Finning International Inc. $38 – Toronto symbol FTT

FINNING INTERNATIONAL INC. $38 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Above average) profits from rising oil and mineral prices, since it sells, rents and services Caterpillar brand heavy equipment to energy exploration and mining companies.

Finning earned $0.63 a share (total $56.9 million) in the first quarter of 2006, up 50% from $0.42 a share ($37.4 million) a year earlier. If you exclude gains on the sale of assets, it would have earned $0.53 a share in the most recent quarter, up 26.2%.

Revenue rose 7.8%, to $1.24 billion from $1.15 billion. Finning gets half its revenues from its UK and South American operations, and the rising Canadian dollar cut its revenue growth in the quarter by $88 million.

Finning could have a hard time matching its strong growth in the rest of 2006. New union contracts with its employees in Western Canada will raise its labour costs. But thanks to high commodity prices, it should have little trouble passing along these extra costs to its customers.

The stock rose to $43 in April 2006, but has moved down as resources prices weakened. It now trades at 16.2 times the $2.35 a share it should earn in 2006, and at just 6.3 times its projected cash flow of about $6.00 a share.

It also trades at an attractive 72% of its sales of $53 a share. The $0.52 dividend yields 1.4%.

Finning is a buy.

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