Third-quarter earnings reporting season has been generally solid for Canadian Edge Portfolio Holdings, in some cases borderline spectacular, in others maybe just a bit underwhelming.

The good news is that, thus far, we’re pleased with the lineup and have no significant changes, save an extraordinary buy-under target increase for Holding that hasn’t announced a dividend increase.

Three of our five Canadian REIT Holdings had posted third-quarter results in time for this issue, with financial and operating numbers supporting the case that the recent selloff represents an opportunity to lock in excellent yields on businesses that continue to show signs of enduring strength.

Energy midstream has been a source of much good news–and in fact is the locus of our extraordinary buy-under target increase. Power generators have also posted encouraging results.

One entertainment-focused Holding posted yet another outstanding quarter, though a second struggled a bit with intense competition for its core business.

Recent acquisitions have helped across the Portfolio, with one particular financial services specialist showing early strong returns from a potentially transformative deal completed only months ago.

And all that only covers the 12 Conservative Holdings that had reported ahead of pixel time. We also have third-quarter numbers for four Aggressive Holdings.

Our first energy producer has posted solid production numbers for the third quarter, with output on track for significant growth in 2014. Another Holding with significant exposure to energy patch activity also posted extremely encouraging results.

It’s been a rocky year for health care-focused companies with exposure to the changing structure of US-government-sponsored schemes, but our Holding is taking steps to mitigate potential harm from its southern exposure while maintaining a solid business in Canada. Dividend coverage for the third quarter was solid.

It’s another story for our manufacturer with significant exposure to mining and new oil and gas exploration activity. We’re holding on, however, as at attractive yield makes for good compensation while we wait for a more robust economic recovery to lift this otherwise well-run business.

Of course the major details follow, with names and numbers and current advice included. We’ll wrap up coverage of third-quarter earnings season in the December issue of CE.

Please note that we’ll have a Flash Alert e-mailed to you on Monday, Nov. 11, 2013, concerning Aggressive Holding Atlantic Power Corp (TSX: ATP, NYSE: AT), which released its third-quarter report on Nov. 7 after the market’s close and held its conference call to discuss it on Friday morning, Nov. 8.

Also note that results for Brookfield Real Estate Service Inc (TSX: BRE, OTC: BREUF) and Acadian Timber Corp (TSX: ADN, OTC: ACAZF) are discussed in this month’s Best Buys feature.

In the Spotlight

TransForce Inc (TSX: TFI, OTC: TFIFF) is the star of the opening acts of third-quarter 2013 earnings reporting season, at least among CE Portfolio Holdings, as the transportation and logistics company announced the lone dividend increase, an 11.5 percent boost in the quarterly rate from CAD0.13 per share to CAD0.145 that will have effect with the payment due Jan. 15, 2014, to shareholder of record as of Dec. 31, 2013.

The increase is a reflection of TransForce’s strong free cash flow generation as well as management’s outlook for 2014, as results for the third quarter were otherwise inauspicious.

TransForce also announced the acquisition of Clarke Transport Inc and  Clarke Road Transport Inc, two subsidiaries of Clarke Inc (TSX: CKI, OTC: CLKFF).

Clarke Transport is a less-than-truckload (LTL) intermodal transportation operation with a network of 15 terminals across Canada. Clarke Road Transport offers regular and specialized truckload (TL) transportation services. The deal is expected to generate annual revenues of approximately CAD190 million for TransForce.

TransForce also acquired another 10.44 percent of Vitran Corp Inc (TSX: VTN, NSDQ: VTNC) from a subsidiary of Clarke, bringing its overall stake in the transportation-and-logistics company to 19.95 percent and strengthening its position following a September bid for the whole company.

During the company’s third-quarter conference call CEO Alain Bedard reiterated the company’s plan to exit the Canadian rig-moving business, a move that will create a CAD25 million revenue hole but that will also reduce losses. TransForce will continue to provide other services in the Alberta oil sands, where the company sees approximately CAD100 million of annual revenue apart from rig-moving.

Economic weakness and soft demand in the energy sector led to an 18.2 percent decline in third-quarter net income to CAD44 million, or CAD0.45 per share.

Adjusted earnings were CAD36.7 million, or CAD0.38 per share. Total revenue for the period was CAD775.1 million, including fuel surcharges, up from CAD761.7 million a year ago.

Results were impacted by lower revenue and income from the rig-moving operation and losses at US-based same-day package delivery firm Velocity Express, which TransForce acquired about a year ago.

Third-quarter earnings before interest and taxation (EBIT) were CAD59 million, or 7.6 percent of total revenue, versus CAD66.9 million, or 8.8 percent of total revenue a year ago. 

EBIT margin for the Package and Courier (P&C) segment, excluding the Velocity loss, was 7.5 percent, up from 6 percent a year ago, while Less-Than-Truckload’s EBIT margin, excluding a CAD1.9 million gain on the disposal of excess assets, reached 6.9 percent versus 6.7 percent a year ago.

Operating income from Energy Services fell to CAD2.8 million from CAD12.6 million a year ago on a 12 percent drop in revenues to CAD87 million.

Free cash flow for the quarter was CAD53 million, or CAD0.58 per share.

Mr. Bedard sees further growth in the US same-day P&C market, and the company is taking steps to optimize its participation in that market. He noted as well that the US energy sector remains challenging over the short term.

Management doesn’t expect industry conditions in all business segments in Canada to improve materially over the next few quarters, particularly in the energy sector. TransForce will continue to align supply with demand, Mr. Bedard noting that “operating results and return on assets are currently unacceptable.”

The company will continue to focus on efficiency amid difficult operating conditions and to take advantage of its relative strength to build its business. TransForce has proven its ability to execute in tough markets and to generate value for shareholders over time.

Based on this track record as well as its 11.5 percent dividend increase TransForce is  now a buy under USD23.

REITs

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) reported normalized funds from operations (NFFO) for the third quarter of CAD0.44 per unit, up from CAD0.435 a year ago. The REIT’s payout ratio based on NFFO was 67.1 percent.

Net operating income (NOI) for the period improved by 10.7 percent, as NOI margin expanded to 60.7 percent from 60.3 percent.

Overall operating expenses as a percentage of operating revenue decreased in the three and nine months ended Sept. 30, 2013, as a result of lower realty taxes, utilities and wage costs as a percentage of operating revenue.

Average monthly rents for residential suites increased by 3.1 percent to CAD1,058 as of Sept. 30, 2013, while occupancy remained strong at 98.4 percent, reflecting the REIT’s sales and marketing strategies and continued strength in the residential rental sector in the majority of its regional markets.

Management noted that a lower rate of growth in average monthly rents on lease renewals during 2013 compared to 2012 resulted from lower guideline increases for 2013 in Ontario (2.5 percent, down from 3.1 percent) and British Columbia (3.8 percent, down from 4.3 percent).

CAP REIT continues to pursue “Above Guideline Increases” applications where it believes increases are supported by market conditions above the annual guideline to raise average monthly rents on lease renewals. For 2014 the permitted guideline increases in Ontario and British Columbia have been set at 0.8 percent and 2.2 percent, respectively.

The REIT has recently completed acquisitions in Prince Edward Island and in Dublin, Ireland, expanding its geographic footprint and providing further ballast for revenue and cash flow. Both acquisitions are forecast to be immediately accretive to normalized FFO. Canadian Apartment Properties REIT is a solid buy under USD25.

Dundee REIT (TSX: D-U, OTC: DRETF) posted adjusted funds from operations (AFFO) per unit of CAD0.63, up 3.3 percent compared to the second quarter of 2013 and the third quarter of 2012. Portfolio occupancy remains strong at 94.6 percent, well above the national average, with 962,000 square feet of leasing during the third quarter at higher rates.

Net operating income was up 1.4 percent on higher rental rates on new leasing and contractual rent increases. The REIT completed CAD140.3 million of acquisitions, adding 277,000 square feet of office space to the portfolio in Calgary and Regina, with 98.4 percent occupancy.

Average in-place net rents are 10 percent below market rents, allowing Dundee to continue to capture rental rate gains in connection with leasing activity. At the end of the third quarter the portfolio average in-place rent was CAD17.74 per square foot, up from CAD17.43 as of June 30, 2013, and from CAD17.22 as of Dec. 31, 2012, yet remaining well below estimated market rents.

Dundee REIT, currently yielding nearly 8 percent, is a buy under USD39.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) reported third-quarter funds from operations (FFO) per unit excluding one-time items were CAD0.63, up 14.5 percent from a year ago.

Management noted that financial results are back to levels reported prior to the sale of Northenr Property’s seniors’ portfolio in 2012, as more than CAD210 million of acquisitions and developments completed in the last 21 months have replaced the earnings lost from that sale.

Northern Property now has one of the strongest balance sheets in the Canadian REIT space, with low leverage, improving debt ratios and ample acquisition and development capacity that put it in good position to keep expanding its portfolio and building wealth for unitholders for the long term.

The REIT acquired 285 multi-family units and completed 59 multi-family development units during the quarter. Forty-seven units in Regina, Saskatchewan, were completed on Oct. 1, with all of them leased, management announced on Oct. 31 the acquisition of 97 multi-family units in Fort St. John’s, British Colombia, for CAD6.7 million.

Residential vacancy loss for the third quarter was 6.5 percent compared to 4.7 percent a year ago and 6.5 percent for the second quarter of 2013. The REIT acquired 1,500 multi-family units in 2012, the main reason for the year-over-year increase in vacancy. If the 1,500 units purchased in 2012 are excluded, total vacancy for the three months ended Sept. 30, 2013 would have been 5.8 percent.

Northern Property–an October 2013 Best Buy–remains a buy under USD30.

Conservative Update

AltaGas Ltd (TSX: ALA, OTC: ATGFF) made significant progress on its projects under construction as well as its energy export initiatives during the third quarter, laying the foundation for more growth as normalized net income doubled during the period to CAD24.7 million, or CAD0.21 per share, from CAD12.3 million, or CAD0.13 per share, a year ago.

In August 2012 AltaGas completed the SEMCO acquisition, the largest in its history, and the third quarter marked the first full year of ownership.

Normalized earnings before interest, taxation, depreciation and amortization (EBITDA) were up 61 percent to CAD103.5 million, while normalized funds from operations (FFO) surged to CAD80.2 million, or CAD0.68 per share, from CAD53.3 million, or CAD0.56 per share for the prior corresponding period.

The payout ratio for the period, based on normalized FFO, was 55.5 percent.

In August 2012 AltaGas completed the SEMCO acquisition, the largest in its history. This quarter marked the first full year of ownership of SEMCO.

The Gas segment significantly increased the natural gas volumes processed, as extraction volumes continue to ramp up in liquids-rich areas with increased processing capacity and producer activity over the past 12 months. Natural gas liquids (NGL) production increased to 22,383 barrels per day (bbl/d) from 14,307 bbl/d a year ago.

The Power segment generated more power in the quarter, primarily as a result of the additional 507 megawatts from the Blythe plant acquired in May 2013 and due to other power assets added in 2012. AltaGas also realized higher power prices in Alberta.

The Utilities segment delivered another strong quarter, as AltaGas continued to see increased results driven by a full quarter of earnings from SEMCO. Rate-base growth at its Canadian utilities also contributed. Results from SEMCO have been ahead of expectations, with EBITDA of CAD137.8 million in EBITDA for the 12 months ended Sept. 30, 2013.

Management expects the positive trends for all its businesses to continue as it executes on further opportunities to strategically grow each of them.

AltaGas and its Japan-based partner Idemitsu Kosan Co Ltd (Japan: 5019, OTC: IDKOF, ADR: IDKOY) have applied to Canada’s National Energy Board for a 25-year license to export liquefied natural gas (LNG) from northwestern British Columbia.

AltaGas and Idemitsu signed an agreement in January 2013 to form their joint venture, which now has been named Triton LNG LP. Triton aims to export up to 2.3 million metric tons of LNG annually, or roughly 115 billion cubic feet from either Kitimat or Prince Rupert.

AltaGas is a buy under USD36.50.

Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP) continues to add to its power-generation portfolio in a low-price environment, with projects that combine stable, contracted revenues and strong prospects for long-term cash flow growth.

In early November management announced the acquisition of a 70 megawatt (MW) hydroelectric power portfolio in Maine as well as the remaining 50 percent interest in the 30 MW Malacha project in California.

The Maine portfolio was acquired from affiliates of ArcLight Capital Partners LLC and consists of nine projects on the Penobscot, Androscoggin and Union rivers. About 60 percent of the portfolio’s output is sold into the New England wholesale power market, with the remainder sold under long-term contract to local utilities until 2024 and 2028.

The projects also benefit from long-term Federal Energy Regulatory Commission (FERC) licenses, most of which expire after 2029.

The portfolio adds to an existing 270 MW of cumulative capacity in the same region, including 19 projects acquired from NextEra Energy Inc (NYSE: NEE) earlier this year.

The purchase of the remaining 50 percent interest in the Malacha plant on the Pit River in Lassen County, California, completes an initial operating interest acquired in December 2010.

The plant’s output is sold under a fixed-price contract to PG&E Corp’s (NYSE: PCG) Pacific Gas and Electric Company until 2028.

The acquisitions will be funded through “available liquidity and available capital from Brookfield Renewable’s institutional partners, with a portion of the purchase price expected to be funded with non-recourse, fixed-rate debt.

Both deals, subject to regulatory and other normal conditions, are expected to close by the end of 2013.

Total generation for the third quarter was 5,154 gigawatt-hours (GWh), 3.9 percent above the long-term average of 4,960 GWh and well ahead of the 2,971 GWh for the prior corresponding period.

Hydro output was 4,539 GWh, 10 percent higher than long-term average of 4,141 GWh. Generation increased 2,077 GWh on a year-over-year basis, reflecting the strong performance of new assets and a return to more normal generation levels relative to the very dry conditions in the third quarter of 2013.

Recent acquisitions and assets reaching commercial operations within the last year resulted in generation increasing by 851 GWh compared to a long-term average of 701 GWh. Reservoir levels on a portfolio basis are in line with long-term average conditions for this time of year.

The wind portfolio generated 441 GWh, below the long-term average of 579 GWh but 140 GWh higher than a year ago as a result of facilities acquired in California and more favorable wind conditions.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) were CAD260 million, up from CAD118 million for the third quarter of 2012. Funds from operations were CAD108 million, or CAD0.41 per unit, up from CAD11 million, or CAD0.04 per unit, a year ago.

Brookfield Renewable Energy remains a strong buy under USD32.

Cineplex Inc (TSX: CGX, OTC: CPXGF) reported third-quarter attendance of 19 million, a quarterly record for the company, surpassing the previous record of 18.8 million for the third quarter of 2010.

Box office revenue per patron (BPP) was CAD8.84, equaling the third-quarter record for Cineplex set last year. Total box office revenue was up 3.7 percent to CAD168.1 million.

Management’s efforts to upgrade theaters’ display capabilities are paying off, as the share of box office revenue from “premium-priced product,” which includes 3D, UltraAVX and IMAX screens as well as VIP auditoriums in the circuit, rose to 37 percent from 31.4 percent a year ago.

Concession revenue of CAD91.5 million was also quarterly record, as third-quarter concession per patron (CPP) grew by 2.8 percent year over year to CAD4.81.

Media revenue was up by 22.7 percent, driven by showtime and digital pre-show advertising.

Cineplex completed the acquisition of EK3, subsequently renamed CDN, during the period. CDN, which designs, installs, manages and consults on some of the largest digital merchandising networks in North America, with networks viewed by more than 1.8 billion shoppers annually, contributed CAD2.6 million to media revenues in the third quarter of 2013.

Management also negotiated the capacity expansion to CAD500 million and maturity extension to 2018 of its credit facility. Said facility was used for the acquisition of 24 theaters in Atlantic Canada from Empire Company Ltd (TSX: EMP/A, OTC: EMLAF) for CAD194 million, which closed in early November.

Cineplex, which hadn’t operated in Atlantic Canada, now has 161 theatres with 1,635 screens across the country. Management expects the second installments of The Hunger Games and The Hobbit franchises and the sequel to the Will Ferrell vehicle Anchorman: The Legend of Ron Burgundy to drive fourth-quarter box office.

Cineplex continues to capitalize on Hollywood’s tested and still succeeding tent-pole structure, improving its theaters and also making shrewd investments to maximize dollars spent beyond the box office.

Cineplex has pushed well beyond our recommended target but would be a strong buy on any dip below USD32.25.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF), already benefitting from the August 2013 acquisition of US-based Harlan Financial Services, reported 18.4 percent growth in revenue to CAD209.2 million. HFS drove US segment growth, while organic growth in Canada also contributed to top-line expansion.

Management has described the acquisition of HFS, which provides strategic financial technology, including lending and compliance, core banking, and channel management technology solutions to US banks, credit unions and mortgage companies, as transformative, as it provides new scale and a foundation for further growth in North America and internationally.

HFS operates from offices throughout the US as well as in Dublin, Ireland, Trivandrum, India, and Tel Aviv, Israel.

Adjusted EBITDA was up 28.3 percent to CAD64.8 million, as margin expanded to 28.8 percent from 28.6 percent a year ago.

Net income for the third quarter was CAD6.9 million, or CAD0.0991 per share, down from CAD19.6 million, or CAD0.331 per share, a year ago due to the after-tax impacts of transaction costs and other acquisition-related expenses and adjustments.

Adjusted net income–which removes the impact of acquisition expenses and adjustments and reflects the health of operations–was up by 31.5 percent to CAD36.7 million, mainly due to the contribution from HFS.

Adjusted net income per share was up 11.3 percent to CAD0.5245, impacted by the issuance of new shares to finance the HFS deal. Davis + Henderson paid CAD0.32 per share in dividends during the quarter, up from CAD0.31 a year ago. The payout ratio for the period based on adjusted net was 61 percent.

Management paid down debt by CAD15 million during the quarter and noted that the HFS acquisition will help it accelerate its repayment program. Davis + Henderson’s debt-to-EBITDA ratio reached 3.05 at the close of the HFS acquisition on Aug. 16, 2013. It was down to 2.9 as of Sept. 30. Management is now targeting a 2.5-to-1 debt-to-EBITDA ratio by 2015, moving that target ahead from 2016.

With a consistent track record of executing on acquisition targets and efficiently expanding its business, Davis + Henderson is a buy on dips to USD22.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) reported solid third-quarter results, with production rising 26 percent to 706.4 gigawatt hours (GWh), 6 percent higher than the long-term average due to better-than-average water flows, wind conditions and solar irradiation.

That drove a 23 percent increase in operating revenue to CAD58 million, as adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) improved by 27 percent to CAD46.7 million.

Cash flows from operations was CAD38.8 million, more than double the CAD16.8 million for the prior corresponding period.

Innergex accomplished several key development benchmarks during and subsequent to the third quarter that underline the invest-to-grow nature of its business.

Work at the Kwoiek Creek hydro project during the third quarter culminated with the facility beginning to produce electricity at the end of October. The company completed the upgrade at the Miller Creek hydro facility on time and on budget, with production due to restart this month.

And Innergex closed the acquisition of the 40.6 megawatt (MW) Magpie hydro facility on July 25.

The Northwest Stave River hydro project and the Viger-Denobnville wind project are on track for commissioning during the fourth quarter. Project financing of CAD61.7 million for Viger-Denonville closed on Aug. 7.

Innergex also started construction at the Tretheway Creek, Upper Lillooet River and Boulder Creek hydro projects in British Columbia in early October.

Construction at Big Silver Creek is now expected to start in the spring of 2014 versus the previously announced target of late 2013, but management expects no change on the commissioning date of 2016.

In August the Quebec government announced a draft regulation of 450 megawatt wind procurement at a proposed price of CAD0.095 per kilowatt-hour. And management continues to evaluate hydro opportunities in British Columbia as well as wind and solar investments in the US.

Management also started a CAD210 million hedging program to fix the interest rate on construction debt for the Upper Lillooet River, Boulder Creek, Tretheway Creek and Big Silver Creek projects. Ninety-seven percent of Innergex’ outstanding debts are now protected from interest rate hikes.

Geographic diversification, a favorable mix of renewable generation assets and ample opportunities to expand the portfolio make this a solid bet for long-term growth and income.

Innergex Renewable Energy, currently yielding north of 6 percent, is a strong buy under USD10.

Keyera Corp (TSX: KEY, OTC: KEYUF) reported net income for the third quarter of CAD40.8 million, or CAD0.52 per share, up from CAD14.2 million, or CAD0.18 per share, a year ago.

EBITDA were CAD82.6 million, up 36 percent from the third quarter of 2012. Distributable cash flow was CAD50.5 million, or CAD0.64 per share, up from CAD18.8 million, or CAD0.40 per share, a year ago.

Effective with the August dividend paid in September, Keyera increased its dividend by 11 percent, from CAD0.18 per share per month to CAD0.20 per share per month, or CAD2.40 per share on an annualized basis. This was Keyera’s eleventh increase since going public in 2003, representing an 8.1 percent compound annual growth rate in dividends per share.

Gathering and Processing business delivered operating margin of CAD40.7 million, up from CAD35.6 million a year ago.

The NGL Infrastructure segment posted operating margin of CAD31.4 million, its best-ever performance, compared to CAD29.9 million in the same quarter of 2012.  Marketing operating margin was CAD33.2 million, approximately double the CAD16.5 million reported for the third quarter of 2012.

Total growth capital investment, excluding acquisitions, was CAD93 million during the third quarter, bringing year-to-date investment to CAD192 million.

Management now expects its 2013 growth capital investment, excluding acquisitions, to be CAD325 million to CAD375 million. Growth investment for 2014 is expected to be between CAD500 million and CAD600 million.

Keyera accomplished several development goals during the period, including completing construction of the South Cheecham rail and truck terminal south of Fort McMurray, in the heart of Alberta oil sands country. The facility is currently receiving bitumen by truck and loading it onto railcars for delivery to end-use markets.

Keyera’s de-ethanizer project at Fort Saskatchewan received regulatory approval in August.  Site preparation continued during the third quarter, and construction is expected to begin in the fourth quarter.

The company is working with producers to gauge interest in two proposed gathering pipeline systems. The Twin Rivers pipeline would deliver raw gas to Keyera’s Brazeau River and West Pembina gas plants.  The Wilson Creek pipeline system would deliver raw gas and condensate to the Rimbey gas plant.

Subsequent to the quarter, Keyera received regulatory approval and is proceeding with the Wapiti gathering pipelines from the Wapiti area of Alberta to the Simonette gas plant.

A solid invest-to-grow story, with management matching expansion to meet demand, Keyera has traded well beyond our USD44 buy under target for some time now. Based on management’s track record of execution and a history of dividend growth, we’re boosting our buy-under target by 10 percent. Keyera is now a buy under USD55.

Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) reported increased volumes across each of its businesses for the third quarter, as adjusted EBITDA grew by 30.5 percent to CAD200.8 million and net earnings were up to CAD71.8 million, or CAD0.22 per share, from CAD30.7 million, or CAD0.11 per share, a year ago.

Cash flow from operations for the third quarter was CAD87.3 million, or CAD0.28 per share, down from CAD130.9 million, or CAD0.45 per share, primarily because of increased operating working capital.

Nine-month cash flow more than doubled to CAD456.6 million, or CAD1.50 per share, from CAD220.3 million, or CAD0.89 per share, for the prior corresponding period, primarily due to improved results from operating activities and the acquisition of Provident Energy Ltd in April 2012.

Adjusted cash flow from operating activities was CAD188.7 million, or CAD0.61 per share, versus CAD133.2 million, or CAD0.46 per share, a year ago.

Stronger propane market fundamentals contributed to an increase in natural gas liquids (NGL) sales volumes for the Midstream segment. Conventional Pipelines enjoyed the benefits of continued producer activity and new connections, as it moved an average of 489.1 thousand barrels per day, up 10 percent year over year.

Oil Sands & Heavy Oil volumes exceeded contracted capacity on the Nipisi pipeline, mainly due to the addition of a new pump station on the system. Gas Services posted a 5 percent increase in volumes, processing an average of 288.2 million cubic feet per day.

Pembina Pipeline is a buy on dips to USD32.

Shaw Communications Inc (TSX: SJR/B, NYSE: SJR), the dominant cable TV services provider in Western Canada, reported a decline in fiscal 2013 fourth-quarter net income to CAD117 million, or CAD0.24 per share, from CAD133 million, or CAD0.28 per share, a year ago. Revenue was up 3 percent to CAD1.25 billion.

Shaw reported a loss of almost 30,000 cable TV subscribers and nearly 1,000 subscribers from its smaller satellite TV business, primarily due to competition from Telus Corp (TSX: T, NYSE: TU), which offers TV services on top of its Internet and more traditional wireless phone and landline offerings.

Shaw abandoned plans to build a wireless phone network last year, limiting its ability to match Telus in offering discounted packages to customers.

Shaw added a net 10,564 Internet subscribers in the quarter, bringing the total to 1.89 million, and a net 4,722 landline telephone subscribers for a total of 1.36 million.

Shaw’s media division, which operates specialty channels such as HGTV Canada, Food Network Canada, History and Showcase, recorded a 6.5 percent increase in revenue on higher subscriber rates, while advertising sales also increased.

Shaw expects to realize approximately CAD800 million from sales of some specialty channels to Corus Entertainment Inc (TSX: CJR/B, OTC: CJREF) and a cable unit to Rogers Communications Inc (TSX: RCI/B, NYSE: RCI). It will spend up to CAD500 million of that to improve its networks.

The wireless airwaves that Shaw bought in an auction in 2008 may prove more difficult to sell, with Canada’s federal government making it clear it doesn’t want the spectrum to be taken over by one of the country’s three dominant wireless providers, Telus, Rogers and BCE Inc (TSX: BCE, NYSE: BCE).

The company had planned to sell the spectrum, which was set aside by the government for new entrants to the wireless market, to Rogers, Canada’s largest wireless company.

Management expects growth in revenue and adjusted operating income before amortization of between 2 percent and 4 percent in fiscal 2014. Shaw Communications is a buy under USD24.

Aggressive Update

ARC Resources Ltd (TSX: ARX, OTC: AETUF) reported growth in third-quarter average production of 6 percent to 94,515 barrels of oil equivalent per day (boe/d), as year-to-date average production of 94,171 boe/d was up 2 percent.

Management attributed the third-quarter and year-to-date growth to strong performance at Pembina and higher production at Ante Creek and the Parkland and Tower fields. ARC expects fourth-quarter production to increase as new pad wells are brought on production at Ante Creek, with full-year production to average between 94,000 and 97,000 boe/d.

Construction continued on ARC’s 60 million cubic feet per day Parkland/Tower gas processing and liquids handling facility.  Work is on schedule, and commissioning started in the fourth quarter. ARC expects the facility to be on-stream by early 2014, with potential for earlier start-up in late 2013 pending the progress of ongoing commissioning work. 

ARC has drilled and completed 16 wells on two pads at Tower and 13 wells on four pads at Parkland, which are currently being tied in to the new facility.

Third quarter and year-to-date 2013 commodity sales revenues of CAD417.4 million and CAD1.2 billion were up 27 percent and 18 percent, respectively, due to higher realized crude oil and natural gas prices.

Although crude oil and liquids production accounted for 38 percent and 39 percent of third quarter and year-to-date production, respectively, they contributed approximately 77 percent and 73 percent of third-quarter and year-to-date sales revenues, respectively, due to the strength of crude oil prices relative to natural gas prices.

Funds from operations for the third quarter were CAD220.4 million, or CAD0.71 per share, up 34 percent from the third quarter of 2012 due to higher production and higher crude oil and natural gas prices in 2013.

ARC spent CAD250.3 million during the third quarter, pushing 2013 capital expenditure (CAPEX) to CAD652.2 million. The company’s capital program right now is focused primarily on oil and liquids-rich opportunities at Parkland/Tower, Ante Creek, Pembina, southeast Saskatchewan and Manitoba, along with spending on natural gas development at Dawson. 

The board of directors approved an increase to the 2013 capital program from CAD830 million to CAD860 million to accelerate certain projects originally planned for 2014, to replace divested production and to drill additional wells at Ante Creek, offsetting competitor wells.

ARC plans to spend CAD915 million next year, CAPEX that’s expected to deliver 17 percent annual production growth in 2014.

As of Sept. 30, 2013, ARC had total available credit facilities of CAD2 billion, with CAD780.7 million drawn.  ARC had available credit of approximately CAD1 billion after a working capital deficit. 

The net debt-to-annualized funds from operations ratio was 1.1 times, and net debt was approximately 10 percent of total capitalization at the end of the third quarter, well within ARC’s target levels. ARC is a buy under USD26.

Extendicare Inc (TSX: EXE, OTC: EXETF) posted third-quarter adjusted funds from operations (AFFO) of CAD20.4 million, or CAD0.235 per share, up from CAD11.2 million, or CAD0.13 per share, a year ago but off sequentially from CAD22.1 million, or CAD0.255 per share for the second quarter of 2013.

Revenue of CAD508.6 million included a CAD2.1 million increase in same-facility operations over the third quarter of 2012.

Average daily revenue rates for Medicare Part A and Managed Care were up 1.1 percent and 3.3 percent, respectively, on a year-over-year basis and by 1.5 percent and 2 percent, respectively, compared to the second quarter of 2013.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) were up 12.7 percent on a year-over-year basis and 2.9 percent sequentially to CAD43 million. Adjusted EBITDA margin of 8.5 percent increased from 7.5 percent a year ago and from 8.3 percent in the second quarter of 2013.

The third-quarter payout ratio based on AFFO was 51.1 percent. Distributions for the first nine months of 2013 represented 68 percent of AFFO.

The board of directors continues to evaluate alternatives related to the previously announced strategic review of options relating to the separation of Extendicare’s Canadian and US businesses and is “optimistic” that it will publicly announce the outcome of the process before year’s end.

In the meantime, Extendicare remains a buy under USD7.

Newalta Corp’s (TSX: NAL, OTC: NWLTF) third-quarter results reflect recent investment in growth and solid contributions from all three operating divisions, as revenue was up 12 percent to CAD212.1 million and adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) increased 20 percent to CAD51.2 million.

Revenue from contracts–fee-for-service arrangements with terms longer than one year and no direct commodity price exposure–generated 13 percent of consolidated revenue for the 12 months to Sept. 30, 2013, up from 8 percent for the prior corresponding period.

Capital expenditure for the three and nine months ended Sept. 30, 2013, were CAD43.4 million and CAD98.9 million, respectively, focused primarily on growth capital projects in New Markets and Oilfield.

Net earnings in the quarter decreased to CAD13.2 million from CAD15.2 million a year ago; excluding higher stock-based compensation expense, net finance charges related to a non-cash loss on embedded derivatives and income tax expense, net earnings would have increased 32 percent to CAD20.4 million.

Revenue from New Markets increased 11 percent to CAD68.1 million, driving gross profit growth of 12 percent to CAD25.1 million. Two contracts to process mature fine tailings (MFT) provided a significant boost.

Sales for the Oilfield segment were up slightly to CAD49, though gross profit for the quarter increased by 19 percent CAD19.9 million on contributions from growth capital investments and improved commodity prices.

Industrial revenue was up 17 percent to CAD95.1 million, as gross profit surged by 46 percent to CAD14.2 million.

Revenue from contracts–fee-for-service arrangements with terms longer than one year and no direct commodity price exposure–generated 13 percent of consolidated revenue for the 12 months to Sept. 30, 2013, up from 8 percent for the prior corresponding period.

Capital expenditure for the three and nine months ended Sept. 30, 2013, were CAD43.4 million and CAD98.9 million, respectively, focused primarily on growth capital projects in New Markets and Oilfield.

Newalta’s total debt-to-adjusted EBITDA ratio improved to 2.52 as of Sept. 30, 2013, from 2.74 at the end of the second quarter. Management expects the ratio to decline to 2.50 by Dec. 31.

On Oct. 17, 2013, Newalta announced a development agreement with DuPont Canada to test a water processing technology in the Alberta oil and gas industry that removes solids from water and facilitates a higher level of water re-use for customers at their sites.

Management expects adjusted EBITDA in the second half of 2013 to be approximately 20 percent higher compared to 2012 based on commodity prices and drilling activity remaining at third-quarter levels.

Newalta, an October 2013 Best Buy, is a buy under USD17.50.

Wajax Corp (TSX: WJX, OTC: WJXFF) reported a 5 percent decline in third-quarter revenue to CAD338.5 million due to lower mining sales hurt the Equipment segment and the impact of reduced activity in the Western Canada oil and gas sector took a bite out of Power Systems. Industrial Components posted 4 percent sales growth.

Net earnings were CAD11.5 million, down from CAD16.2 million a year ago. Equipment and Power Systems segment earnings decreased CAD1.5 million and CAD2.3 million, respectively, on lower volumes and increased selling and administrative expenses.

Industrial Components segment earnings declined by CAD1.2 million, as higher acquisition-related revenues were insufficient to offset reduced margins and an increase in selling and administrative costs.

Management expects weakness in the oil and gas market to persist over the balance of 2013, with demand for new equipment and aftermarket services for drilling, and well stimulation continuing to be soft. The company noted that quoting activity for mining remains at a reasonable level for the Equipment segment as well as Power Systems’ electrical power-generation business.

Wajax management reiterated its cautious outlook regarding end-markets for the rest of 2013 and continues to expect that full-year earnings will be lower than 2012 results.

Wajax, which announced it will maintain its CAD0.20 per share per month dividend rate for the rest of 2013 and through the first quarter of 2014, remains a hold.

Earnings: The Rest of the Story

Here are estimated and confirmed dates for Canadian Edge Portfolio Holdings that hadn’t reported in time for inclusion in this issue but will do so before pixel time for the December issue.

Note that results for Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF) and Acadian Timber Corp (TSX: ADND, OTC: ACAZF) are reviewed in this month’s Best Buys feature.

Except where noted, Holdings will be reporting results for the third quarter of 2013. Should a company post numbers that fundamentally change our investment thesis and require immediate action we’ll issue a Flash Alert.

Conservative Holdings

• Artis REIT (TSX: AX-U, OTC: ARESF)–Nov. 7 (confirmed)
• Bank of Nova Scotia (TSX: BNS, NYSE: BNS)–Dec. 6 (FY 2013 Q4, confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Nov. 12 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Nov. 14 (confirmed)
• RioCan REIT (TSX: REI, OTC: RIOCF)–Nov. 7 (confirmed)
• Student Transportation Inc (TSX: STB, NSDQ: STB)–Nov. 8 (FY 2014 Q1, confirmed)

Aggressive Holdings

• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Nov. 13 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Nov. 7 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Nov. 13 (confirmed)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–Nov. 7 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Nov. 9 (confirmed)
• Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)–Nov. 7 (confirmed)
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–Nov. 11 (confirmed)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Nov. 8 (confirmed)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Nov. 7 (estimate)
• Vermilion Energy Inc (TSX: VET, NYSE: VET)–Nov. 7 (confirmed)