NDP stock headed for bear territory as political capital dwindles

If we were to apply business lingo to politics, and if the NDP were a stock, today you would be shorting it. Let’s discuss.

The next few months are almost certainly bad business for the party. The quarterly results are likely to miss their estimates, the dividends will degrade and the analysts would be urging you to move your investment elsewhere.

The basic market guidance: the bottom may not fall out to make it a penny stock, but it is difficult to believe the NDP will be in a stronger place by the end of fiscal 2019.

Let’s start with the asset value of the party leader, Jagmeet Singh. Since his headline-stealing initial public offering more than a year ago, when he ascended to the leadership of the firm without learning the business and working his way up through the ranks, he has been in a freefall – offering no new product line, fumbling on the execution of his vague strategy and demonstrating inexperience in a complex market. His performance has rattled investors and emboldened his competitors.

He has so devalued the operation that his predecessor believes it is necessary for him to earn a vote of confidence on February 25 in Burnaby South to avert a boardroom insurrection to install a new chief. Even an imminent victory might only delay the inevitable ouster if the dire results pour in this fall as expected. There is a widespread sense that Singh has not created organic growth due to insufficient investment and a lack of underlying assets. The once-bullish climate, in which the NDP market cap grew rapidly and not long ago threatened to be dominant, has gone bear.

The NDP portfolio includes its Alberta holdings, and there is near certainty of a hostile takeover by rivals this May. Rachel Notley took command four years ago and has guided her enterprise through its most bitter devaluation in memory. Through no great fault of her own, market conditions have conspired to depress the net worth of her operation. She cannot get her best product to its optimal market, in part because her sister establishment to the west has done everything in its power to deny her its truest value. So much for intercorporate co-operation.

Her successor is almost assuredly Jason Kenney, an experienced national hand who traded out for a regional role and immediately consolidated two operations to build momentum. Kenney is a shrewd operator, bound to shed expenses and slash his costs for the customer to earn back his venerable brand’s squandered popularity.

Notley’s only saving grace could be a regulatory ruling to bring the valuable resource to the rich Asian market, but even a spring surprise on this front might be too little, too late, to save her upstart.

Which brings our market outlook to British Columbia. We have good reason to think this NDP stock has peaked. Its balance sheet has benefited from the rosy financial conditions cultivated by its predecessor and influenced by world markets. Rather than continue to ease the pressure on its customers and continue its investor-friendly theme, it has restructured the business and imposed overheads that will start to punish in the weeks and months to come. It seems destined for a costly, generous labour settlement. It, like its national counterpart, has little room to tack if international economic headwinds hit as expected, due in part to substantial capital commitments to large projects that are long on goodwill and short on tangible dividends.

It has been largely a rogue, isolated operation in the current business climate, finding few friends on the national frontier to be partners in growth. It has clearly miscalculated and demonstrated uncertainty in recent days concerning the fiduciary requirements of respectful relationships with First Nations and appears to be moving forward with support of a megaproject under newly anxious market conditions that could antagonize its customer base. Its costly global ambitions on sustainability are running into new roadblocks almost daily, near and far, rendering its market less competitive.

It is, in our estimation, a market dog-in-waiting. 

Kirk LaPointe is the editor-in-chief of Business in Vancouver and vice-president, editorial, of Glacier Media.