On Wednesday, the S&P 500 was down 0.2% but Toronto was up 0.2% as the price of oil continues to rise.
West Texas Oil, WTI is now just over U.S. $46. That’s about $60 Canadian which is actually not a low oil price except in relation to some of the peak years for oil prices. If Canadian producers are not making a profit now then maybe they should think about whether their usual complaint to government applies to them also” “You don’t have a revenue problem, you have a spending (expense) problem”. Granted, most of Canada’s oil is heavy oil and the benchmark there is lower at U.S. $34.62 or about $45 Canadian. Again, I don’t think this is really such a low price if you look at the last 30 years.
Gainers today included Shopify – up 4.25% and Amazon – up 2.1%, presumably because online shopping is set to continue apace with the continued pandemic.
I bought some Couche-Tard shares today. I thought they would go up after their strong earnings report. But the market may be very skeptical that the high gasoline margins can continue. In any case it has been a great company to buy and hold.
The Bombardier pref share that I still keep an eye on (BBD.PR.C) was up 10.7% to $9.74. It’s risky but it pays $1.5625 per year to yield 16%. It is a perpetual preferred, not a rate reset. But note that the Bombardier common equity shares are trading at just 41 cents. The common equity market value of Bombardier is $1.1 billion and the Enterprise value (ads debt) is $12.7 billion. I think that what this means is that the market considers that the debt investors in effect own most of Bombardier by far and that there is a risk that the common equity will become worthless. If that were to happen then I don’t see why the preferred shares would be worth anything either. If Bombardier ever goes bust it seems more than possible that the debt investors would get less than a $1.00 on the $1.00 and that the common and preferred investors would get nothing.
I believe I have said before that over the past 20 years parties that have done well from Bombardier would include debt investors, executives. employees (except the many that lost their jobs) and the pref investors. As long as it does not actually go bankrupt it keeps making its high interest and pref share distributions. Common equity investors have seen huge losses over the last 20 years (like 98% or so).
It can be argued that the governments would never let Bombardier go broke. But is that true? The governments might well try to protect the jobs but I doubt they would try to protect investors.
The bottom line is that the debt and the preferred shares of Bombardier look juicy and have been juicy in terms of yield but especially for the pref shares heading to zero is a possibility. If Bombardier does start to look stronger than yes, these pref shares could rise in addition to continuing to pay the dividend. But I just point out that they should be considered risky.
On its books Bombardier shows a negative value for the common equity (due to massive accumulated losses). If the company were liquidated at book value, the debt holders would get a good bit less than $1.00 on the $1.00 and the common and preferred equity would get nothing. In a liquidation, debt holders have to get fully paid before anything goes to pref or common equity, at least that is the theory.