STUART OLSON INC. $6.89 - Toronto symbol SOX

STUART OLSON INC. $6.89 (Toronto symbol SOX; TSINetwork Rating: Speculative) (780-454-3667; www.stuartolson.com; Shares outstanding: 26.4 million; Market cap: $181.4 million; Dividend yield: 7.0%) provides buildingconstruction, commercial and industrial electrical contracting, earthmoving and industrial insulation services to government and private sector clients. It mainly operates in Western Canada.

In the three months ended September 30, 2015, the company’s revenue fell 19.6%, to $281.7 million from $350.4 million a year earlier. The decline came from lower activity in Alberta, including in the oil sands. Stuart Olson is also phasing out less profitable industrial projects.

Before one-time items, Stuart Olson earned $6.4 million, or $0.24 a share, up sharply from $2.8 million, or $0.11, a year earlier. That reflects the company’s continued focus on higher-profit activities. It ended the quarter with a backlog of $2.02 billion, up 6.8% from $1.89 billion.

The company’s current backlog mainly consists of lower-risk contracts—59% construction-management work, 27% cost-plus arrangements and 6% designbuild deals. Lower-profit-margin tendered work represents 8% of the backlog.

Stuart Olson’s dividend, which yields a high 7.0%, appears safe. The stock trades at just 11.5 times the $0.60 a share the company is forecast to earn in 2016, but that estimate could prove optimistic if low oil and gas prices keep hurting Western Canadian construction and oil sands activity.

Moreover, Stuart Olson’s long-term debt of $130.4 million is a high 72% of its $181.4-million market cap. That adds risk, though the company does hold cash of $34.6 million, or $1.31 a share.

Stuart Olson is still a hold.

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