After largely ignoring Canada’s two publicly traded grain companies for the past few years, Bay Street investors are suddenly looking west and pulling out their wallets.
Share prices for Saskatchewan Wheat Pool and Agricore United have climbed sharply since Christmas.
Sask Pool’s stock increased from $6.60 on Dec. 23 to $8.45 on Feb. 6, an increase of about 28 percent.
More than one million pool shares changed hands on 11 separate trading days, reaching a high of 3.03 million on Jan. 31.
“Certainly my phone has been ringing off the hook from potential investors and that’s good,” said Colleen Vancha, SWP’s vice-president of investor relations.
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During the same period, AU’s stock rose from $6.78 to $8.64, an increase of 27 percent.
There was much less activity in AU shares, with daily trading ranging from fewer than 7,000 to more than 450,000 shares.
Neither company has made any significant business announcements in the last month that would account for the price spikes.
Rather, say market analysts and company officials, a number of unrelated factors have come together at the same time:
- An increased public profile for SWP, including being touted by a highly influential commodities trader on national television in the United States and featured in a major Canadian business publication.
- A decision by the investment firm BMO Nesbitt Burns to track and report on the two companies, including setting positive target prices for both.
- Growing optimism about prospects for the coming crop year, in light of good moisture conditions.
- An expectation that the new federal government will end the Canadian Wheat Board’s single desk and perhaps reduce its role in transportation logistics, which could translate into higher profits for grain handlers.
- Strong balance sheets for both companies.
As far as National Bank Financial analyst David Newman is concerned, the jump in SWP stock can be traced directly to three sentences uttered by a renowned commodities trader on national television in the U.S.
During a discussion of stock market prospects on a Fox News network program Jan. 21, analyst and author Jim Rogers uttered the following words:
“Saskatchewan Wheat Pool is a stock no one has heard about. It trades on the Canadian stock exchange. It was run by bureaucrats as a co-op for years, it got new management and is coming around.”
Over the next three days, SWP’s share price increased by 50 cents, with more then 6.5 million shares changing hands.
That’s no coincidence, said Newman.
“As soon as he said he was looking at it, then every hedge fund and U.S. investors all piled into it,” said Newman. “He really moves markets.”
SWP has also received attention in recent weeks in
Report on Business TV and the Globe and Mail and from a complimentary business study by Harvard University.
“Certainly we have had a higher profile and there are more people talking about the company’s prospects,” Vancha said.
That has triggered more interest from “value investors,” who are concerned more with a company’s underlying strength and longer-term outlook than with daily weather events and short- term results.
David Carefoot, vice-president of corporate finance and investor relations for AU, said the biggest single factor in AU’s price rise is probably the Jan. 28 announcement by BMO Nesbitt Burns that it would begin covering AU and the pool.
It set a target price of $10 for AU and slotted it into the category to “outperform” the market. For SWP, it set a target of $8.40 and slotted it to perform at the level of the market.
“That seemed to precipitate for us a lot of activity that day and a strong run-up of the stock that was sustained for a couple of days,” said Carefoot.
An official with BMO declined to comment on either company, other than to say investors are definitely interested in both.
As for the impact of the change in government and possible changes to the CWB, Vancha said she believes there isn’t enough solid information about the government’s intentions and the possible impact on grain handling companies for investors to make informed decisions.
One school of thought holds that deregulation of grain marketing and transportation would result in consolidation of the industry, with smaller grain companies being swallowed up by the four industry giants: SWP, AU, Cargill and JRI International.
That would mean higher margins and bigger profits for those companies, which would attract more investors and boost share prices accordingly.
