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Stick with Canada in 2022, top-performing energy investor says – BNN

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Looking at oil and gas stocks this year? Think small and Canadian, at least according to the world’s leading energy fund manager. 

“Canada is, I think, the place to be in 2022,” said Eric Nuttall of Toronto’s Ninepoint Partners LP. His $950 million (US$752 million) Ninepoint Energy Fund was Morningstar’s top-performing energy-focused fund in 2021, posting a 189 per cent total return that blew away the S&P/TSX Composite Index’s 22 per cent. The second-best performer, Canoe Energy Portfolio Class, is another Canadian energy-focused fund and posted a total return of 101 per cent last year.

Nutall was helped by the overall surge in energy stocks, the best sector in the S&P 500 Index and S&P/TSX last year, and the more than 50 per cent rebound in oil prices as economies reopened and the pandemic receded. The performance comes after a string of difficult — he calls them “soul sucking” — years investing in the oil and gas business. 

“I just thought I had to make it to the other side, then I’d be the last man standing,” he said. 

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Energy investors in 2021 benefitted from what Nuttall called a “disproportionate” increase in smaller-cap Canadian energy companies like Baytex Energy Corp. and Cardinal Energy Ltd., both of which rose over 420 per cent last year. But the fund’s most prescient trade was buying 53 million shares of beleaguered oil sands producer Athabasca Oil Corp. from Norway’s state oil company Equinor ASA in January 2021. 

At the time, Athabasca had US$450 million of debt maturing in February 2022. Its total market value was less than US$80 million. But as oil prices rose and Athabasca’s cash flow improved, the company refinanced its debt, pushing almost US$90 million in maturities out to October 2023 and an additional US$350 million to 2026. The stock gained 600 per cent last year.
 

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Equinor spokesperson Ola Morten Aanestad described the divestment as a “financial investment,” adding that the fund has exited the oil sands industry but remains active in Canada’s offshore oil and gas production.

Athabasca chief financial officer Matt Taylor said in an email that the company’s balance sheet refinancing was a catalyst for the shares. “The stock’s performance and trading volume (in 2021) is reflecting this optimism and we have attracted a number of new investors like Ninepoint.”

Meanwhile, Nuttall is searching for similar deals to boost his returns for this year. But he acknowledges it will be difficult to come up with another Athabasca. 

“That one was special,” he said.

Despite breaking out in 2021, Canadian oil and gas companies trade at lower valuations, an average of 16.11 times their earnings, than their U.S. peers, trading at 21.49, according to data compiled by Bloomberg.

Nuttall said the country’s producers can “force a re-rating” by using free cash flows from higher commodity prices to aggressively buy back shares and boost dividends. That would get the attention of fund managers who have exited the oil and gas industry due to concerns related to ESG investing strategies.

“The commonality of all fund managers is you can be fired by the click of a mouse button in three nano seconds,” said Nuttall, adding that the industry’s returns should leave investors with the fear of missing out. “That FOMO, that performance anxiety, is going to lead to the generalists coming back to the space.”

Nuttall is bullish on crude in 2022 but sees a few potential risks to oil prices. He’s particularly concerned about the potential for a new “vaccine resistant” coronavirus variant that hurts oil demand, and the possibility of larger than expected increases in supply from either U.S. shale oil producers or Iran, if sanctions lift.

The West Texas Intermediate oil price benchmark is currently trading at US$77.69 per barrel on a spot basis, and futures contracts are trading above US$70 per barrel through Jan. 2023.

“If you don’t get the call on the commodity correct, then you’re doomed,” he said, adding that bad calls on commodity prices can sink otherwise smart investments in geographies, sub sectors, resource types or alternatives. 

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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