SASKATOON — If UGG’s experience is any guide, Saskatchewan Wheat Pool shareholders should buckle in for a stomach-churning ride if pool shares begin trading publicly.
The performance of United Grain Growers shares on the Toronto Stock Exchange since the company went public last July 28 can best be described as volatile.
After opening at $8, the shares immediately dropped in value, bottoming out at $6.63 in early December. They took off during the winter, peaking at $11 in February and since than have been on a slow but steady decline. Last week’s stock market collapse drove the price down to $7.75.
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Stock market analysts say the wide and unpredictable swings have as much to do with general economic and market trends as they do with UGG.
“We’re in volatile times,” said Bob Meaden of Midland Walwyn Capital Inc. “It’s been very difficult for any stocks to show any consistency.”
As of June 17, UGG’s share price had increased 9.4 percent, compared with 5.9 percent for an index of 300 TSE stocks.
Then came last week. A drop in the value of the U.S. dollar fueled fears that higher U.S. interest rates would hamper economic recovery and reduce investment in the stock market. The TSE 300 dropped by five percent and UGG couldn’t buck the trend, dropping by a dollar to $7.75.
Nevertheless, UGG’s chief executive officer Brian Hayward says he’s generally pleased with the stock’s performance, adding that day-to-day fluctuations aren’t that important.
“I don’t spend a lot of time worrying if it went up one day and the next day it went down,” he said.
He said that in the first five or six months of trading, “the marketplace wasn’t negative on us, but it was indifferent.” Investors were reluctant to buy into a company and an industry they knew nothing about. As UGG educated potential investors about the company and the grain industry, more stock was bought and the price moved up.
“UGG, in the scheme of the TSE, is a smaller company,” said Hayward. “Just getting noticed is an issue.”
During the winter, the price was supported by positive news from the farm machinery and fertilizer industries and interest shown by U.S.-based mutual funds and insurance investors. Also around that time, UGG issued warrants for another two million shares.
Meaden said most stocks trade on the basis of their earnings, and until last week’s drop, UGG’s share price was about 16 times earnings, which is “probably a pretty fair value.”
Sask Pool officials have said there’s no way to predict with certainty what will happen to the value of pool shares if they are traded on the stock exchange, given the number of factors that affect the market.
But at a membership meeting in Davidson last week, chief financial officer Lyle Spencer made it clear what he thinks will happen.
“There shouldn’t be a reduction in price, but rather they should go up,” he said. “It’s my opinion this company is an awful lot stronger than UGG at the time they issued their shares.”
