The end of NAFTA would hurt the railway companies

Photo: Gary Wiepert PC
CN and CP would not be reached in 2017 that 38% of their capacity in carrying 35,000 to 40,000 carloads, compared to 110,000 carloads in the course of their peak in 2014.

The end possible of the free trade Agreement north american (NAFTA) poses a serious threat to canadian railroad companies who were not able to take advantage of a better economy and a greater demand in the oil transportation purpose, fear experts.

 

“What is it that keeps us awake at night ?, request Kevin Chiang, an analyst at capital Markets, CIBC. The negotiations on NAFTA. “

 

According to him, the consequences of a decision by the u.s. government to withdraw from the treaty remain unpredictable. The fall almost immediate 10 per cent of the value of the stock market in the wake of the Brexit can serve as an example for the industrial sectors and transportation in Canada.

 

“We would not be surprised to observe the immediate reactions similar within the industrial complex/transport canada, particularly for firms that are very related to north american trade “, he wrote in a report published last week.

 

Fadi Chamoun, BMO capital Markets, is concerned that the repeal of NAFTA could have an influence on the evaluation of the canadian National and Canadian Pacific.

 

He wrote in a report that approximately 30 percent of the revenue of the railway companies are drawn from the cross-border trade. Of these 30 per cent, between 60 percent and 70 percent come from canadian exports to the United States.

 

In November, the Bank of Montreal predicted that Canada would experience a net decline in its GDP of 0.7 percent to 1.0 percent over a period of five years. The depreciation of the loonie would reach 5 percent.

 

This decline in the canadian dollar could promote the export of canadian. With time, it amortirait of half the fall in GDP resulting from an increase of 1.7 per cent of customs tariffs.

 

For the chief economist of BMO, Douglas Porter, the end of the NAFTA would result in impacts serious but manageable.

 

The tax reform that the United States should promote the increased earnings of the companies whose activities take place mainly in the south of the border. Mr. Chiang estimates that the decline in corporate taxes from 35 percent to 21 percent to help the CN and CP to increase the earnings per share.

 

Without these changes, the analysts were optimistic. According to them, the growth forecasts will help the rail sector.

 

The contribution of the oil

In terms of the volume of rail freight, the prospects have improved over the last six months, the cereal harvest and the automobile industry has not been low as expected. Observers expect that the transportation of the crude oil also benefits to the railway undertakings.

 

Mr. Chamoun predicts that shipments in carload will grow by about two per cent this year, after an increase of about 4.5 percent in 2017. This growth could translate into an increase in profit greater than 10 per cent for the whole of the financial year.

 

The increase of the production in the oil sands over the next two years should also facilitate the transport of crude oil until the pipelines are reaching capacity, ” says Walter Spracklin, of RBC capital Markets.

 

The Royal Bank predicts an increase of production of 315 000 barrels per day in 2018, and 180,000 barrels per day in 2019.

 

Mr. Sprackin assesses that CN and CP have achieved only 38 percent of their capacity in carrying 35,000 to 40,000 carloads, compared to 110,000 carloads in the course of their peak in 2014.

 

Even if the lines of the CN dive more deeply into the territory of the oil sands, Mr. Spracklin recalls that the company established in Montreal has a capacity of transportation of oil more limited. This could allow the PT to eat a larger share of the market.

 

The two companies must publish their financial report for the year 2017 by the end of the month.

 

The CN should show an adjusted profit of 3.83 billion or $ 5.05 per $ action, according to the experts consulted by Thomson Reuters. In 2016, the adjusted income of the CN amounted to 3.58 billion, or $ 4,59 action.

 

In 2018, this profit could even reach 4,06 billion, or $ 5,52 action.

 

As for the CP , analysts predict adjusted earnings of $ 1.7 billion, or $ 11,45 $ share, compared to 1.55 billion, or $ 10,29 action in 2016. In 2018, this profit could increase to 1.85 billion, or $ 13 per share.

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