A lump sum investment in 1992 in the common shares of Nova Corporation would have produced a compound annual rate of return of 10.95% if the investment was divested on July 30, 1997. A lump sum investment in 1992 in the common shares of TransCanada Pipelines Limited would have produced a compound annual rate of return of 13.86% if the investment was divested on July 30, 1997. The closing prices on July 30, 1997 for Nova and TransCanada were $CDN 12.00 and $CDN 27.60, respectively.
Nova Corporation is an integrated natural gas services and petrochemicals company. The company's chemical business is North America's fourth largest and lowest cost producer of ethylene, sixth largest and lowest cost producer of polyethylene and second largest producer of polystyrene. Nova also owns 25% of Methanex Corporation, the world's largest and lowest cost producer of methanol. The company operates one of the world's most technologically advanced and cost efficient natural gas transmission systems which transports 18% of the natural gas produced in North America. Nova has a 26% interest in NGC Corporation, a leading gatherer, processor, transporter, and marketer of energy products in the United States. Nova's sales increased roughly 50% from 1992 to 1996, reaching $CDN 4.7 billion in fiscal 1996. Net income in 1996 was $CDN 431 million, up from net income of $CDN 152 million in 1992. Quarterly reports indicate earnings per share of $CDN 0.53 for the first six months of fiscal 1997. At an estimated annual earnings per share of $CDN 1.06, the stock is currently trading at a P/E ratio of 11.3 to 1.
TransCanada Pipelines Limited transmits, markets, and processes energy for customers in North America and around the world. Its pipeline system transports natural gas and crude oil from the Western Canadian Sedimentary Basin to North America's major energy markets. TransCanada's sales increased from $CDN 4.0 billion in 1992 to $CDN 10.8 billion in 1996. Net income during the same period increased from $CDN $329 million to $CDN 425 million. Quarterly reports indicate earnings per share of $CDN 0.94 for the first six months of fiscal 1997. At an estimated annual earnings per share of $CDN 1.88, the stock is currently trading at a P/E ratio of 14.7 to 1.
Most of Nova's and TransCanada's natural gas and oil transmission operations are subject to authority of various provincial, state and national regulatory bodies with respect to tolls, construction, operations and accounting . Approximately 1/2 of Nova's net income of $CDN 431 million in 1996 can be attributed to regulated businesses and approximately 3/4 of TransCanada's net income of $CDN 425 million can be attributed to regulated businesses.
Nova management believes that the largest factor influencing Nova's earnings is the profitability of its petrochemical operations. In the first six months of 1997, earnings from Nova Chemicals were up $CDN 44 million to $CDN 128 million and earnings of Nova Corporation were up 22% from the same period last year. I expect an investment in Nova Corporation will produce a compound annual rate of return of 11% to 16% over the next 36 months. TransCanada is trading at record highs. I expect an investment in TransCanada Pipelines Limited will produce a compound annual rate of return of 7% to 12% over the next 36 months.
Click here to view Table 1.1 Comparative
Earnings Performance.
Click here to view Table 1.2 Price Earnings
Ratios.
Click here to view Table 1.3 Record of Common
Dividends.
Click here to view Table 1.4 Financial Position
and Capitalization.
Click here to view Figure 1.1 Balance Sheet
Ratios.
Click here to view Figure 1.2 Earnings and
Retained Earnings Statement Ratios.
Click here to view Figure 1.3 Combined Ratios.
Click
here to view Figure 1.4 Value Ratios.
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