Business insolvencies jump despite stable economic growth

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

It’s not easy to find signs of aggregate consumer financial stress in Canada but as BMO senior economist Sal Guatieri points out, there has been a concerning jump in business insolvencies.

“The May data on Canadian insolvencies show growing stress for both consumers and businesses, especially the latter. Consumer insolvencies have largely returned to pre-pandemic norms, and are likely to rise further if interest rates stay high and the jobless rate rises. Of greater concern is that business insolvencies have already overshot 2019 levels at a time of reasonably healthy economic activity. … Businesses showed amazing resiliency during the Great Recession. But they are already under stress even before an expected mild economic slump”

“BMO: “Canadian Businesses Under Pressure”” – (research excerpt) Twitter

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Citi analyst Ephrem Ravi maintains his bullish stance on battery-related commodity prices.

“In order to enable the Energy Transition and meet related customer and government demands, automakers are set to consume dramatically more industrial and battery metals over the coming years … We estimate that the value of automaker industrial and battery metal consumption outside of China may rise by $140bn to $230bn between 2023 and 2030 (+15% p.a), from ~$90bn at present, using spot prices. The bulk of the increase may come from lithium (+$87bn), alongside nickel (+$19bn), copper (+$14bn), and aluminium (+$14bn), assuming broadly unchanged prices from recent levels … We estimate that the value of desired metals hedging from automakers outside of China might quadruple from ~$23bn at present, to ~$80bn by 2030″

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Also from BMO, analyst Sohrab Movahedi calculates that the major banks will be making less profits from basic lending operations.

“The Q2/23 results at the Canadian Banking Segment (making up nearly half of the “Big 6′s” total earnings) marked the first quarter of negative earnings growth since Q4/20, with group earnings down 4% y/y. The 4% y/y decline in earnings is reflective of double-digit revenue growth (NIM [net interest margin] expansion and resilient loan growth) that was more than offset by higher expenses and normalizing PCLs [provisions for credit losses]. The segment’s profitability, as represented by the group’s ROA [return on assets], was down y/y from 128bps to 114 bps (in line with the pre-pandemic average of 114bps), primarily reflecting the negative impact from higher PCLs. Looking ahead, the combination of a slowdown in

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B.C. coast seeing growth jump in ocean-related businesses

$8.1-million funding boost from Ottawa’s Pacific Economic Development Agency propels South Island’s Blue Economy into the future of marine technology.

Brandon Wright runs a company out of Oak Bay Marina that designs remote security and monitoring systems for vessels ranging from small sailing and pleasure craft to fisheries and police boats and Canadian warships.

Barnacle Systems Inc. produces the software and hardware to monitor location, cabin status and engine conditions. In more detailed applications, the software can monitor the vital signs of the ship’s operators.

“We’re installed on the RCMP boats, DFO fisheries, search and rescue vessels and big in special forces and the Royal Canadian Navy,” said Wright, who employs 15 people and sells the systems into 40 countries. “We can pull in engine and camera data, environmental data. It gets the whole health of the boat.

“We can also tie in biometric data [through cameras and sensors] so we can understand the stress of the people on the boat that can measure skin temperature and moisture, so someone like special forces can understand during events how stressed they may actually be.”

Wright, a UVic grad, started developing surveillance systems after working for the U.S. Central Intelligence Agency and U.S. Air Force.

Barnacle Systems is an example of the region’s deep talent pool and massive potential in the so-called Blue Economy, where research and development is spawning innovation by startup companies in transportation, food, environmental protection and other sectors associated with the ocean.

On Tuesday, the South Island Prosperity Partnership, received $3 million in funding from Ottawa’s Pacific Economic Development Agency to support the ocean and marine technology sectors as well as First Nations groups who are doing ocean monitoring and conservation.

Minister Harjit Sajjan announced a total of $8.1 million in funds that will also support $1.9 million for two projects at the University of Victoria and $820,000 to the Association of British Columbia Marine Industries.

Emilie de Rosenroll, chief executive of the South Island Prosperity Partnership, said the funds will support the development of a marine innovation network and training hub through COAST, the blue economy arm of SIPP dedicated to expanding B.C.’s rapidly growing marine technology sectors. The funding will also expand Indigenous entrepreneurship and the exploration of economic opportunities involving SIPP’s Indigenous-led arm, the Indigenous Prosperity Centre.

SIPP, founded in 2016, has about 70 member organizations including municipal and First Nations governments, industry associations and

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