Canadian Auto Parts Makers in Big trouble

Roger Biduk writes:

With the "Big 3" needing a bailout or face possible bankruptcy, being a manufacturer supplying parts to them is no joy right now.
Shares of Canadian autoparts makers have taken a beating due to the decline in the U.S. auto sector, but the companies will face a much harsher reality if one or more of the Detroit Three is allowed to fail.

Parts companies already run on razor-thin margins, and a bankruptcy of one of the big automakers would mean suppliers would not be paid. That would lead to a catastrophic chain reaction that would ripple through the industry, said Linda Hasenfratz, president and chief executive of Linamar Corp , in an interview.
"You are looking at shutting down the entire automotive industry in North America," she said.
"Just to be clear on the ramifications, not just Ford , General Motors and Chrysler ... but everybody. Everybody goes down, because really, you are only as strong as the weakest link in the chain, and some of the weakest links in this chain are the suppliers."

More than 65 percent of suppliers to Ford, GM and Chrysler, also supply Toyota Motor Co and Honda Motor Co , so even the offshore-based manufacturers would be hard hit.
Worries of a bankruptcy of one or all of the Detroit Three are reflected in Linamar's share price, which is down 79 percent since the beginning of the year.
At C$4.20, it is now on the verge of being removed from the S&P/TSX composite index due to failure to meet listing requirements, which include maintaining a certain level of market capitalization and volume.
No Canadian autoparts manufacturer has escaped seeing its stock being clobbered this year. Magna International Inc is down 56 percent at C$35.76, and Martinrea International Inc is down 84 percent at C$1.94.

Thirty-five percent of Linamar's sales go to the Detroit Three, according to RBC Capital Markets. For Magna, that number jumps to 52 percent, and it's about 80 percent for Martinrea.
Michael Willemse, an analyst at CIBC World Markets, said sales volumes would likely decline further for U.S. car sales -- they fell 37 percent in November alone -- on a Detroit Three bankruptcy.
"If one or all three of the Big Three go bankrupt, I would expect sales volumes to decline because customers would be nervous about buying a vehicle by a bankrupt OEM (original equipment manufacturer)," he told Reuters.
Willemse wrote in a note, after the U.S. Senate rejected a $14 billion auto bailout bill late Thursday, that the risk of bankruptcy at each of the Detroit Three had become more likely, with Chrysler in danger of folding within the next few weeks.
Many in the industry have also said that GM will not make it into the new year without government support.

LOANS OR BAILOUT COMING - BUT WHAT AFTER?

Stock markets on Friday reacted negatively to news the U.S. Senate had killed the auto aid bill, but they bounced back strongly within minutes of the U.S. government saying it may use some of the money set aside in the $700 billion earmarked for fiscal relief to help the beleaguered auto sector.
Richard Cooper, vice-president of Canadian operations at industry consultant JD Power and Associates, said he believes some sort of aid will be made available, but that will only be the beginning of a long process to bring the companies back from the brink of liquidation.
A bailout "is really only survival for the next few weeks or so," he said.
The next phase would be restructuring. In Canada, the shares of autoparts makers would likely remain depressed, as U.S. sales aren't expected to pick up any time soon, and there is a lot of uncertainly about what the automakers and the government have been planning.
"That kind of uncertainly is really taking it's toll in the market right now," said Cooper.

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Roger Biduk - Bay Street Reverses to the Upside

Roger Biduk writes:

The Toronto stock market came back from a sharp loss to end the session higher Friday after the U.S. Treasury said it would step in to prevent a collapse of the major American automakers.
The S&P/TSX composite index closed up 123.55 points to 8,515.45, gaining 398.42 points or 4.9 per cent this week, mainly due to higher base and precious metal stocks.
The TSX Venture Exchange was down 5.3 points to 718.74, while the Canadian dollar moved down 1.14 cents to 79.92 cents US.

Losses for Canadian auto parts makers moderated with Magna International (TSX:MG.A) dipping six cents to $35.51, while Linamar Corp. (TSX:LNR) slipped 16 cents to $4.20 after General Motors (NYSE:GM) said Friday it will shut down virtually all of its North American production for the entire month of January.
Shares in BCE Inc. (TSX:BCE) lost 80 cents to $21.23 after the telecom company said it is reinstating its dividend at 36.5 cents per share quarterly. The parent company of Bell Canada also plans to buy back as much as five per cent of its common stock. This follows the collapse of its $52-billion deal to be taken over by an investor group led by the Ontario Teachers' Pension Plan.

The Toronto financial sector ticked 3.3 per cent higher as Royal Bank (TSX:RY) added 84 cents to $34.80 and Scotiabank (TSX:BNS) added 64 cents to $30.90.

The TSX energy sector slipped 0.35 per cent oil prices fell sharply on another round of poor economic news that showed consumers cutting back on spending for a record fifth straight month.
The January crude contract in New York fell $1.70 to US$46.28 a barrel. That followed two days of gains on the expectation of a big cut in production when the OPEC cartel meets next Wednesday. Suncor Inc. (TSX:SU) was down 90 cents to $25.07.

The gold sector was a bright spot, up five per cent even as the price of the precious metal declined $6.10 to US$820.50. Barrick Gold Corp. (TSX:ABX) moved ahead $1.01 to $38.91.
The base metals sector climbed 2.2 per cent with Teck Cominco Ltd. (TSX:TCK.B) ahead 18 cents to $5.45.

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Roger Biduk - Energy & Financials Sink Bay Street

Roger Biduk writes:

The Toronto stock market closed sharply lower as early gains in energy and mining stocks disappeared, losses in financials picked up amid a new wrinkle in the restructuring of commercial paper while telecom stocks fell with death of the BCE takeover attempt.
Toronto's S&P/TSX composite index tumbled 242.1 points to 8,391.9.
The Canadian dollar gained 1.67 cents to 81.06 cents US as the U.S. currency weakened.
The TSX Venture Exchange moved up 7.9 points to 713.44.

The TSX financial sector slipped 3.75 per cent with National Bank (TSX:NA) the biggest loser, down $3.10 or 9.4 per cent to $29.81 and Manulife Financial gave back 97 cents to $18.98.
The slide followed a report that Ottawa could be asked to provide between $5 billion and $10 billion to salvage the restructuring of the seized-up market for Canadian asset-backed commercial paper, or ABCP. The plan has been stalled for months by market upheaval.

The energy sector in Toronto gave up early strong gains even as the price of crude in New York ran ahead $4.46 to US$47.98 a barrel, falling two per cent as both Petro-Canada (TSX:PCA) and EnCana Corp. (TSX:ECA) said they are reducing 2009 capital spending - Petro-Canada by about one-third to $4 billion.
EnCana slashed its cash-flow outlook and reduced its capital budget to US$6.1 billion, from $7 billion this year.
PetroCan shares slipped two cents to $28.98, EnCana gave back $4.42 to $55.22 and Canadian Natural Resources (TSX:CNQ) gained $2.10 to $44.75.
Precision Drilling Trust (TSX:PD.UN) surrendered 90 cents to $7.65 after warning it may cut its distributions as financing costs swell for its proposed takeover of Grey Wolf Inc.
The energy sector announcements came as oil prices rose above US$45 a barrel with traders expecting a significant OPEC production cut next week to boost the market. Light sweet crude traded later up $4.46 at US$47.98 a barrel on the New York Mercantile Exchange.

The TSX gold sector gave back 3.25 per cent even as bullion advanced $17.80 to US$826.60 an ounce. Iamgold Corp. (TSX:IMG) was down 22 cents to $5.88 after a friendly deal to acquire Orezone Resources Inc. (TSX:OZN) in an all-stock transaction valued at US$139 million. Orezone shares jumped 34.5 cents or 197 per cent to 52 cents.

Lululemon Athletica Inc. (TSX:LLL) stock fell $4.35 or 33 per cent to $8.80 after reducing its expectations for the holiday quarter and next year - including a drop in same-store sales - "based on the trends in the macro environment and the weaker Canadian dollar."
T-shirt and sportswear manufacturer Gildan Activewear Inc. (TSX:GIL) reported its earnings shrank by almost half in its latest quarter to US$21.4 million, pulled down by a US$26.9-million settlement of a long-running tax dispute. Its stock fell 35 per cent, losing $6.15 to $11.60.

Research In Motion Ltd. (TSX:RIM) has lined up an agreement to acquire Chalk Media Corp. (TSXV:CKM) - which creates and deploys media-rich content delivery to RIM's BlackBerry smartphones - for $23.1 million in cash. Chalk shares soared 8.5 cents or 189 per cent to 13 cents while RIM shares were off $1.99 to $46.59.
After markets closed, Canadian data encryption specialist Certicom Corp. (TSX:CIC.TO) called a takeover offer by RIM "highly opportunistic" and said it "undervalues" Certicom

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Roger Biduk - Commodities Bolster Bay Street

Roger Biduk writes:

Energy and mining stocks led the way to a solid triple-digit rise on the Toronto stock market on Wednesday as financial stocks lost ground for a second day.

Toronto's S&P/TSX composite index closed up 236.44 points at 8,634.
The TSX Venture Exchange was up 19.52 points to 705.54 while the Canadian dollar moved ahead 0.31 of a cent to 79.39 cents US as commodity prices ticked higher.

Prime Minister Stephen Harper says there will be no blank cheque for automakers and he wants to see the U.S. aid package before deciding on the Detroit Three's plea for billions of dollars in help from Ottawa.

The TSX base metals sector ran ahead 8.25 per cent amid news from global miner Rio Tinto that it is cutting 14,000 jobs worldwide and reducing capital spending.
The news was enthusiastically received by investors who sent Rio Tinto's shares up $4.05 or 12. per cent to US$37.40. It's not yet known how Rio Tinto's cutback will affect Canadian operations. The London-based global miner is afflicted by weak metal prices and weighed down by debt from last year's US$38-billion acquisition of Montreal-based Alcan.
Teck Cominco Ltd. (TSX:TCK.B) advanced 56 cents to $4.83 as copper rose 5.2 cents to US$1.4955 pound while Equinox Minerals (TSX:EQN) charged ahead 20 cents to $1.28.

The TSX energy sector moved up 5.45 per cent amid rising oil prices. The January crude contract in New York gained $1.45 to US$43.52 a barrel ahead of an expected production-quota cut next week by the Organization of Petroleum Exporting Countries.
EnCana Corp. (TSX:ECA) advanced $3.61 to $59.64 while Suncor Energy (TSX:SU) improved $2.73 to $26.70.
Nexen Inc. (TSX:NXY) shares advanced 85 cents to $21.73 as it announced plans to spend 15 per cent less in 2009 than it did this year as it ramps down investment in the Long Lake oilsands venture and some conventional oil properties.

The gold sector rose 10 per cent as bullion gained $34.60 to US$808.80 an ounce. Goldcorp Inc. (TSX:G) added $3.56 to $34.50 while Barrick Gold Corp. (TSX:ABX) headed $3.40 higher to $38.50.

Bank stocks continued to be a drag with the sector down almost two per cent a day after the Bank of Canada slashed its main interest rate by 75 basis points. Scotiabank (TSX:BNS) declined $1.10 to $31.24 while National Bank (TSX:NA) gave back $1.96 to $32.91.
Investors were also braced for more moves by the banks to raise money to bolster their capital requirements and protect dividend payments.

Teck stocks were under pressure with Nortel Networks shares (TSX:NT) falling 15 cents or 23.45 per cent to 49 cents, after hitting a new 52-week low of 46 cents.
The Wall Street Journal reported the telecom equipment company hired legal counsel to explore bankruptcy court protection from creditors. Nortel responded that it is "a viable partner for the long term" and noted it has no debt maturity until 2011.

George Weston Ltd. (TSX:WN) shares climbed $1.48 to $62.40 after it announced the sale of its fresh baked-goods business in the United States to Grupo Bimbo of Mexico for US$2.5 billion.
MDS said its revenue and operating profit are below previous guidance, and it is taking a US$260-million writeoff of the MAPLE medical-isotope reactor, along with a goodwill writedown of as much as $370 million at its MDS Pharma Services division. Its shares closed up three cents at $8 after hitting a new 52-week low of $6.82.

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Roger Biduk - Commoditites Lead Bay Street at Midday

Roger Biduk writes:

Toronto's main stock index shot higher on Wednesday morning on higher oil and metals prices and as optimism over global stimulus measures, including a possible bailout of the U.S. auto industry, lifted market sentiment.

The resource-laden materials sector led the way up, climbing 8.1 percent, with Barrick Gold up 7.6 percent at C$37.75, and Goldcorp up 9.7 percent at C$33.94.
Mining stocks rose as global miner Rio Tinto said it would cut 14,000 jobs, slash capital spending by more than half and sell more assets as it battles a collapse in commodity prices.
The beaten-down resource stocks were higher, in part, in response to the news, analysts say.

The TSX's two big fertilizer companies were stronger. Agrium Inc rose 6.2 percent to C$37.05, and Potash Corp of Saskatchewan was up 8 percent at C$84.41.

Financials were down 0.7 percent with Great-West Lifeco Inc sinking 7.6 percent to C$20.60 after it said on Tuesday it plans to issue a total of C$1 billion in common shares to the public and to its controlling shareholder, Power Financial Corp .

Shares of George Weston Ltd rose 2.3 percent to C$62.30 after Mexico's Bimbo said on Wednesday it had reached an agreement to buy Weston's U.S. breadmaking unit for $2.38 billion.

Nortel Networks Corp sank 21.9 percent to 50 Canadian cents after the Wall Street Journal reported the telecoms equipment maker has sought legal advice on a bankruptcy protection scenario in the event that its restructuring plan fails.
Nortel spokesman told Reuters "no bankruptcy filing is imminent, but added the company has engaged advisers to help it plot its future.

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Roger Biduk - Recession Hits Bay Street

Roger Biduk writes:

The Toronto stock market dropped more than 150 points Tuesday as the Bank of Canada declared the economy was moving into a recession and cut its main interest rate by three-quarters of a point to 1.5 per cent.
Bank stocks led the way down as Toronto's S&P/TSX composite index fell 169.56 points or two per cent to 8,397.56.
The TSX Venture Exchange closed down 12.16 points to 686.02.

The big interest rate cut by the central bank and a new equity issue by the Royal Bank (TSX:RY) pushed the financial sector down more than five per cent.
The banks also held back from passing the whole three-quarter-point policy rate cut along to their customers, trimming the prime lending rate by half a point.
RBC lost $2.21 to $35.29 after announcing a new issue up to $2.3 billion worth of common stock. TD was down $3.40 to $42.10 and CIBC shed $2.96 to $50.31.

The loonie closed down 0.66 cents at 79.08 cents U.S., after dropping more than a cent shortly after the central bank cut its key rate to the lowest level since 1958 and added that "the global recession will be broader and deeper than previously anticipated."

In Toronto, the telecom sector was off 2.25 per cent as BCE Inc. (TSX:BCE) fell $2.15 to $22.50 after the company said it has hired accounting firm PricewaterhouseCoopers to help make its case to KPMG auditors who ruled it did not meet a key condition of its deal to be acquired by a group led by the Ontario Teachers' Pension Plan.

The industrial sector gave back 1.4 per cent as Canadian National Railway (TSX:CNR) declined $1.56 to $42.75.

The energy sector was flat as oil prices flattened on expectations of weakening demand. The January crude contract in New York declined $1.64 to US$42.07 a barrel after rising almost US$3 Monday.
On the TSX, Canadian Natural Resources (TSX:CNQ) lost $1.30 to $40.90 while Suncor Inc. (TSX:SU) improved 67 cents to $23.97.
Crescent Point Energy Trust (TSX:CPG.UN) was up 78 cents to $21.59 as it set its 2009 capital budget at $225 million and said it expects to boost oil production by four per cent.
Major Drilling Group International Inc. (TSX:MDI) eased 97 cents to $9.99 after an August-October profit of $29.3 million, up from $22.6 million a year ago, as revenue rose 22 per cent. However, the global provider of mine-drilling services warned of a slowdown next year, especially in base metals.

The gold sector rose 1.45 per cent with the February bullion contract ahead $4.90 to US$774.20. Barrick Gold Corp. (TSX:ABX) faded 75 cents to $35.10.

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Roger Biduk - Bay Street Lower at Midday

Roger Biduk writes:

Blue chips in Toronto were sinking Tuesday afternoon, led by a drop in financial stocks after the Bank of Canada unexpectedly cut its key interest rate on Tuesday by three-quarters of a percentage point to a 50-year low of 1.50 percent and declared the Canadian economy to be in a recession.

The S&P/TSX composite index was off 79.87 points to 8,487.25.
The Canadian dollar, meanwhile, was trading 0.59 cents lower at 79.19 cents US.
Six of the TSX sub-groups traded higher this afternoon -- health-care stocks were up 3.05 percent followed by a 1.34 percent gain in gold issues and 0.95 percent rise in energy stocks.
Gold was gaining 40 cents to $769.70 US an ounce.

On the downside -- financial stocks fell 3.76 percent; telecom issues shed 2.18 percent and consumer discretionary stocks dipped 1.75 percent.

Meanwhile, the TSX Venture Exchange slipped 8.55 points to 689.63 and the NASDAQ Canada was off 5.32 points at 406.11.

On the corporate front -- Canada's largest bank Royal Bank of Canada says it plans to issue up to $2.3 billion in common shares to beef up its regulatory capital ratio.
Davie Yards Inc. has announced an agreement to get a US$10-million financial injection from shipbuilder Bergen Group of Norway and Davie client Cecon ASA, a Norwegian subsea installation contractor.
Major Drilling Group International Inc. climbed 15 cents to $11.11 after an August-October profit of $29.3 million, up from $22.6 million a year ago, as revenue rose 22 per cent. However, the global provider of mine-drilling services warned of a slowdown next year, especially in base metals.

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