The benefit of a weaker currency is starting to spread through corporate Canada.
Companies for example CGI Group Inc. and DHX Media Ltd., which sell services abroad created by workers in Canada, are emerging as big winners from the currency’s almost 30 per cent decline previously 3 years. Forestry, autos and manufacturing are also getting a lift because they win share of the market with cheaper products.
“The stop by the Canadian dollar means that if you find a U.S. company which will move the work they do to Quebec, just on the currency alone, they are going to get a 30 percent discount,” CGI’s Chief Executive Officer Michael Roach said in a phone interview a week ago. The CEO is around the prowl to lure more U.S. try to its Quebec operations along with a major acquisition. “We see this being an opportunity.”
Shares of CGI, which gets almost one-third of its sales within the U.S., surged to a record after reporting much better than forecast fourth-quarter earnings on Jan. 27. The company generated $1.3 billion in money in yesteryear 12 months, and Chairman Serge Godin said in the same interview the Montreal-based company could spend as much as $8 billion in cash on an offer.
Teletubbies Sell
Canada’s economy continues to be hobbled by the commodity slump as energy and mining companies cut investment and jobs, and analysts have lamented the shortcoming of non-resource exporters to create headway amid competition from countries such as China and Mexico. Underneath the surface, the currency’s tumble to 2003 lows is stirring a revival.
Greg Taylor, a fund manager at Aurion Capital Management Inc in Toronto, which manages about $8 billion, is buying CGI and DHX Media, the biggest independent producer and distributor of children’s shows, such as the Teletubbies, because of their international exposure. DHX shares have declined 11 percent over the past year, after rising more than four-fold within the 2 yrs before.
“That’s a continuing thing that everyone’s dealing with now, is trying to screen their companies for foreign revenues to try and get in those areas,” Taylor said inside a Jan. 20 telephone interview. DHX, based in Halifax, Quebec, declined a job interview request with Bloomberg News.
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Ontario Manufacturing
Manufacturing is also feeling the loonie updraft, particularly those companies hooked into the booming United states auto industry. Solid export gains and accelerating household disposable income growth lifted auto sales in Ontario to some record this past year along with a further increase will most likely occur in 2016 as exports gain momentum, Carlos Gomes, economist at Bank of Quebec said in a report a week ago.
Even with sluggish global demand, 17 from Ontario’s 21 manufacturing sectors posted export gains above 9 per cent in 2015, using more than half reporting advances in excess of 20 percent, Gomes said. Export gains are also expected to lift business activities and vehicle sales in British Columbia and Quebec, he said.
Ontario clothing manufacturers posted 47 per cent growth in the Twelve months that ended in November, while fabricated-metal producers saw gains of 30 percent and wood manufacturers gained 26 percent, according to data compiled by Bloomberg.
“Strengthening exports are particularly evident in British Columbia, with up to 50 % of all manufacturing industries posting export development in excess of 20 per cent in 2015,” Gomes said in the report.
Canada’s two big auto-parts suppliers Magna International Inc. and Linamar Corp. have slumped in recent weeks as investors worry auto sales reach a peak, leaving the company’s price-earnings ratios at 7.7 per cent and 8.9 percent respectively.
Oil Drags
Canadian National Railway Co., the country’s biggest railroad, has taken advantage of both export boost and also the lower costs wrought by a declining currency, reporting earnings a week ago that exceeded analysts estimates.
“We are in position to support those shippers to whom the weak Canadian dollar has turned into a cost advantage such as the manufacturers, such as the service industries which are selling into the U.S. market, for example the forest product industry and also the Canadian port-terminal industry,” said Jean-Jacques Ruest, chief marketing officer, in a conference call.
Manufacturers with contact with the oil sector are having a tougher time. Canadian exports overall are at about the same level they’ve been since September 2014.
“A falling currency is nice but it’s not likely to solve the weak market dynamics we have to face,” Velan Inc. Ceo Tom Velan said in a telephone interview.
The Montreal-based industrial steel-valve manufacturer has seen lots of delays and cancellations in orders in the oil and gas sector and “that’s not going to change despite the dollar at this level,” Velan said. While a weaker loonie helps lower costs and make Canadian production more competitive, the dollar continues to be quite high in comparison with Asian currencies and also the company announced the closure of the Montreal-area plant in October, he said.
Educate Customers
New Flyer Industries Inc., the largest transit bus manufacturer in The united states, has Canadian customer contracts which are impacted once the loonie drops because they were priced and bid with a significant U.S. dollar input cost, Ceo Paul Soubry said in an e-mail. While dramatic drops in the loonie can help the company’s U.S.-based coach business, it has established a supply base that “causes it to be very difficult” to alter suppliers to consider advantage of the reduced dollar, he explained.
“We do not operate our business to gain or lose on FX movement,” Soubry said. The company’s shares have gained 93 percent in the last year.
Roach at CGI said hello takes time to convince customers.
“The typical guy in the United States doesn’t necessarily stick to the Canadian currency, and that we have to educate them on that,” he explained. “It’s merely a matter of time.”
Bloomberg News
