Tony Lepage

I’ll be doing some travelling so I’ve opened a flickr account. I haven’t figured out how to properly link to it, so for now, here is the url:

http://www.flickr.com/photos/toomanypixels/

Watch for many updates this week.

“A government more dangerous to our liberty, than is the enemy it claims to protect us from.” - Keith Olbermann

And how did things get like this? One word: Complacency.

If you think you can’t make a difference, you deserve nothing different.

Is anyone else afraid to travel to the USA?

The federal government has dropped a bomb on the Canadian stock markets today. This bomb may have given us an opportunity to invest in relatively undervalued companies.

Before I get into these opportunities, I’d like to discuss what the conservative government announced.

An investor holding a stock on the market, is taxed (on any gains) when the stock is sold and on any dividend payouts. The earnings of the same corporation are also taxed.

An income trust is a way for a corporation to reduce the taxes it pays while the taxes an investor pays are somewhat increased. While the taxes are slightly higher for investors in income trusts, the net taxes the government will collect are a lot lower than if the company was (or remained) a corporation. The Canadian markets are the home to the most income trusts worldwide.

The problem of income trusts has been identified by both the Conservative and the previous, Liberal governments. However, it is important to note that in 2005, when Minister of Finance, Ralph Goodale reported that income trusts cost the Canadian Government $1 billion a year, the Conservatives were on board to ‘save the trusts.’

Regardless of political tactics, it is clearly evident that trusts do not promote the growth of an economy on either a micro or macro scale. A share is focused on growing revenue. A trust is focused on paying that revenue out. For example, of the top 50 Canadian income trusts, 75% pay out more than they earn.

If a company is going to pay out the majority of its revenues, it is very possible that it stops growing. Trusts are very appealing to individual investors because they have a high payout, usually monthly, and average from 10-20% annually.

I’ll leave the discussion of income trusts at that—for now.

Opportunities Knocks?

Two of the heaviest hit stocks were Bell Canada Enterprises (ticker: BCE) and Telus Inc (ticker: T). Telus and Bell are two corporations that had announced plans to convert to an income trust. Because of the recent announcements, Telus stated that they will not be going forward with the conversion, and I doubt BCE will follow through either.

Below are my evaluations of BCE and T.

Bell Canada (BCE)
[p] 28.10 -11.36%
[s] 927.1 million
[e] 1.8 billion
[eps] 2.04
[a] 53.2 billion
[l] 12.1 billion
[b] 41.1 billion
[d] 1.32
[p/e] 13.70
[p/b] 0.63

Bell has shown consistent earnings for the last five years. They have also shown dividend growth for the last five. They are also on target to reducing spending, as planned. They have been laying people off. They were able to meet their planned cost reductions by reducing the number of consultants and contractors they’ve hired. By doing this have been able to lower the number of layoffs that they had originally planned (from 3000-5000 layoffs to less than 3000).

I am going to closely watch this stock and learn a lot more about them. I will be deciding whether to invest in BCE over the next couple of days. I really like their book value, and their price to earnings ratio.

Telus (T)
[p] $56.15 -13.52%
[s] 341.3 million
[e] 567 million
[eps] 1.63
[a] 16.0 billion
[l] 5.7 billion
[b] 10.3 billion
[d] 0.55
[p/e] 23.49
[p/b] 1.86

Telus has been a very active stock of late. The stock is up significantly from where it was a year ago. The P/E ratio of Telus is too high for me to want a bite and their earnings don’t look as steady as I’d like. There also seems to be a high possibility they won’t see an increase in earnings for 2006. I like the company; they’re growing their subscriber base across Canada. They have a significant subscriber base in the west. They are also the nation’s number two internet provider holding 85% of the internet subscribers from Western Canada.

If Telus’ stock becomes cheaper (ie, lower P/E and P/B), I may decide to buy. However, I don’t think the stock will be heading low enough to become a deal anytime soon.

Five years of Earnings: BCE & T


Legend
Price per share [p]
Total shares including options [s]
Total earnings [e]
Earnings per share (on common shares and after tax, etc) [eps]
Total assets [a]
Total liabilities [l]
Book Value (assets - liabilities) [b]
Dividend [d]
Price to earnings [p/e]
Price to book value [p/b]