By Jeff Sanford
Toronto, Ontario -- April 24, 2018 -- In this week's Tuesday Ticker, Uni-Select to buy back stock, aluminum prices spiking in wake of Russian sanctions and gasoline prices rising.
Quebec-based paint distributor Uni-Select announced this week that the board of directors has approved “a normal course issuer bid,” that is, a plan to buy back shares. Today, more corporations than ever are using share buybacks to distribute cash to stock owners. Traditionally companies pay out the profit of a company to shareholders through dividend payments. But many companies now use share buybacks. The company buys up shares on the open market, cancels those. The overall share count is reduced, which boosts the earnings accruing to each share. The increase in earnings per share adds to the wealth of the shareholder through that channel, rather than through a dividend payment. In the case of Uni-Select, the board has announced that the company will, “repurchase some of its outstanding common shares through the facilities of the Toronto Stock Exchange or alternative trading systems for a period of twelve months ending April 22, 2019,” according to a press release. The company expects to buy back up to 1,500,000 common shares, representing approximately 3.5 percent of the 42,273,812 common shares of Uni-Select issued and outstanding. Daily repurchases will be limited to 32,198 common shares. According to the press release the typical average daily trading volume for Uni-Select shares has been about 128,794 over the past six months. The price to be paid by Uni-Select for any common share will be the market price at the time of acquisition (plus brokerage fees). The shares purchased according to the course issuer bid will be cancelled. The repurchase period will begin April 23, 2018 and will end April 22, 2019. According to the press release, “The board of directors of Uni-Select has concluded that the repurchase of up to 1,500,000 common shares is a desirable use of funds for Uni-Select and, therefore, would be in the best of Uni-Select and its shareholders.”
The price of aluminum is spiking. Over the past couple of weeks the price has hit new record highs. That’s going to push up the cost of manufacturing aluminum car bodies. According to those in the market the price spike is not a result of the recent tariffs Trump applied to imports of aluminum, but is rather the result of the recent sanctions applied to Russians by the U.S. government. Those sanctions apply to one of the world’s largest suppliers of aluminum, Rusal, which is controlled by an oligarch in Putin’s circle, Oleg Derispaska. With Rusal locked out of western markets some aluminum concerns were said to be buying in a panic. Rusal bonds plunged in price, sending the yield way up as investors dumped the company’s corporate paper.
Publicly-traded dealership group AutoCanada this past week announced that the outstanding balance of approximately $18.4 million of the participatory loans extended to PPH Holdings have been repaid in full by March 31, 2018. According to the press release these loans will be terminated and any associated royalties and fees that are payable by PPH to the company under the terms and conditions of the loans will also cease as of the same date. The release goes on to say that, “Proceeds from the repayment will be applied to the Company's recent acquisition of the Grossinger Auto Group in Illinois. That acquisition added $513 million in revenue from dealerships representing 11 different manufacturers, including four new brands, to the AutoCanada portfolio. It included eight metro dealerships in Chicagoland as well as six luxury and premium brands in an auto mall under one roof in Bloomington/Normal, Illinois.” PPH is a company controlled by Mr. Patrick Priestner, AutoCanada's former CEO and founder. Subsequent to repayment, the AutoCanada will no longer have any investments in Mr. Priestner's dealership companies.
Boyd Group Income Fund
Boyd Group Income Fund this past week announced a cash distribution $0.044 per trust unit for the month of April. The distribution will be payable on May 29, 2018 to unit holders of record at the close of business on April 30, 2018. Boyd Group Income Fund's policy is to pay monthly distributions to unit holders of record on or around the last business day of the month.
PPG announced earnings this past week. The global paint maker announced that it had recorded $2.2 billion in sales and income of $285 million in the first quarter. According to management sales grew 7 percent year over year. The results missed analyst estimates. Nevertheless, the share price continues to rise and is now up roughly 15 percent so far in 2018. The company also announced that it is investigating an internal report of improperly recorded expenses. PPG said it recently received a complaint through its internal reporting system regarding how the company recorded certain expenses in its first quarter. In an initial review, the company said it identified about $1.4 million of expenses that were improperly accounted for.
The price of gasoline is approaching $3 a gallon in the U.S. as the summer driving season approaches. The price of a barrel of crude oil has been heading up as OPEC production cuts reduce supply. There had been an overhang of surplus oil in the market that had been keeping prices down. But it is thought the surplus is disappearing, which is sending the price of gasoline up. Exports of crude oil from Venezuela have fallen as the country descends into economic chaos. As well, demand for liquid hydrocarbon fuels continues to jump ahead. Media commentators continually muse about a coming peak in demand for oil. As electric cars become more popular many media outlets have run stories predicting a so-called peak in demand, but that peak never actually arrived. Demand for gasoline in the U.S. hit a new record high last week of 9.86 million barrels a day. Demand in China for gasoline also continues to leap ahead. And so it is perhaps no surprise the price of crude oil and gasoline is rising. Some of China’s aging older oil fields are said to be declining in terms of output. Declines in existing fields have also limited exports from Angola. So while it is the case that oil from shale drilling in the U.S. is increasing, the bump in production there is being offset by declines in older fields. Total daily production of crude oil is not expanding at the high rates of the post-war era. Another shift in market dynamics that could put upward pressure on prices is a push by OEMs to have the North American gasoline supply adopt 95 octane gasoline as the standard, regular grade of fuel. Executives from the OEMs appeared last week before the House Energy and Commerce Committee. The GM vice president of global propulsion systems, claimed that by adopting a single, higher octane fuel as standard on the continent would, “facilitate standardize engineering and manufacturing for multiple markets,” and would be an affordable way to boost the overall fuel economy of the auto fleet. As it is, regular-grade gas is usually about 87 octane. Higher octane rates would allow higher compression ratios in the engine. But the adoption of higher octane gasoline as standard would add several cents to the cost of a gallon of gas. With the price of a barrel of crude hitting $70, there will be concerns the consumer economy will begin to slow somewhat as the average person puts more money in the gas tank, leaving less left over for spending on other goods.