pay $725-million in shares and $725-million in cash, less Bonavista’s net debt at closing.

Tourmaline says the deal represents an important component of the company’s ongoing consolidation strategy, adding decades of inventory and supplementing its existing Deep Basin assets in Alberta.

The deal is expected to close in the second half of November, subject to customary regulatory and stock exchange approvals.

In addition to the acquisition, Tourmaline announced that it will increase its quarterly base dividend effective in the fourth quarter to $1.12 per share on an annualized basis, up from $1.04 per share.

The Tourmaline board also declared a special dividend of $1 per share that will be paid on Nov. 1, to shareholders of record on Oct. 24.

Summary

• Bank of Nova Scotia is a quality high-yielding pick for patient investors due to its strong track record and steady revenue growth.
• BNS has a sizable footprint in emerging growth Latin American countries, contributing to diversification.
• Recent financial performance has shown signs of improvement, with increased revenue and a strengthened balance sheet.
• I am Gen Alpha. I have more than 14 years of investment experience, and an MBA in Finance. I focus on stocks that are more defensive in nature, with a medium- to long-term horizon. I provide high-yield, dividend growth investment ideas for the investing group Hoya Capital Income Builder.

It’s been a while since I last visited Bank of Nova Scotia (NYSE:BNS) with a Buy rating back in February of this year. Like most stocks in this year’s volatile market, BNS has seen its ups and downs, and has fallen by 3.2% since my last piece, but the total return was flat thanks to dividends paid along the way. As shown below, BNS currently trades at the low end of its 52-week range and in this article, I discuss why BNS remains a quality high-yielding pick for patient investors.

Why BNS?

Scotiabank has been around for over a century and is the third largest Canadian bank by assets. Like its Canadian peers, BNS is known for having its conservative lending practices, and this served shareholders well during trying times, including the Great Financial Crisis, when many U.S. banks were forced to suspend their dividends. BNS, on the other hand, hasn’t missed a dividend payment since 1833.

BNS is also the only Canadian bank to have a sizable footprint in emerging growth Latin American countries, where it gets nearly 40% of its total revenue. This combined with a strong presence in its home market has resulted in steady revenue growth over its history. As shown below, despite hiccups in 2008-2009 and 2016, BNS’s revenue is up substantially over the past 20 years.

Recent financial performance for BNS has been challenged by high inflation and interest rates, which has raised cost of funding and general economic uncertainty. However, it appears that BNS is climbing out of its trough. This is reflected by fiscal Q3 results, in which revenue is up 2% QoQ and 4% YoY. While diluted EPS was down by 18% YoY, it’s showing signs of improvement as it was up by 2% QoQ, due to moderating expense growth (flat on a QoQ basis).

As shown below, BNS continues to attract a growing and diversified deposit base across geographies and customer segments, with total deposits landing at CAD $685 billion in the last reported quarter.

BNS has also taken steps to strengthen its balance sheet, with its Tier 1 Capital ratio improving to 12.7% at the end of Q3. This is a notable 220 basis points higher than the 11.5% from when I last visited the stock in February, and it sits well above the 6% minimum requirement by Canadian banking regulators. Moreover, BNS continues to carry an A+ credit rating from S&P and has a high liquidity coverage ratio of 133%, up from 122% in the prior year period.

Concerns around BNS stem from moderating loan growth in its home market, as consumers are more cautious in the current environment and management noted that it’s being more selective and deliberate in its approach towards new originations. With potential for a recession due to high interest rates, BNS may be subject to a higher loss rate. This is reflected by management raising the provision for credit losses, which negatively impacted earnings last quarter.

Nonetheless, BNS’s international exposure may help to stem potential losses in any one market, as reflected by recent double-digit profit growth in the teens in Mexico, Caribbean, and Central America. BNS also remains a fundamentally efficient bank through contributions from digital assets such as Tangerine and from the higher margin wealth management business. This is reflected by BNS’s Net Income Margin of 28%, sitting above the 26% financial sector median.

Meanwhile, BNS currently sports an appealing 6.4% dividend yield that’s well-covered by a 58% payout ratio. As shown below, the yield currently sits at the high end of BNS’s range over the past 20 years.

Lastly, I continue to find BNS appealing at the current price of $47.83 with a forward PE of 9.2, sitting well below its normal PE of 11.95, as shown below. The current valuation already bakes in the full-year 18% EPS decline this year, and analysts expect a resumption to growth over the next 2 years, with EPS estimated to growth annually between 5% and 11%.

BNS also appears to be undervalued compared to its large peers, with a TTM PE of 9.9, compared to 10-12% for Toronto-Dominion Bank (TD), Bank of Montreal (BMO), and Royal Bank of Canada (RY), as shown below.

Investor Takeaway

In conclusion, Bank of Nova Scotia stock remains a solid pick for those seeking yield from a quality Canadian banking giant. Its diversified presence across geographies has always been a plus, and is likely to help in mitigating potential losses due to economic headwinds in any one area. With an attractive dividend yield of 6.4% and trading at a forward PE of 9.2, BNS is an appealing pick for patient investors who are willing to pick up the stock during the down cycle before the economic picture improves.

This article was written by

Gen Alpha

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Monday October 16

Japan industrial production

(8:30 a.m. ET) Canada’s manufacturing sales and orders for August. Estimates are month-over-month increases of 1.0 per cent and 1.1 per cent, respectively.

(8:30 a.m. ET) Canadian wholesale trade for August. Estimate is a gain of 2.6 per cent from August.

(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for October.

(10:30 a.m. ET) Bank of Canada’s Business Outlook Survey and Survey of Consumer Expectations for Q3.

Earnings include: Charles Schwab Corp.; Rio Tinto ADR

—

Tuesday October 17

Germany’s ZEW Survey

UK employment

(8:15 a.m. ET) Canadian housing starts for September. Estimate is an annualized rate decline of 1.0 per cent.

(8:30 a.m. ET) Canada’s CPI for September. The Street expects a flat reading month-over-month and up 3.9 per cent year-over-year.

(8:30 a.m. ET) Canadian international securities transactions for August.

(8:30 a.m. ET) Canadian new motor vehicle sales for August. Estimate is a year-over-year jump of 20.0 per cent.

(8:30 a.m. ET) U.S. retail sales for September. The Street is projecting a rise of 0.3 per cent from August (or 0.1 per cent after excluding automobiles and gas).

(9:15 a.m. ET) U.S. industrial production and capacity utilization for September.

(10 a.m. ET) U.S. NAHB Housing Index for October.

(10 a.m. ET) U.S. business inventories for August. Estimate is a rise of 0.3 per cent from July.

(4 p.m. ET) U.S. foreign purchases of U.S. securities for August.

Earnings include: Bank of America; Bank of NY Mellon; Goldman Sachs Group Inc.; JB Transport Services Inc.; Johnson & Johnson; Lockheed Martin Corp.; Prologis Inc.; United Airlines Holdings Inc.

—

Wednesday October 18

China GDP, industrial production, retail sales and fixed asset investment

Euro zone CPI

(8:30 a.m. ET) U.S. housing starts for September. The Street expects a rise of 7.6 per cent on an annualized rate basis.

(8:30 a.m. ET) U.S. building permits for September. Consensus is an annualized rate decline of 5.9 per cent.

(2 p.m. ET) U.S. Beige Book is released.

Earnings include: Abbott Laboratories; A&W Revenue Royalties Income Fund; Procter & Gamble Co.; Morgan Stanley; Netflix Inc.; Tesla Inc.; U.S. Bancorp

—

Thursday October 19

Japan trade deficit

(8:30 a.m. ET) Canadian industrial product and raw materials price indexes for September. Estimates are month-over-month increases of 0.1 per cent and 3.0 per cent, respectively.

(8:30 a.m. ET) U.S. initial jobless claims for week of Oct. 14. Estimate is 214,000, up 5,000 from the previous week.

(8:30 a.m. ET) U.S. Philadelphia Fed Index for October.

(10 a.m. ET) U.S. existing home sales for September. The Street is forecasting an annualized rate slide of 4.0 per cent.

(10 a.m. ET) U.S. leading indicator for September. Consensus is a decline of 0.4 per cent from August.

(12 p.m. ET) U.S. Fed chair Jerome Powell speaks at the Economic Club of New York.

Earnings include: AT&T Inc.; Blackstone Inc.; Centamin PLC; Mullen Group Ltd.; Philip Morris International Inc.; Taiwan Semiconductor Manufacturing Co. Ltd.; Union Pacific Corp.

—

Friday October 20

Japan CPI

Germany PPI

(8:30 a.m. ET) Canadian construction investment for August.

(8:30 a.m. ET) Canadian retail sales for August. The Street is projecting a decline of 0.2 per cent from July.

(8:30 a.m. ET) Canadian monthly credit aggregates for August.

Earnings include: American Express Co.; Schlumberger NV

Published: 10/13/2023 3:15 PM ET

Oil prices rose sharply on Friday amid rising concerns about the potential impact of the ongoing Israel – Hamas war on global crude supplies.

Israel’s military today called for all civilians of Gaza City, more than 1 million people, to relocate south within 24 hours.

The Israeli military said it would operate “significantly” in Gaza City in the coming days and civilians would only be able to return when another announcement was made.

The United States’ decision to tighten sanctions against Russian crude exports has also raised supply concerns.

The U.S. Treasury Department said that it has imposed its first set of sanctions on two companies that shipped Russian oil in violation of a multinational price cap of $60 a barrel.

Russia is the world’s second-largest oil producer and it is feared that the new sanctions could tighten global supply.

West Texas Intermediate Crude oil futures for November ended higher by $4.78 or about 5.8% at $87.69 a barrel. WTI crude futures gained about 6% in the week.

Brent crude futures for December settled at $90.89 a barrel, gaining $4.89 or about 5.7%.

Baker Hughes said today that the number of active rigs drilling for oil in the U.S. rose by 4 to 501 this week.

“Crude prices are surging as the oil market will remain very tight given escalating geopolitical risks could threaten supplies and after banks continue to describe the US economy as resilient,” says Edward Moya, Senior Market Analyst at OANDA.

Canada’s national real estate association has downgraded its outlook for home sales and prices in 2023 for the second time this year as higher borrowing costs deepen the slowdown in the country’s housing market.

The number of home resales fell 1.9 per cent in September over August after removing seasonal influences, with activity dropping in the country’s two most expensive markets of Toronto and Vancouver, according to the Canadian Real Estate Association. It was the third straight month of declines and came as the number of sales listings continued to increase nationally, rising by 6 per cent month over month.

The home price index, which removes the highest priced transactions, was $753,900 in September. That was 0.3 per cent lower than August and the first decrease since March when buyers rushed to make their purchases amid a lull in interest-rate hikes. The market has since slowed with Bank of Canada’s interest-rate hikes in June and July, as well as its message that rates will stay elevated until inflation slows.

“The summer rate hikes also rekindled uncertainty that more were still to come,” CREA said in a release.

That uncertainty along with the months-long slump in activity led the association to revise its forecast down. It now expects 449,614 home resales this year, a 10-per-cent decrease over 2022, and the average price to settle at $680,686, a 3-per-cent decline from the previous year. Overall, the latest forecast is 3 per cent lower than the July outlook.

September is typically a time of the year when sales activity picks up. But CREA said prospective buyers are waiting for more evidence that interest rates will not go higher than the current 5 per cent.

“Expect a quieter than normal winter with all eyes on the Bank of Canada,” association senior economist Shaun Cathcart said in a news release. The central bank has two remaining scheduled interest-rate announcements at the end of October and early December.

Although more homeowners are putting their properties up for sale, Mr. Cathcart said the volume of new listings is only now back at normal levels compared with spring when they were at a 20-year low. “The market is not being flooded with supply,” he said.

Mortgage borrowers have been under increasing stress with the 475-basis-point spike in interest rates over the past 18 months. Three of Canada’s largest lenders have disclosed that about 20 per cent of their residential mortgage borrowers – representing nearly $130-billion in loans – are seeing their balances grow as their monthly payments no longer cover all the interest they owe.

The increase in new listings could be a sign that homeowners are unable to make higher mortgage payments and are forced to sell their properties. But Mr. Cathcart said if these were forced sales, there would typically be more sales along with price drops. “Instead, prices are holding firm almost everywhere and sales are slowing,” he said.

Published: 10/12/2023 6:12 AM ET

Gold prices rose on Thursday to test the $1,900 mark as the dollar and Treasury yields continued to fall on dovish Fed commentary.

Spot gold rose 0.4 percent to $1,881.12 per ounce, while U.S. gold futures were up 0.3 percent at $1,893.60.

The dollar held close to a two-week low after Boston Fed president Susan Collins said Wednesday that rates are at or near their peak, though further tightening could be warranted depending on incoming information.

Her Atlanta counterpart Raphael Bostic said the U.S. central bank need not raise borrowing costs any further and he sees no recession ahead.

U.S. Fed Governor Christopher Waller said the Fed can watch and see if further hikes are needed.

On Wednesday, the Fed’s September meeting minutes echoed the recent message of data dependence, with around two-thirds of Fed members predicting one more rate hike before the end of 2023.

Investors now await U.S. weekly jobless claims figures and the consumer price inflation report later in the day for further direction.

According to a Bloomberg survey, U.S. CPI is forecast to have slowed to an annual rate of 3.6 percent in September from 3.7 percent the previous month.

There is some upside risk after September’s U.S. producer inflation figures came in much stronger than expected

Published: 10/11/2023 5:52 PM ET

The Canadian market ended on a strong note on Wednesday, led by gains in communications, consumer discretionary and financials sectors.

Several stocks from real estate, utilities, consumer staples and materials sectors too posted impressive gains.

The benchmark S&P/TSX Composite Index ended with a gain of 162.64 points or 0.83% at 19,663.84, gaining for a fourth straight session.

The market gained amid another drop in bond yields on hopes the tightening cycle by the Federal Reserve is nearing its end.

Spin Master Corp (TOY.TO) climbed 6%. The company said it has agreed to buy U.S.-based toy maker Melissa & Doug for $950 million in cash.

Cogeco Communications (CCA.TO) surged nearly 5%. CGI Inc (GIB.A.TO), Alimentations Couche-Tard (ATD.TO), Canadian Tire Corporation (CTC.TO), Franco-Nevada Corporation (FNV.TO) and BRP Inc (DOO.TO) gained 2 to 2.5%.

MTY Food Group Inc (MTY.TO) ended 3.7% down despite reporting higher earnings. The company reported third-quarter net income of $38.9 million or $1.59 per diluted share, compared to $22.4 million, or $0.92 per diluted share in the third quarter of the previous financial year.

Lithium Americas Corp (LAC.TO) ended nearly 8% down. Stelco Holdings (STLC.TO), Tecsys (TCS.TO), Parex Resources (PXT.TO) and Bausch + Lomb (BLCO.TO) ended lower by 3.3 to 3.9%.

On the economic front, data from Statistics Canada showed the total value of building permits in Canada rose by 3.4% from a month earlier to $11.9 billion in August 2023, rebounding from an upwardly revised 3.8% drop in the prior month

Oil prices rose about 1 per cent on Thursday, reversing earlier falls, on expectations that U.S. interest rates had peaked, but a lower demand growth forecast for next year from the International Energy Agency and higher U.S. inventories limited further gains.

Brent futures rose $1.01, or 1.20 per cent, to $86.83 a barrel at 0952 GMT, while U.S. West Texas Intermediate crude gained 73 cents, or 0.90 per cent, to $84.22 a barrel.

World shares rose and the dollar and bond market borrowing costs held steady ahead of U.S. inflation data and European Central Bank meeting minutes that will add to the hotly-contested debate on where interest rates are heading.

Lower U.S. bond yields are stoking risk appetite, which in turn is supporting equities and oil, UBS analyst Giovanni Staunovo said.

“Both the Saudi energy minister Prince Abdulaziz and Russia’s deputy prime minister Novak reiterating their ongoing collaboration to balance oil markets are helping,” he added.

Saudi Energy Minister Prince Abdulaziz bin Salman said in a Russian TV interview that it was necessary to be “pro-active” on bringing stability to the oil market, which had recently been hit by concerns that the Israel-Hamas war could disrupt supplies from the Middle East.

Russian Deputy Prime Minister Alexander Novak also reassured markets, saying the current oil price factored in the Middle East conflict and showed that the risk from it was not high.

Meanwhile, the IEA lowered its oil demand growth forecast for 2024, suggesting harsher global economic conditions and progress on energy efficiency will weigh on consumption.

The agency now sees 2024 demand growth at 880,000 barrels per day (bpd), compared with its previous forecast of 1 million bpd.

However, it raised its 2023 demand forecast to 2.3 million bpd from a forecast of 2.2 million.

U.S. data which showed a big build in crude and gasoline inventories tempered the rally.

U.S. crude oil stockpiles swelled by about 12.9 million barrels, according to market sources citing American Petroleum Institute figures on Wednesday.

This was much higher than the 500,000-barrel gain expected by analysts in a Reuters poll.

Gasoline inventories also rose by 3.6 million barrels, the data showed, a stark contrast from the 800,000-barrel drop expected by analysts and continued to stoke worries of slowing fuel demand in the U.S.

Markets will be awaiting further inventory data cues from the U.S. Energy Information Administration (EIA) due later in the day at 1500 GMT.

Exxon Mobil Corp.’s XOM-N -3.59%decrease acquisition of Pioneer Natural Resources PXD-N +1.44%increase in a US$59.5-billion megadeal is being seen by some as a major vote of confidence in fossil fuels that also bodes well for the Canadian oil patch.

The U.S. multinational oil giant announced the all-stock deal Wednesday, its largest buyout since acquiring Mobil two decades ago and a move that will create a colossal hydraulic fracturing (fracking) operator in West Texas.

Observers have framed the deal as Exxon doubling down on fossil fuels at a time when the world is seeking to transition to lower-carbon energy sources in order to slow the pace of climate change.

Dan Tsubouchi, Calgary-based principal and chief market strategist with SAF Group, said in an interview that Exxon is clearly confident that global demand for oil will remain strong in at least the immediate future.

“They’re spending US$60-billion today,” Tsubouchi said. “They wouldn’t do that if they didn’t see at least a 10-to-15-year window for oil.”

That “stronger for longer” outlook is due to a variety of factors, Tsubouchi said, including the fact that many of the technologies necessary for the energy transition – including hydrogen development, sustainable aviation fuel and more – have been slower to roll out than advocates may have hoped.

That combined with the war in Ukraine has led to global energy security concerns, spiking prices and leaving oil and gas companies flush with cash.

Exxon itself posted unprecedented profits last year of US$55.7-billion, breezing past its previous record of US$45.22-billion in 2008 when oil prices hit record highs.

“Demand for oil is not going away as quickly as people assumed,” Tsubouchi said, adding that in the wake of the Exxon-Pioneer merger, he wouldn’t be surprised to see an uptick in merger and acquisition activity north of the border.

In particular, he said such deal-making might occur in the Montney region of northeast B.C. and northwest Alberta, where horizontal fracking technology similar to what Exxon will be using in the Permian opens up opportunities for companies to increase production in a relatively cost-efficient manner.

Tsubouchi said oil sands bulls could also be looking to increase production in the coming years, though he said that will likely be accomplished through incremental add-ons to existing facilities – not through the whole-scale construction of a new oil sands mine.

“These companies aren’t going to go into something like the megaprojects of the past,” he said.

“But they will look at short-cycle projects where they can take advantage of a 10-15 year window, just like Exxon has.”

Canadian oil and gas executives have been vocal recently about they what they see as an increasingly rosy outlook for fossil fuels.

Last week, Enbridge CEO Greg Ebel spoke to the Toronto Region Board of Trade about why he thinks a Canadian liquefied natural gas (LNG) industry could be part of the solution for the global energy crisis.

And Suncor Energy Inc.’s SU-T -0.39%decrease chief executive Rich Kruger told analysts on a conference call earlier this year that while lower emissions energy is important, the way for Suncor to win in today’s business environment is to focus on its core oil sands assets.

“Outwardly, the oil bulls are growing,” said Duncan Kenyon of Investors for Paris Compliance, which takes financial positions in Canadian companies in an effort to hold them accountable to their net-zero emissions promises.

“It’s obviously great times for them right now and there are short-term gains to be had.”

But Kenyon said the very fact that companies are favouring short-cycle, disciplined growth over big-spend, long-cycle projects shows there is still a lot of uncertainty in the industry about the pace and scale of the coming energy transition and how the oil industry will be affected.

“I think the industry and investors in this sector are really struggling to understand what’s happening and how to prepare for these emerging risks,” he said.

“And these are emerging risks that have the potential to flip-flop the energy system on its head, and fossil fuels end up on the bottom.”

With files from The Associated Press.