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What the Obama budget may mean for Canadian tech

President Barack Obama's proposed 2012 U.S. federal budget may have been perceived as only a modest attempt to rein in the ballooning deficit, but there's still a lot of belt-tightening that may affect businesses on both sides of the border.

The proposal, bound to be subject to an arduous debate before a final version can progress through Congress, calls for a five-year freeze in all domestic non-defence discretionary spending and a $78-billion reduction in Department of Defence spending over the next five years.

So what are the implications for some of the Canadian tech companies that are closely aligned with U.S. spending priorities? According to TD Newcrest analyst Scott Penner, it's a pretty mixed bag.

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He sees the budget as a positive for RuggedCom Inc. , a communications networking solutions company which has electric power, transportation and military segments that are affected by U.S. federal spending. "Overall, the budget appears to maintain support for smart grid technologies and includes new initiatives that could increase investment in transportation for rail, road traffic and public transit," said Mr. Penner, who has a $26 price target and "buy" rating on the stock.

He sees a "neutral" impact on MacDonald, Dettwiler & Associates Ltd. "Given MDA's recent success expanding its international and commercial businesses, we do not believe U.S. federal budget developments are likely to have a material impact on MDA's results," he said. He rates the stock as a "buy" with a $59 price target.

CGI Group Inc. should see a mixed impact, he said. "We view any step towards resolving the current budget uncertainty facing U.S. government customers as a positive for CGI," he said, noting CGI's U.S. federal division represents up to 30 per cent of total sales. "While it appears that overall budgets are likely to remain under pressure, we believe that the impact on IT spending could be positive as information technology also presents a way to increase operational efficiency." He rates CGI as a "buy" with a $23 price target.

Full production at Canadian Natural Resources Ltd.'s Horizon oil sands mine is not expected to begin until the third quarter following a fire in early January. That's later than Canaccord Genuity analyst Phil Skolnick was expecting, but he notes insurance will cover most of the costs and Horizon expansion plans are intact.

Upside: Mr. Skolnick maintained a $53 price target and "buy" rating, suggesting the market will eventually forgive the event.

Surge Energy Inc.'s latest operational update has reinforced Dundee Securities' selection of the company as its top pick in the energy sector for 2011. Highlights included strong early results from its Bluesky and Valhalla wells in Western Canada and a production rate at the end of 2010 that marginally exceeded analyst Grant Daunheimer's forecasts.

Upside: "Given Surge continues to meet and exceed expectations we are increasing our target price to $9.50 from $7.75 and note we still feel there is upside to our numbers," said Mr. Daunheimer.

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A sea-floor diamond drilling program has confirmed the discovery of a second accumulation of massive sulphide mineralization containing high-grade copper values at Nautilus Minerals Inc.'s Solwara submarine base metals project in Papua New Guinea. The new target has the potential to become its second underwater mining project, noted TD Newcrest analyst Craig Miller.

Upside: Mr. Miller raised his price target by $1 to $3.50 but maintained a "hold" recommendation.

Andina Minerals Inc. released a positive pre-feasibility study on its Volcan project that outlined economics slightly below Canaccord Genuity analyst Steven Butler's estimates. But Mr. Butler noted the completion of the study itself "is a positive development that materially de-risks the project" and said there is still good potential to enhance economics down the road.

Upside: Mr. Butler raised his target by 40 cents to $3 and reiterated his "speculative buy" rating.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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