Canadian Pacific Spinoffs

[selkirk]

CP Canadian Pacific is one of Canada's oldest companies and had one of the longest listed stocks on NYSE.
CP is comprised of : (like most of the energy stocks and other stocks I mention these trade on the TSE/NYSE)

1. PanCanadian PCE
2. CP ships TEU
3. Fairmont Hotels and Resorts
4. Fording Coal
5. CP Rail

will try to discuss these companies and follow them as at times they could offer value.

start with CP ships.

CP Ships.
Global shipping is being impacted by an over supply of ships, also do to the slowing economy the amount of containers (container ships needed) has been reduce. this also effect the rates which effects revenue and returns.

also the industry in the next 3-5 years will probably grow at 5-7% (not counting a prolonged world economic slowdown).

so slow growth plenty of competition and in trouble due to a slowing economy what is there to like.

1. for starters management has over 130 years of experience (top 6).

2. company has a book value of $13.65 US (August), so it trades at roughly .5

3. their debt at about 6-7%, this rises to around 28-30% if you figure out lease adjusted debt. the industry figure is 58-62%.

4. They should earn $1.30 this year 2001 and $1.15 2002. (note these numbers can change quickly in a bad econmic climate) 2000 earnings came in at $1.64

5. they have diversity in shipping markets, and top 10 customers only account for 13-14% of volumes and 8% of revenue. they serve a diverse group of industries.

6. they probably will pay a div/yield of .16 yielding around 2%.

7. the company has a program to replace the fleet over 4 years $800million-$1 billion and $250 million on containers. about half of the program is done the rest may be delayed due to the economic conditions, or at a slower pace.

8. The company plans to own more of their ships than charter them 70% owned 30% chartered, this will help earnings in 2003 by 25-45 million or .26-50 in higher profits per share.

currently at $8.25 US $13.01 cdn. will just follow it for now, but an interesting stock that I may purchase around $7.25-$7.50US.
for now will just watch it, sometimes a stock will be forgotten or dumped, hopefully that when I can buy them.

thanks
selkirk

 

[selkirk]

the next company we will look at is Fairmont Hotels and Resorts. (FHR/trades on TSE/NYSE)

Fairmont Hotels and Resorts
prices US $ unless stated $1US=$1.56cdn

earnings per share 2000 2001E 2002E
$1.08 (.86/.80) .85/.91
cashflow $1.58 $.95/$1.10 $1.45/$1.65

no dividends will be paid out until maybe 2003/2004 when a dividend is announced it will be small less than a 1% yield, probably below .5%

book value September $15.60

company has announced a share buyback of 10% of outstanding shares, it is thought that this will be be carried out close to this amount. (note: some companies announce a share buyback but it is mainly an empty press release as less than half of the shares allowed are bought back, and often none are...enough of that rant).

the company is renovating some hotels and resorts mainly in Acapulco (Fairmont Pierre Marques, in Bermuda, Banff. The amount spent will depend on economic condition. In 2002 the company will spend roughly $110-$125 million on Renovations and expansions.

Most of the revenue comes from owned hotels, only about 8% of the revenue comes from managed operations. The company in the future wishes to increase this amount over time.


52 week high/low
$26.05/$13.18US $40/$20.49

this stock should be higher in the next two years but in the short term because of a slowing economy and 9-11 their may be more bad short term news in the lodging sector.

currently trades at $26.90cdn. $17.10
would look at buying this stock at $15 or below. currently would rate it a good holding but with some downside, at around $15 be much better value.

also looking at Four Seasons but it still seems expensive.

Fairmont has a large holding and sell some of their mature properties into the Legacy Reit which trades on the TSE.

thanks
selkirk

 

[selkirk]

so far have talked about the shipping company and Fairmount hotels and resorts. at this time prefer the shipping company to the hotel company in terms of valuation.

should also state own some CP so I own all of these companies but in small amounts.

Fording Inc.
Fording is a coal company, below is a brief explanation of the company found on their website and on some (most) of their press releases. following the artilce have some information on their earnings and future earnings.


Fording Inc. is Canada's largest export-coal producer. It has the capacity to supply more than 20 million tonnes of metallurgical and thermal coal products to world and Canadian markets.

Fording's 3 British Columbia metallurgical-coal mines have more than 1 billion tonnes of coal reserves and resources. The metallurgical coal produced at these mines is used to make coke for the international steel industry.

In the province of Alberta, Fording operates 2 thermal coal mines that supply coal to electric utilities for power generation.

The company also has 2 other subsidiaries - NYCO Minerals, Inc. in the United States and Minera NYCO S.A. de C.V. in Mexico - which produce the industrial minerals wollastonite and tripoli. Wollastonite is a non-metallic industrial mineral used in making ceramics, plastics, coatings and construction materials. NYCO also produces tripoli, a soft abrasive mineral used in soaps and cleansers, and buffing and polishing compounds.

2000 Revenues: $890+ million

Employees: 1,900+

Fording $23-$24cdn. (1.56cdn=1US trades on TSE,NYSE)

in CDN $

Fording made .42 in Q3, this was below first call consensus of .46

price of the coal increase 23.2% compared to last year Q32000 to $42.31US to $34.33US

shortfall in earnings came from shipments (normal fluctuations), this will improve in the next two quarters.

rail costs increased by 5%

Fording has sold all of its production (most of) Q4 2001, Q1 2002 a total of 8.3MMT MMT=Million metric tons. this past quarter the company and sold 3.4 MMT.

the company will pay a 12.5 cents quarterly dividend. stock will yield just over 2% at current prices.

earnings per share 2001E = $1.75-$1.82 2002E $2.25-$2.40.

Fording coal is a good coal company, and a company that should always be considered when looking for a mining company.

along with Alcan, Alcoa, Inco, ect.

below $23cdn. would rate it a buy. downside $18cdn. upside $27.50

thanks
selkirk

 

[selkirk]

PanCanadian is an energy company it is not the cheapest but it has a great land position and some good projects in the future, so it should be watched if you want a very good domestic energy company.
PCE/TSE PCX/NYSE

the following are just (most are) estimates and can vary, hopefully they end up being close.

PanCanadian Energy (cdn$) 1.56=1US
book value $15.75cdn.
div .40cdn .26US they will probably not increase their dividend for the next few years.
cash flow/share 2000=$9.74 2001 $10 2002 $6.75
earnings/share 2000 $4.09 2001 $5 2002 $2.70

debt stands at $1.3billion cdn. debt to 2002cf is less than .7X

next and last one is CP Rail which is looking cheap, of all the railways in North America CP and CNR (CNI) still seem to be the cheapest, not complaining, though.

thanks
selkirk

 

[selkirk]

CP is the final spinoff company with a small writeup.

CP has over 14,000 miles of track
Operating ratio in the first half of 2001 was 80.7
compared to CNR (CNI) of 70.3.

Operating ratio = is operating costs as a percentage of revenues. the lower the number the better.

CP will improve the operating ratio, over time, and is already on a valuation basis cheap.

CP earnings/share 2001 = $1.52-$1.56US 2002 = $1.55-$1.61US

CP is one of the cheapest railway stocks in terms of valuation, of the North American railway stocks. CNR (CNI) is also a well run railway and is cheap compared to other railways.

CP is not a screaming buy, but around this price is not bad value, will buy more if it falls below $16 US.

Own a position in CP and CNR (CNI); at times will write covered calls on half of the position.

thanks
selkirk

 

[selkirk]

will go over the prices and how these stocks are performing over time, some have had good runs in the past few weeks.
thanks
selkirk

 

[1837]

Thanks to you selkirk to take time to write us all these info. Don't worry, we read them!

 

[dawgball]

Always great info, selkirk. Always like seeing what you have your eye on.

------------------
Sic 'em
dawgball

 

[selkirk]

thanks 1837 and Dawgball, these companies will be worth watching going forward.

there was a very good article in Barrons Oct, 29, on pages 17-21 on the CP spinoffs. written by Harlan S. Byrne gives a brief overview of the companies along with some analysts comments, in general a positive article on the prospects of all of the spinoffs.

Recap of prices
$1cdn=$1.57 all of these stocks trade in Cdn. and the US

CP SHIPS TEU
first write up $8.25US $13.01cdn.
currently $8.74US $13.95Cdn.
comments:buy around $7.25-7.50US
has had a good run, went down friday hopefully some more downside.

Fairmount
first write up $26.90 $17.10US
currently $28.25cdn $17.65US
comments : buy below $15 US.
long term winner may have negative news due to September and slowing economy. hopefully drifts lower.

Fording
first write
currently $26 $16.24
comments : would buy around $23cdn. has held up well, $23-$24 not bad value.

PanCanadian PCE PCX
currently $44.70 $28.11
comments : had a nice day Friday, good stock, not the cheapest but good projects coming on stream, worth buying in the low $40s. $42. cdn. if energy sector sells off this is one that should be purchased.

CP
currently $28.70 $18.01
on Friday CP increased $1.20Cdn. .83US CNR (CNI) also had a good day up $1.80US $2.47cdn. both of these stocks are cheap when compared to other NA railways.
stated would buy CP around $16 US. but it is good value here.

CNR (CNI) would offer good value around $60cdn. great value below $55 cdn. but it looks like it is going higher.
own CP and CNR (CNI) both good railways and cheap in comparison to others.

CP will improve their operating ratio.

note: own all of these companies as I owned some CP before the spinoff. largest position is CP Rail.

thanks
selkirk

 

[selkirk]

note: last couple of days have added to my position in CP ships, the stock has a decent valuation and lately has been showing strength.
two biggest positions of the CP spinoffs are CP Rail and CP ships.
Hopefully PanCanadian can go down slightly.

have written some puts on Bombardier (BBD.B-TSE) July $10 cdn., yesterday. perphaps a mistake but my dollar cost will be $8.80 cdn. if it gets put to me, so thought it was worthwhile.

BBD.b make small airplanes and is also involved in trains, (subway cars,etc.) Most of the profits come from the planes (small regional jets) so they have fallen 50% since September 11, still a well run company, and still profitable. have a write up on the company soon.

thanks
selkirk

 

[selkirk]

Just a note CP ships earlier this month bought Nordana Line (Caribean ship company). small purchase $25/$30 million.
revenues from the purchase roughly $70mn, with profit of roughly 7% EBITDA.

small good purchase will not effect earnings, for 2001,2002.

CP rail at over $31 cdn. has had a nice run, would not buy at this position, sold some above $32, would consider buying below $28 cdn.

looking at PCE PanCanadian as the energy stocks have been beaten down the last week.

thank
selkirk

 

[redsfann]

 

[selkirk]

will provide some earnings updates on the CP spinoffs.

sold half of my position in CP ships came out with earnings and they were weaker than I expected, do expect current earnings will be down when compared to last years however may be worse than I expected. close $16.50cdn $10.27US

CP Rail sold off some above $32, it is currently at $31.56 if it falls below $30 will look to add to the position.

in the thread stated how I would buy PanCanadian on weakness added slightly to the position but should have added more. Alberta Energy and PanCanadian are talking merger, would create a $20 billion company market cap Cdn. PanCanadian ran up so just holding my position for now, seems to be in play. fully valued. will wait

Fairmount is at $37.45cdn. $23.35 US good hotel and resort chain they will also increase the percentage of revenue they receive from managment fees, still believe it is fully valued of coarse that is what I thought when it was at $32.50 cdn.

As for Fording coal have a small position along with Fairmont two smallest position, both would be more interesting on weakness. (to buy)


CP rail is still biggest position followed now by PanCanadian. small positions in CP ships, fairmount, Fording.

stop is set on PanCanadian at $42.50 cdn (currently $45.20cdn.) on half my position.


by the way GO STEELERS!!
thanks
selkirk