Maple Leaf Memo
Stephen Harper is a skilled driver with a subpar car. Stephen Dion is at the wheel of a superior machine but can’t read the road the way the prime minister can. It’s a formula that will limit Harper’s majority ambition but could produce a surprising win for a guy who even some in his own party think should be manning the pit crew, at best.
Harper himself had to overcome a rocky beginning to his leadership tenure. He also faced resistance from his own ranks. And he’s climbed all the way to the top of a strong minority government (oxymoron aside), doing enough to satisfy a Canadian public leery of another political season and not yet ready—if it will ever be—to elect a Harper-led Conservative majority.
Short of Dion committing a huge gaffe (he’s already made some $400-haircut-level moves, such as being photographed eating a hot dog with a knife and fork), Harper will have to build support among voting groups where he’s weak–women and urban voters primarily–over time. His own people acknowledge that the 2006 election victory had more to do with Liberal corruption and other screwups than Conservative policy and overall appeal.
But the prime minister, once caricatured by political opponents as a far-right ideologue–the “grim reaper of Canadian politics,” according to one Toronto <i>Globe & Mail</i> columnist–cut some deals, spread some cash and even broke some promises on his way to the center. He called Quebec “a nation within Canada,” staving off a divisive parliamentary vote and lift.
The SES Research Best Prime Minister poll showed Harper with a huge lead over Dion, 42 percent to 16 percent. Only 40 percent of Liberals surveyed said Dion would make the best prime minister. Harper was second for Liberals with 26.4 percent. Harper was also the second choice for the New Democratic Party and the Bloc Quebecois.
But in trying to satisfy everyone, Harper may have maxed out short of the goal. The left is unhappy over perceived failures on climate change and childcare services. Those also happen to be critical issues in ridings (the Canadian equivalent of a US congressional district) Harper needs to win.
The right wasn’t pleased by the absence of broad tax cuts in the 2007 budget and also senses he used the same-sex marriage simply as a political tool to keep a critical voting bloc in place. And there are the income trust voters, who are probably more right than left but plenty of both.
According to Faron Ellis, a political scientist at Lethbridge College in Alberta, Harper’s blind spot is on the right in western Canada. Ellis, a longtime researcher of Canada’s conservative parties, told the Canadian Press that Harper can’t take for granted his base of fiscal and social conservatives because many of them are “bitterly disappointed” in his performance.
Ellis said it would be perilous for Harper to think that fiscal and social conservatives will vote for his party because they have no alternative. “If the Conservatives believe all Westerners are a captive audience, they’re mistaken,” he noted.
The Liberals are now aggressively pushing their version of an income trust tax—no new trusts, a 10 percent tax on distributions refundable to Canadian investors—as part of an attack on Flaherty’s overall stewardship of the economy. Harper might have hoped to slice off left-leaning voters along his way to a majority, but Dion and Liberal finance critic John McCallum have turned those tables and are stoking conservatives’ ire in an effort to retake control of parliament.
“We’re going to fight this,” McCallum told a town hall gathering on Bay Street. “We’re going to fight it through an election.”
The Roundup
First quarter earnings reports begin in earnest this week. Below you’ll find information on actual reporting dates and how to access company conference calls. And we’ll have summaries for those trusts reporting this week in next week’s issue.
Also, CIBC’s annual energy conference wrapped up last week. The agenda included presentations by several Canadian Edge-covered trusts. You can access the full ledger and links to presentations here; the price to access the presentations is a registration.
Conservative Portfolio
Algonquin Power Income Fund (APF.UN, AGQNF) let its CD5.47 per unit (CD208 million) offer for Clean Power Income Fund (CLE.UN, CEANF) expire last week after Clean’s board unanimously approved a CD6.39 per unit (CD226 million) bid from Macquarie Power & Infrastructure Income Fund. Algonquin didn’t want to chase the assets, showing once again the discipline that makes it a reliable cash generator. Algonquin Power Income Fund remains a buy up to USD9.
AltaGas Income Trust (ALA.UN, ATGFF) is holding an annual and special unitholders meeting Thursday at 5 pm ET. A webcast of the meeting will be accessible through the trust’s Web site at http://www.altagas.ca/html/2007_AGM.htm or at http://services.choruscall.com/links/alta070426.html. A replay will be available for three months and a transcript of the meeting will be posted at www.altagas.ca under “Speeches and Presentations.” Continue to buy AltaGas Income Trust up to USD26.
Arctic Glacier Income Fund (AG.UN, AGUNF) is holding its annual unitholders meeting Thursday in Winnipeg, but the wonders of technology make it so you can surf in live via webcast at www.arcticglacierinc.com. The full meeting will be streamed live and will also be archived on the Web site. After the meeting, CEO Keith McMahon and CFO Doug Bailey will offer their thoughts on 2006 and take a look forward to the rest of 2007. <b>Arctic Glacier Income Fund is a buy up to USD12.
Bell Aliant Income Fund (BA.UN, BLIAF), like Algonquin Power, refused to overpay, and so it lost out in a bidding war for Amtelecom Income Fund to Bragg Communications. Bell Aliant Income Fund is a buy up to USD30.
Boralex Power Income Fund (BPT.UN, BLXJF) is trading above its Oct. 31, 2006, close, a price recovery reflecting market sentiment about a possible buyout as well the strength of the underlying business. The income fund has been up for sale since March 2, and Boralex has expressed interest, albeit of the most general kind at this point. If there’s a takeover, you’re going to cop a nice premium; if not, you’ll continue to benefit from a solid, sustainable dividend. Boralex Power Income Fund is a buy up to USD9.
TimberWest Forest Corp (TWF.UN, TWTUF) named John Hendry vice president of real estate, a sign the company is getting serious about the results of a review of its Vancouver Island, British Columbia, land holdings. TimberWest will release first quarter numbers Thursday, and CEO Paul McElligott and CFO Bev Park will discuss the results Friday at 11 am ET.
The dial-in phone number is 800-298-3006. You can access a recording of the call at a later time at 800-558-5253; enter the passcode 21334144. The recording will be available until May 11, 2007. TimberWest will also broadcast the conference call live on the Internet at www.timberwest.com. The webcast will be archived and available for listening for 90 days. Buy TimberWest Forest Corp up to USD14.
Aggressive Portfolio
Penn West Energy Trust (PWT.UN, NYSE: PWE) has planned a $475 million private placement of unsecured debt following the recent closing of an oil and gas asset acquisition. The placement consists of $160 million of 5.68 percent notes due 2015, $155 million of 5.8 percent notes due 2017, $140 million of 5.9 percent notes due 2019 and $20 million of 6.05 percent notes due 2022. Buy Penn West Energy Trust up to USD33.
Precision Drilling (PD.UN, NYSE: PDS) will release 2007 first quarter results Wednesday and has scheduled a conference call and webcast for 2 pm ET. The conference call dial in numbers are 877-461-2814 or 416-695-5261. The live webcast will be available at www.precisiondrilling.com under “Investor Relations” then “Webcasts.”
An archived version will be available for approximately 30 days after the live webcast. An archived recording of the conference call will also be available approximately one hour after the completion of the call until May 2, 2007, by dialing 888-509-0081 or 416-695-5275 followed by the passcode 642926. Precision Drilling is a buy up to USD30.
How They Rate
Oil & Gas
PrimeWest Energy Trust (PWI.UN, NYSE:PWI) announced that CFO Dennis Feuchuk has tendered his resignation effective July 6, 2007, to pursue new business ventures. Douglas Fraser will assume CFO duties effective June 1, 2007. For the period June 1 to July 6, 2007, Feuchuk will remain with PrimeWest in an advisory capacity. Sell PrimeWest Energy Trust.
Gas/Propane
Spectra Energy Income Fund (SP.UN, SPFFF) will hold a conference call and live audio webcast to discuss first quarter results on Monday, May 7, at 9 am ET. The call will be hosted by CEO Doug Haughey.
To participate in the conference call, dial 416-644-3421 or 800-731-5319. A webcast of the call will be available at www.spectraenergyfund.com. A replay of the conference call will be available as of 12 pm ET time the same day until 12 am ET, May 14, 2007. To access the replay, dial 416-640-1917 or 877-289-8525, followed by the passcode 21227450#. Spectra Energy Income Fund is a buy up to USD11.
Wellco Energy Services Trust (WLL.UN, WLLUF) is cutting distributions by more than 20 percent in order to finance a deal to acquire <i>Sanitherm Engineering Ltd</i>, a private Vancouver water treatment systems company, for about CD9.75 million.
Wellco said it will save cash by reducing payments to unitholders by 2 cents Canadian per unit per month, effective April 1, to 7 cents Canadian a unit. The reduction will keep Wellco’s annualized distribution rate to within its desired range of 60 percent to 65 percent of funds from operations.
The Sanitherm acquisition will cost CD9.75 million, payable in cash, plus working capital adjustments and transaction costs. The transaction has been approved by Wellco’s board and is subject to regulatory approval and the completion of formal documentation.
The takeover is slated to close April 30. Sanitherm has been in business for about 60 years, providing design, assembly and installation of water and wastewater treatment plants around the world. Hold Wellco Energy Services Trust.
Business Trusts
CML Healthcare Income Fund (CLC.UN, CMHIF) will hold its annual meeting Thursday at 4:30 pm ET in Toronto, but a live audio broadcast and the slide presentation will be available at www.cmlhealthcare.com. The presentation will be archived for 365 days. Hold CML Healthcare Income Fund.
Consumers’ Waterheater Income Fund (CWI.UN, CSUWF) will hold a conference call and webcast Thursday at 8:15 am ET to discuss the fund’s financial results for the first quarter of 2007. The event will be hosted by CEO John Macdonald and CFO Stephen Entwistle. Call 416-644-3415 or 800-731-5319 to listen to the teleconference.
Following management’s presentation, there will be a question-and-answer session for analysts and institutional investors. To access the simultaneous live audio webcast, go to www.consumerswaterheaters.com. The webcast will be archived on the site. A taped rebroadcast will be available to listeners following the call until May 3, 2007, at midnight. To access the rebroadcast, please dial 416-640-1917 or 877-289-8525 and enter the passcode 21227812#. Consumers’ Waterheater Income Fund is a buy up to USD16.
Custom Direct Income Fund (CDI.UN, CUDFF) will discuss first quarter results Thursday at 11 am ET. The conference call dial-in number is 800-762-7141 (access code 870969) for US-based investors. For a rebroadcast, which will be available through May 26, call 800-475-6701 (access code 870969) or go to www.cdifund.com. Custom Direct Income Fund is a sell.
FutureMed Healthcare Income Fund (FMD.UN, FMDHF) will issue its first quarter financial results May 3; CEO Raymond Stone and Vice President of Finance Daniel Sacks will host a conference call to discuss the numbers May 4 at 10:30 am ET. The telephone number for the conference call is 866-00-2270; call 866-245-6755 and enter the passcode 500756# for the instant replay, which will be available until midnight on May 10. The call will also be archived at www.futuremedfund.com. Hold FutureMed Healthcare Income Fund.
Priszm Income Fund (QSR.UN, PSZMF) will hold its first quarter conference call Thursday at 10 am ET. Chairman and CEO John Bitove, President and COO Jeff O’Neill and CFO Peter Walkey will be available to address analysts’ questions following their presentations. Call 800-731-6941 10 minutes prior to the start time to listen to the proceedings.
A webcast of the call will be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1800260. An archived recording of the call will be available beginning approximately one hour after the call at 877-289-8525, with the passcode 21226206#, until midnight May 25. A slide presentation intended for simultaneous viewing with the conference call will be available for viewing on Thursday at www.priszm.com. Priszm Income Fund is a buy up to USD11.
Sleep Country Canada Income Fund (Z.UN, SLPCF) will hold a conference call on May 4 at 11 am ET to review first quarter results; call 800-732-9303. The call will be recorded and available for replay until May 18. To listen to the replay, dial 877-289-8525 and use the passcode 21227720#. Sleep Country Canada Income Fund is a buy up to USD22.
TransForce Income Fund (TIF.UN, TIFUF) increased quarterly revenues by 7 percent to CD464.8 million compared with CD433.8 million in the same period a year earlier. Operating income was CD52.7 million for the quarter, an increase of 7 percent from the CD49.1 million reported for the first quarter of fiscal 2006. Cash flow from operating activities, before net change in noncash working capital balances, was CD45 million, up from CD41 million in the first quarter of 2006.
In the first quarter of 2007, net capital expenditures were CD13.1 million, compared with CD4.6 million a year earlier. As a result, total distributable cash was CD31.1 million compared with CD33.2 million a year ago. The company increased its regular monthly distributions during the first quarter to 13.25 cents Canadian per unit. The payout ratio was 102.2 percent, up from 87.8 percent a year earlier.
TransForce completed the previously announced acquisition of Westfreight Systems and Westfreight Holdings during the period. The Westfreight companies generated revenue of approximately USD47 million in 2006. TransForce Income Fund is a hold.
Real Estate Trusts
Boardwalk REIT (BEI.UN, BOWFF) will discuss first quarter results May 11 at 11 am ET. RSVP to investor relations at 403-531-9255 or by e-mail to investor@bwalk.com. The telephone number for the conference is 800-814-4861. Investors will be able to listen to the call and view a slide presentation at www.boardwalkreit.com. The live audiocast will also be available at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1800920. Boardwalk REIT is a buy up to USD33.
Canadian Apartment Properties REIT (CAR.UN, CDPYF) will report first quarter results May 14; CEO Thomas Schwartz will host a conference call to discuss the numbers May 15 at 10 am ET. Call 866-898-9626. A slide presentation to accompany management’s comments during the conference call will be available.
To view the slides, go to www.capreit.net, click on “Investor Relations” and follow the link at the top of the page. Log on at least 15 minutes before the call commences. The call will be available for instant replay at 800-408-3053, with the passcode 3220402#, until midnight on May 22. The call and accompanying slides will also be archived on the Canadian Apartment REIT Web site. Buy Canadian Apartment Properties REIT up to USD18.
Morguard REIT (MRT.UN, MGRUF) will discuss first quarter results April 30 at 10 am ET. To participate in the conference call, dial 800-732-9307. A taped replay will be available after the completion of the call from 12 pm ET until midnight May 7. To access the replay, dial 877-289-8525, with the passcode 21227829#. The call will also be archived at www.morguardreit.com. Hold Morguard REIT.
Natural Resource Trusts
Fording Canadian Coal Trust (FDG.UN, NYSE: FDG) reported lower first quarter net income after a harsh winter hurt sales and output, but the company’s outlook for the rest of 2007 remained positive. Fording has completed negotiations for about 90 percent of its expected coal sales for 2007, which began April 1, and it expects rail service to improve during the rest of the year.
Fording reported net income of CD77 million in the quarter (52 cents Canadian per unit), down from CD165.3 million (CD1.12 per unit) a year ago. Coal sales dropped 10 percent to 2.8 million ton from 3.1 million in the first quarter of 2006.
Revenue for the period fell by about 25 percent to CD350.5 million from CD473.3 million. The cost of products sold rose to CD130 million compared with CD119.9 million. Cash available for distribution was CD77 million (53 cents Canadian per unit), down from CD202 million (CD1.37 per unit) a year ago. Fording Canadian Coal is a buy up to USD24.