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Just another Brick in the wall

The Brick and Leon's team up to fend off U.S. retailers, while Q3 earnings season continues for Alberta's energy sector. Also, updated leader board rankings in our stock picking contest - with a new leader.

Nov 12, 2012

by Max Fawcett

Now here’s a deal that shouldn’t get caught in the regulatory black box that Ottawa calls its net benefit test. On Sunday, word leaked out that The Brick (TSE:BRK) had received a friendly offer worth $700 million from Ontario rival Leon’s. Under the terms of the deal common shareholders will receive $5.40 per share (either in cash or debentures) while those holding Brick warrants (which closed Friday at $2.36 each) will get $4.40. The companies are joining forces – the two groups will operate as separate entities, with Brick CEO Vi Konkle remaining at the helm of her division – in order to fend off the impending approach of Target and the ongoing expansion of Walmart in Canada.

We’ve covered the Brick fairly frequently over the past few years. Check out Cheryl Mahaffy’s September 2010 story about the company’s successful restructuring, Curtis Gillespie’s 2003 Business Person of the Year profile of Bill Comrie, and Fabrice Taylor’s recommendation to buy the stock back in July of this year – a call that would have made you a nice chunk of change.

There are no takeovers to report over in the oil patch, but third quarter earnings season continues to roll along. Canaccord Genuity’s Phil Skolnick reiterated his buy rating on Canadian Natural Resources (TSE:CNQ) despite another disappointing quarter. “It’s tempting to be cynical about what the company is saying and throw in the towel after seeing Horizon disappoint for a third time (and after being wrong on this buy call),” he said. “However, due to massive share price underperformance YTD, we believe the market has already penalized CNQ enough for Horizon and oil differential risk.” The company has been beaten up because of the spreads between WTI and the crude it’s selling into market, but Skolnick says that could change quickly. “We reiterate our view that the rapid rail developments can also provide for narrowing more nearer term in a surprising way. This, combined with a rise in WTI oil prices, would be very bullish for CNQ as it has the most torque to both events.”

Brian Kristjansen had more cause to be optimistic about PetroBakken (TSE:PBN) based on its decent third-quarter earnings and its spike in late-quarter production. “Early November production was cited at 45,000 BOE/d with an additional 2,500 BOE/d behind pipe awaiting a facility completion at Brazeau and 53 net wells already drilled and awaiting completion or tie-in,” he said. “Seventeen rigs are currently running and the company plans to drill an additional 42 net wells and bring 74 onstream by year-end adding estimated flush production of 18,500 BOE/d. Timing and steep initial declines don’t make this number additive to November production but it does underscore the achievability of exit guidance.”

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The company also continued to add to its latest – and still secretive – prospective acreage, adding 218 net sections to the unnamed play and bulking up its holdings in the Nordegg, Montney, Swan Hills and Duvernay plays to 294 net sections from 190. This combination of current operational growth and long-term upside has Canaccord putting a $20 price target on the company. “The company offers a rare combination of both yield and growth, boasting an attractive 8.0 per cent yield (paying out only 24 per cent of 2013 cash flow pre-DRIP) while delivering forecast 24 per cent production per share growth,” Kristjansen said. It is, not surprisingly given the spread between their target price and its current share price ($12 and change), rated as a buy.

Even less surprising is the fact that a major takeover – with a major premium attached to it – has shaken up the leader board of our stock picking contest. Check it out.

 

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