Canada Stocks Close Slightly Lower, But Could Have Been Worse, And Still Near 6 Yr Highs; SNC-Lavalin Story of The Day
Canada's main stock market, the Toronto Stock Exchange, may have closed only a few points lower, but the fact that it closed nearly unchanged is impressive. That the index is hanging in at near six year high levels hit in recent days shows that investors still see some value in the market. Today alone the index recovered from a day low 15,073.82 hit late morning and slowly worked its way back to within around 12 points of the day highs hit early in the session.
Most sectors were lower on the day, with the biggest loser being Health Care. Metals and Mining bucked the trend closing up 1%.
Of commodities, gold futures gained for a fourth consecutive day - boosted by a fourth straight day of selling pressure on the greenback after the Fed said rates will remain low for some time. Gold has also been buoyed by safe haven buying amid concerns about events in Iraq and Ukraine. Gold for August delivery, the most actively traded contract, gained US$1.80 to close at US$1,318.40 an ounce on the Comex division of the New York Mercantile Exchange on Monday.
Crude oil for August delivery slipped 0.6% to settle today at US$106.17. But Bloomberg reports that hedge funds increased bets on rising crude prices to a record as fighting in Iraq threatened to disrupt supply from OPEC's second-biggest member. It cited U.S. Commodity Futures Trading Commission data showing speculators raised their net-long position in benchmark West Texas Intermediate by 4.3% in the week ended June 17.
According to Bloomberg, copper gained for a seventh session in New York, extending the longest rally in six months, as manufacturing growth in China bolstered demand prospects amid signs of tight supply. Among Canadian copper stocks, First Quantum (FM.TO) was up 3.5% and to within around a $1 of year highs.
Story of the day involved engineering and construction company SNC-Lavalin Group Inc. (SNC.TO) which was up near 2% to near $53.30, but off an early session high of $54.20 after it Monday moved to buy UK-listed Kentz Corporation Limited, a global oil & gas services company, in a cash transaction valued at near C$2 billion, representing a premium of 33% to the closing price of a Kentz share on June 20, 2014.
According to Canada BNN TV, the deal was mooted in the market over the past year and so is unlikely to be too much of a surprise.
CEO Robert Card said in an interview on BNN that SNC did not as expected move for Kentz last year when the UK company was half the price because his company had enough issues to be dealing with at the time. SNC was at the heart of a bribery scandal that led to the exit of former senior management and investors.
Card said Kentz is a very different company now from this time last year anyway after late last year agreeing to buy Valerus Field Solutions, which strengthened its U.S. shale and Latin America presence. Card noted the oil and gas services segment has been one of the fastest margin growth areas over the last decade.
As agreed, each Kentz shareholder will be entitled to receive 9.35 pounds (C$17.13) in cash for each Kentz share. Kentz was trading up 32% at near a record 928 pence in London, U.K, at around 3.15pm BST.
The board of Kentz recommended the offer to shareholders. According to Bloomberg, SNC was said to have first looked at buying Kentz last year, when the share price was less than 500 pence.
The transaction is expected to deliver strong financial benefits, including estimated annual cost synergies of approximately C$50 million by the end of the first full financial year after closing. The deal will raise its order backlog by about C$4.9 billion to about C$13 billion. SNC-Lavalin will get 40% of revenue from the resources sector after the buy.
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