Stockwatch 2010

Stockwatch 2010 lists
See Stockwatch 2009 and Stockwatch 2008.

It was a mixed year for Alberta’s publicly listed companies. While the TSX/S&P benchmark index produced a return of more than 15 per cent (as of this writing), many of the province’s blue chip names – Suncor, Imperial Oil, Canadian Oil Sands Trust, Encana – either gave up ground or failed to match the index. Instead, the performance of local stocks was defined, in ways both good and bad, by the return of the oil sands and the downward spiral of natural gas prices.

The former was, by and large, good news. Two big initial public offerings were launched, raising $2 billion. One, Athabasca Oil Sands, was an unmitigated disaster as the units fell by more than 50 per cent within weeks of hitting the ticker tape. MEG Energy fared better.

Interestingly, both companies have Chinese backers. The Chinese were also active elsewhere: Sinopec bought ConocoPhillips’ nine per cent stake in Syncrude for almost $5 billion. At that price, Canadian Oil Sands Trust, which owns three times more of Syncrude than Conoco did, should have been worth almost $20 billion. It was only worth about $13 billion. The Chinese appear to value our oil sands more highly than we do.

Speaking of Syncrude, it showed just how hard it is to mine bitumen in a reliable way – and how easy it is to disappoint investors – when Canadian Oil Sands announced a massive dividend cut and a huge increase in capital spending, just to keep its plant running at current levels. Investors began to wonder if Syncrude would ever be able to run at its designed capacity of 129 million barrels a year.

It wasn’t just the Chinese that showed an interest in bitumen. Thailand’s national oil company paid US$2.3 billion for a stake in an oil sands project owned by Norway’s Statoil. The Koreans and the Japanese are also active players now.

The death of a thousand cuts, meanwhile, continued for gas producers. Compton Petroleum, despite having spent the greater part of 2009 trying to shore up its debt-heavy balance sheet, watched its stock fall 50 per cent to 42 cents. The company is the poster child for that segment of the market, many of whose participants won’t make it.

Not all the energy action surrounded gas and oil sands. Conventional oil also made gains. Tourmaline Oil went public in November, raising $230 million as investors rewarded CEO Mike Rose with their money and confidence after his success at Duvernay.

The top-performing big-board stocks were energy-related: Pace Oil and Gas (up 690 per cent); Transglobe Energy (414 per cent); Canyon Services Group (374 per cent); Bonnet’s Energy Services (240 per cent).

But not all the action was in energy. Defensive stocks, including Atco and sister company Canadian Utilities, pipeline firms, Canadian Western Bank and other dividend-paying stocks did well as investors sought out stability and income. Not all utilities thrived, though: TransAlta, despite paying a big dividend, lost investors money.
The big loser on the TSX was RS Technologies, which makes utility poles out of a resin compound. It lost 98 per cent of its value.

Technology also figured in the scheme of things: Smart Technologies, which makes high-tech white boards used in classrooms and board rooms, went public with great fanfare but flopped.

The energy trusts were a mixed bag. Baytex gave investors 55 points of return while NAL cost investors money. Pengrowth returned 40 per cent, proving, it seems, that management can have an impact on an oil trust as Derek Evans finished his first full year in the corner suite.

In the midcap non-energy segment there were also some great winners. Carfinco Income Fund, which lends to “non-prime” buyers of used cars, gave investors a 218 per cent ride. The Brick Group doubled and Cash Store Financial treated its owners to a 30 per cent gain.

Some smaller technology companies also made a splash. Wavefront Technology Solutions, which is developing water-flood equipment that increases oil recoveries, signed a number of small contracts as it gained traction (although its stock fell sharply).

And Synodon, which is developing a very promising technology that tests for gas leaks in pipelines, also made great strides, signing almost every major pipeline company to trial contracts. Its stock is also down on the year but it’s recovering strongly.

Interestingly, the biggest winners were on the big board, not on the Venture, where you usually find more losers but also more home runs. The top junior market performer was Huntington Exploration, up 380 per cent. The top five averaged 294 per cent, less than the top five TSX performers.

To peer into the tea leaves that was this year’s performance, it seems that renewed interest in the oil sands will do right by the shares of companies involved in that work. The gas glut, according to analysts, shows no sign of abating for several years.

January 1 – December 31: He’s not smiling, it’s just gas

In what seems like a cruel and prolonged joke, natural gas, the champagne of fuels, hits rock-bottom prices even as the cry and hue for cleaner fuel reaches a high pitch. Thanks to shale, gas is plentiful and cheap. But no one cares, especially politicians and car makers, who are determined to make electric cars that effectively run on coal-fired electrical power. AJM Partners adds to the good cheer in October by slashing its benchmark forecast to levels that barely produce a profit for Alberta wells. Gas producers try to keep the wolf from the door by scouring their lands for oil. Good luck with that.

April 8: Calling all suckers

Athabasca Oil Sands (TSE:ATH) goes public at $18 a share, giving the 3½-year-old company a stock market valuation of $7 billion. A little more than a month later, the shares are worth $10. As of this writing, they’re worth $14, riding a wave of renewed investor enthusiasm for the oil sands. If you bought at the bottom, you’re up 40 per cent. If you bought at the top, which happens to be the initial public offering, you’re still down. It is, with little doubt, the worst-timed IPO in Alberta history.

July 14: Smart Technologies makes investors dumb

Calgary-based Smart Technologies (TSX:SMA) goes public at $17 a share, marking the biggest technology IPO in Canada in 10 years. Pretty much as soon as it starts trading, the stock made a beeline for $8, and is hovering at about $9 now. Smart makes “interactive white boards,” which are basically fancy chalkboards. Investors who bought this dog on the IPO obviously didn’t read the prospectus. Recent sales had been boosted by U.S. stimulus spending. Oh, and Smart was backed by Apax Partners, which also backed Smart’s biggest competitor, the U.K.’s Promethean, which went public earlier in the year and also plunged after making its debut. Dumb and dumber, you might say.

August 6: An A+ in IPO 101

After scaling back its IPO size and pricing (thank you, Athabasca Oil Sands), MEG Energy (TSX:MEG) goes public at $35, stumbles a little but then never looks back, rising 15 per cent in its first three months. Like Athabasca, MEG is China-backed. Unlike Athabasca, it’s already a producer. And most importantly, unlike Athabasca, MEG’s owners didn’t pay themselves a big fat dividend just before going public. The IPO money was meant to build the company’s assets. What a concept.

September 9: Call before you dig, not after

Proving that there’s more to Alberta’s publicly traded universe of firms than oil and gas, shares in Synodon (TSXV:SYD) perk up after a natural gas pipeline explosion in San Francisco. Synodon’s leak-detection technology, inherited from the Canadian Space Agency, can find a leak from a fast-moving aircraft instead of by walking up and down a pipeline, as is the current method. Proving that no one cares about non-energy companies, Synodon’s market value is at most a single digit percentage of what it will cost pipeline owner Pacific Gas & Electric to pay for the mess.

October 25: Ducks limited

It’s another black eye for Syncrude as a couple hundred more ducks make an emergency landing into its toxic tailings ponds and either die of their own accord or are euthanized to spare them the agony. It helps that this happens on the heels of a visit by James Cameron, the movie director, who flies into Fort Mac to criticize the oil sands economy. It also helps that it follows a similar but much bigger mishap a couple of years earlier, for which Syncrude was fined and, far worse, castigated internationally. Syncrude doesn’t deny any wrongdoing, but word is that it reassigned scientists to genetically create more intelligent ducks.

Top 7 IPOs

Click on Ticker symbols for todays’ data, and on company names for websites

*All information as of December 2, 2010

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