One of the year's great recovery stories continued to play out yesterday, as Cott Corp. staged its latest successful financing, and made its balance sheet woes part of its past.
Cott, the no-name pop maker that was on the ropes as recently as last year, sold $215-million (U.S.) of bonds that come due in 2017. The offering carries an 8.375 per cent interest rate, and was upsized from $200-million in the face of strong investor demand. That's 565 basis points over the comparable U.S. government bond. Barclays Capital, Deutsche Bank and JPMorgan led this successful outing.
This is the latest sign that the investors have faith in Cott. The company struck a new $250-million credit facility back in March, and sold $50-million of stock in August.
These financings, along with a sharp improvement in results after a painful restructuring, has sent Cott's share price soaring. The stock is up 579 per cent over the past year.
Small stock plays such as Cott - it now boasts a $707-million market capitalization - illustrate the great challenge facing portfolio managers over the past two years: Many of 2008's dogs had their day in 2009.
Canadian small cap stocks massively underperformed last year. Shares in companies with a market capitalization of less than $500-million were down by more than 60 per cent, according to Bloomberg, twice the loss experienced by larger cap stocks. So owning small companies doomed a money manager (or any investor) to underperforming.
However, owning small cap stocks in 2009 meant posting killer performance. Through the end of October, TSX companies with market capitalizations of less than $500-million (Canadian) were up 76 per cent, versus an 18-per-cent rise in the largest domestic companies - those with a market cap of $10-billion or more.
The leader on the block
On the surface, the block trading world seems to be unfolding as one would expect.
TD Securities ranked No. 1 based on the value of its Toronto Stock Exchange block trading in October, and GMP Securities topped the charts based on its volume. These two firms have ruled block trading for the past few years.
Both dealers posted impressive market share last month, with GMP winning 14.7 per cent of trading volume and TD Securities accounting for 16.5 per cent of the value of transactions. These are trades of 10,000 shares or more, worth more than $100,000.
However, beneath these numbers lies a market that's in the midst of a revolution, as electronic trading wins an ever-rising share of traffic on Canadian exchanges. Institutions are using program and algorithmic trades for more trades. These approaches see far smaller lots change hands, at far lower fees, but far more transactions take place.
Block trading is the last war among the dealers. The new battleground between the brokerage houses is electronic trading. CIBC World Markets and newcomer ITG Canada are winning a bigger slice of the pie.
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
Andrew Willis