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Carney calls it quits – should you care?

Also, brief updates on the Spartan-Pinecrest tie-up, the purpose of Capital Power's proposed shareholder rights plan and the impact of WestJet's "premium economy" seating

Nov 26, 2012

by Max Fawcett

The big news of the day is, of course, Bank of Canada Governor Mark Carney’s surprising decision to take on the top job at the Bank of England. For investors the decision is probably more noise than news, although on BNN this morning Larry Berman noted that Carney’s successor is likely to be less hawkish on the Canadian dollar, which could apply a bit of downward pressure on the loonie. For Alberta oil and gas producers, who benefit from a positive differential between the greenback (which they get paid in) and the loonie (which they tend to pay out in), that could be good news.

In the short-term, at least, the news last week that Pinecrest Energy (TSXV:PRY) and Spartan Oil (TSXV:SPO) will join forces and create a new entity wasn’t good for either company’s shareholders. Both company’s shares popped on the news, and then retreated to lower levels than they were trading at prior to the announcement. Still, Pinecrest CEO Wade Becker – who will lead the new company, the name of which has yet to be determined – thinks the combined balance sheet strength will lead to some accretive acquisitions. “[It]opens up the door to large, transformational assets that we would not be able to participate in before individually,” he said in a conference call on Wednesday.

Edmonton’s Capital Power (TSE:CPX), on the other hand, has no interest in any transformational transactions – particularly ones that involve it being taken out at a discount. That’s why, according to Canaccord Financial, it announced its intention last week to implement a shareholder rights plan. “A Bay Street analyst commented that the company’s decision to implement this plan is not overly surprising in light of its YTD share price decline and the medium term outlook for a suppressed Alberta power price,” Canaccord said in a note. “Further, while the press release states that the company is unaware of any specific take-over bid, this could indicate the company has been receiving some interest. This shouldn’t come as a huge surprise as the market seems to be overlooking the company’s strong growth prospects, including $1.4 billion of organic growth from the development of four wind farms.”

And while WestJet (TSE:WJA)’s recent decision to implement “premium economy” seating may have rankled a few of the company’s traditionalists, Canaccord thinks it could add considerably to the company’s earnings power. They note that CEO Gregg Saretsky cited JetBlue, which added $150 million in top-line revenues after it added premium economy seating, as a useful comparison. That’s not the only change WestJet is bringing to the layout of its planes, either. It’s also considering allowing passengers to use their own media devices – iPads, tablets and smartphones – and broadcasting content directly to them. By doing that WestJet could remove the built-in entertainment systems on its planes and reduce the weight of each aircraft by approximately 1,200 pounds. The fuel savings alone could be considerable, and the company is still debating whether to charge for the content as well. If it did, that would obviously add further to the company’s top and bottom lines. It’s no wonder, then, that WestJet shares are currently cruising above $19.

Oh, and our stock picking contest? Here are the latest results.


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