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Analyst keen on RIM Analysts continue to weigh in on the fortunes and misfortunes of Research In Motion Ltd. in the run-up to the BlackBerry maker's quarterly results in mid-December.
While many have a downbeat view of the Canadian tech icon, Gus Papageorgiou of Scotia Capital is particularly wary of the herd mentality. Indeed, he believes RIM shares are "absurdly oversold," and he continues to rate the stock as "outperform."
Remember, when RIM last reported it didn't have the benefit of its new BlackBerry 7 phones, but this quarter should shed some light there. And, as Mr. Papageorgiou noted today, the company is profitable, and still has 70 million subscribers.
"RIM remains a highly profitable company with a growing subscriber base yet it is trading as if the underlying business were distressed," he said.
"We expect financial momentum for the company to begin to turn this quarter and improve as we roll through 2012."
Scotia Capital projects sales in the area of $6.4-billion (U.S.), compared to Street expectations of $5.5-billion.
"Given the share price performance we have been tempted to bring down these expectations," he said. "However, there are some key variables that keep clawing at the back of our mind. Key amongst these is that volume numbers in the last quarter grossly understates the sell through."
Mr. Papageorgiou ran through several calculations, adding that the only way his numbers go out of reach is if demand "falls off a cliff."
"But there is no evidence of that," he said. "Enterprises are upgrading to the 7.0 series devices, the Bold 9900 has been in short supply on Vodafone U.K.'s website from the time it was released to just last week, in a recent phone survey 46 per cent of AT&T stores (RIM's biggest U.S. channel) reported they were out of stock on that device and 85 per cent suggested the device was selling well, and the device has been one of the top five most traded devices on GSM Exchange's web site since it launched. It is hard to gauge sales in places like Latin America, Southeast Asia and the Middle East and Africa but RIM maintains very strong share in all those regions and we believe the launch of the new devices will be a boost for volumes in those regions."
Another analyst today, though, cut his recommendation to "neutral" from "buy." He believes the company has value as a takeover target.
Earlier this month, Goldman Sachs Group Inc. analyst Simona Jankowski boosted her rating on RIM to "neutral" from sell," but cut her price target and changed the way she values the company.
"We are upgrading RIM to neutral from sell, as we believe the stock's discount valuation at a P/E of 3.8X our below-consensus CY12 EPS estimate already fairly captures our fundamental concerns," she said.
"We are transitioning from P/E to sum-of-the-parts valuation for the stock, which we view as a more meaningful valuation methodology at this stage, given the company's likely rapidly declining earnings trajectory. Our sum-of-the-parts valuation assigns value to three of RIM's assets: (1) its intellectual property (IP), (2) its services cash flow stream, and (3) its cash."
She estimated RIM is worth about $9.6-billion on that sum-of-its-parts basis. That's intellectual property at $3.4-billion, services cash flow at $4.8-billion and cash and investments at $1.4-billion.
Markets rally Global markets are rallying this morning, but much of the optimism appears based on rumour and speculation related to the euro debt crisis.
"We are seeing an unusually strong start to the week by recent standards for shares in London," said David Jones, chief market strategist at IG Index.
"Once again it is expectations surrounding Europe driving the rally, although weekend reports that the IMF are discussing a bailout for Italy have been strongly denied by the organization," he said in a research note.
"However, there is still speculation that politicians have a newfound sense of urgency and are stepping up attempts to stem the crisis. Unsurprisingly there is a wave of relief flowing through the financial sector with banks the biggest gainers on the day so far. It will take a few more days of positive moves to convince traders that this rally actually has some solid foundations and is not just a dead cat bounce built on rumour and hope."
Asian and European markets were up sharply, and the momentum carried through into North America, with the S&P 500 and Toronto's S&P/TSX composite rallying.
For some observers, there could actually be something behind what's driving the markets today, notably some movement toward easing the euro crisis. Having said that, markets have seen this time and time again over the past two years.
"Another day, another positive start to the trading day," said senior economist Jennifer Lee of BMO Nesbitt Burns.
"Yes, I know, I know. We've been down this road before," Ms. Lee said in a report.
"The day starts tentatively higher, then bam! Everything gets tossed out the window shortly after. However, today, there may be something more to this rally. Reuters reported over the weekend that France and Germany are working on a much faster way towards euro zone integration, and instead of involving all 27 EU countries, will start off with a core group of around eight to 10. There is a goal to release details of such a plan by the Dec. 9 EU summit in Brussels, which is the last one for 2011."
Also helping to boost markets today were the readings on Black Friday sales in the United States, which were reported to have climbed by 16 per cent.
"We caution, however, that the correlation between the first weekend and the holiday season as a whole has not been that tight in recent years, and that online sales (which mark their big kickoff with today's cyber Monday) are of growing importance," said chief economist Avery Shenfeld of CIBC World Markets.
"Spending does continue to look better than confidence surveys would otherwise suggest, but the low savings rate and still-soft labour market still pose barriers to a sharper acceleration."
Europe under pressure The euro zone remains under intense pressure again today, amid reports that are all over the map as to what measures its leaders could take. Among them is a proposal from Germany and France for tighter fiscal integration.
Borrowing costs are still high, and Moody's Investor Service today issued a warning on the credit ratings of all euro countries.
Belgium, which was downgraded on Friday, paid a high yield of almost 5.7 per cent at a €2-billion auction of 10-year paper, while Italy saw yields on 20-year bonds climb to 7.3 per cent. But that offering was shy of what it had planned to sell.
"Rising yields in Germany (where the two-year has risen from 0.295 per cent on Nov. 15 to 0.46 per cent today, while the 10-year has risen from 1.74 per cent to 2.31 per cent ...) suggests that the market is suddenly pricing in the risk that Europe poses to Germany," said senior currency strategist Camilla Sutton of Scotia Capital.
"Essentially ... any 'solution' to the crisis lies with a cost to Germany, likely through either closer fiscal ties (which would entail a German-led funding of the more debt-laden countries) or an EMU breakup (which includes the loss of trade ties, uncertainty and an acceleration in the weakening of the European economy)."
- Germany, France press coercive euro zone debt rules
- Italy borrowing rates skyrocket
- China eyes plum European assets: minister
Greece statistician in the crosshairs The euro zone is one very weird place at the best of times, all the moreso today because of a legal case playing out in Greece over the size of the country's deficit.
The president of its statistics agency, the Hellenic Statistical Authority, or Elstat, faces a criminal probe for allegedly fattening up the country's debt-to-GDP ratio, The Financial Times reports. In Athens, you'd think that was treason. Or, as the newspaper report put it, betraying the interests of Greece.
Greece has frequently been under pressure because of its bookkeeping. In the summer of last year, someone tried to do something about it. The Hellenic Statistical Authority, known as Elstat, was overhauled, and a bunch of its staff was fired.
The man who was put in charge, Andreas Georgiou, was appointed to the post as part of a deal with the International Monetary Fund. And he came with strong qualifications, as a former IMF official about two decades.
Now - this is not a joke - Mr. Georgiou could face up to life in prison if he's convicted.
This all has to do with the 2009 budget deficit, which Mr. Georgiou's group revised up to 15.8 per cent of GDP from 13.4 per cent. But a former senior Elstat statistician and board member claimed the group did it in a bid to push through the country's harsh austerity measures. That's what the prosecutor is using, The Financial Times said.
Eurostat, the EU's statistical agency, has accepted Elstat's revisions, and uses the 15.8-per-cent figure in its measurements.
The former senior statistician told a parliamentary committee in September that "the deficit was inflated to justify the harsh austerity measures imposed on Greece by the €110-billion EU-IMF bailout package that was signed on 4 May 2010," according to news reports at the time.
Mr. Georgiou, in turn, said it revised up to take into account an interest swap worth €5.4-billion, and that "everything was done in consultation with Eurostat."
According to Mr. Georgiou, he's being chased for being the honest broker.
"I am being prosecuted for not cooking the books," he told the newspaper. "We would like to be a good, boring institution doing its job. Unfortunately, in Greece statistics is a combat sport."
Mr. Georgiou was schooled in Greece and the United States. For many years he was the deputy division chief in the IMF's statistics department, and has been responsible for monitoring economic programs with member nations.
- Greece's statistics chief faces criminal investigation
- Read Elstat's fiscal data
- Read Eurostat's data
- Read Der Spiegel's 2010 interview with Mr. Georgiou
Outlook dims The outlook for Canada's economy has dimmed considerably, but the country will still outpace most of its G7 counterparts for the next two years, according to a new OECD forecast.
Over all, the Paris-based Organization for Economic Co-operation and Development projected today that growth in the economies of the group will slow to 1.6 per cent next year, then rebound to 2.3 per cent a year later. It also projected the jobless rate among those nations to remain at 8 per cent over the two-year period.
But all of this assumes that policy makers take "sufficient action to avoid disorderly sovereign defaults, a sharp credit contract, systemic bank failures and excessive fiscal tightening." That last point certainly would not apply to several of the euro nations that are now in the eye of the storm.
Canada's economy will just about keep pace with that of the United States in 2012 and 2013, the group said, and together will lead growth among the G7.
The OECD projected Canada will see growth of 1.9 per cent next year and 2.5 per cent in 2013, almost at the pace of 2 per cent and 2.5 per cent forecast for the U.S. Japan, whose economy is seen contracting this year, will see growth of 2 per cent next and 1.6 per cent in 2013.
The new forecast calls for growth of 0.6 per cent and 1.9 per cent in Germany, 0.3 per cent and 1.4 per cent in France, and 0.5 per cent and 1.8 per cent in Britain. Italy's economy is forecast to contract by 0.5 per cent in 2012, before recovering to growth of 0.5 per cent a year later.
"The outlook for the Canadian economy has weakened significantly, mainly because of a deteriorating external environment," the OECD forecast said.
"Heightened risks from renewed financial market turmoil linked to the European sovereign debt crisis and high levels of household indebtedness are eroding consumer confidence. While business investment continues to expand robustly, weaker prospects for the global economy and persistent strength of the exchange rate are projected to restrain export performance, tempering the speed of economic growth. Underlying inflation will remain subdued due to continued significant economic slack."
Cameco gives up on Hathor Canada's Cameco Corp. has given up its quest for Hathor Exploration Ltd. , alowing mining giant Rio Tinto Ltd. to win the spoils of a bidding fight.
"After careful consideration we cannot justify increasing the price beyond our current offer and accordingly, we will let our offer lapse," said Cameco's chief executive officer Tim Gitzel. "Cameco has remained disciplined through the bid process to ensure that we make the best decisions for our company and its shareholders."
Rio Tinto upped its friendly bid for Hathor to $4.70 a share earlier this month, topping Cameco's $4.50-a-share bid. The Rio Tinto bid values Hathor at about $654-million, The Globe and Mail's Brenda Bouw writes.
Cameco is the world's biggest uranium producer, and Mr. Gitzel said the decision to bow out of the fight for Hathor won't hurt his plan to double annual production to 40 million pounds by 2018.
"Our plan involves existing assets in our development pipeline and we remain on track to meet our objectives," he said in a statement. "We will continue to explore other growth opportunities, but only where there is a clear benefit to our shareholders."
What to watch for this week We'll get a sense of the state of the Canadian recovery when Statistics Canada reports Wednesday on how the economy performed in the third quarter and then releases its key jobs reading for November on Friday.
Economists expect to see that the economy rebounded in the third quarter, by about 3 per cent annualized, after stalling in the second. Still, the outlook is dimmer.
"Looking forward, economic momentum is likely to cool as headwinds facing Canadian households grow stronger," said economist Diana Petramala of Toronto-Dominion Bank. "An unsatisfactory pace of job growth - zero net gains in employment since July - in combination with poor consumer confidence and ongoing losses in equity markets are expected to slow the pace of spending growth over the next few quarters."
The employment report, in turn, isn't expected to be as bad as the one for October, when the country lost 54,000 jobs. But the jobless rate isn't expected to come down either.
Economists expect to see job creation of anywhere from 5,000 to 25,000, with the unemployment rate remaining at 7.3 per cent or perhaps ticking up to 7.4 per cent.
"With external uncertainties cited as the main reasons for a more constrained business outlook (as cited in the Bank of Canada's Business Outlook Survey) the pace of domestic hiring could continue to suffer from dampened expectations for U.S. demand, and the slings and arrows of an escalating euro zone crisis," said Emanuella Enenajor of CIBC World Markets.
Markets will be far more focused on the U.S. jobs report, also on Friday, given the crisis in the U.S. labour market after the recession that threw millions out of work. But there, economists expect to see that about 100,000 jobs or more were gained in November, with, as Sal Guatieri of BMO Nesbitt Burns put it, "companies likely inspired by the recent modest upturn in consumer spending." The unemployment rate is projected to remain around 9 per cent.
There are some key earnings this week, as well, as the major banks begin reporting fourth-quarter results. Among them are Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and Royal Bank of Canada. Bombardier Inc. also reports results.
"We forecast provisions for credit losses to remain stable with risks increasing, while we expect capital markets to remain depressed in the immediate period, with risks tilted to the downside," said UBS Securities Canada.
- Canada's outlook: Partly cloudy with a chance of disappointment
- Cost-containment a buzzword for Canadian banks' outlook
- Follow our calendar through the week
Business ticker
- Judge rejects SEC-Citigroup settlement
- Prime settles dispute with Cara, signs Fairfax takeover deal
- Bombardier wins Mumbai rail deal
- U.S. Black Friday retail sales hit record
In Economy Lab What it means to live a normal life has changed significantly in the past few years, Miles Corak writes.
In International Business Icap, the world's largest electronic trading platform for foreign currency, has been preparing for the possible breakup of the euro, Nicole Bullock of The Financial Times reports.
In Globe Careers Coaching has become popular theses days, but in some cases it doesn't work out. On his blog, Silicon Valley-based entrepreneur Rajesh Setty offers seven reasons why coaching programs might not work for you. Harvey Schachter reports.
From today's Report on Business