Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions.
This week we respond to a question from an Inner Circle member asking about one of the Canadian stocks with important interests in a nation that has been living through a period of upheaval, Libya. Pat notes that this infrastructure and engineering specialist also does a lot of business in North America, and assesses its outlook.
Q: Pat: What is your recommendation on Pure Technologies? Thanks for your advice.
A:Pure Technologies Ltd. (symbol PUR on Toronto; www.puretechltd.com) makes systems that manage and monitor infrastructure, such as bridges, pipelines, nuclear power plants, high-rise buildings and parking garages. Pure designs and supplies the systems, then provides ongoing monitoring and technical support.
The company also provides engineering services for water and waste-water pipelines, mainly for municipalities in Canada and the U.S.
In the three months ended March 31, 2012, Pure Technologies’ revenue jumped 158.5%, to $20.1 million from $7.8 million a year earlier. Pure gets 30% of its revenue from Libya, and the company made a big “catch up” equipment delivery to the country after its shipments were halted last year due to the Libyan civil war. If you exclude that sale, Pure’s revenue would have risen 20.0%.
The company earned $0.06 a share in the latest quarter, compared to a loss of $0.11 a year earlier. Pure holds cash of $29.6 million, or $0.60 a share, and has no debt.
The company has now resumed its Libyan activities after it received $16 million of the $24 million that it was owed by that country’s Man-Made River Authority, which supplies most of Libya’s drinking water.
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Manages world’s largest underground network of pipes and aqueducts
Pure has had an inspection and monitoring contract with the Man-Made River Authority since 2000. The company expects to receive the remaining $8 million that it is owed on schedule.
The Great Man-Made River Project, which former Libyan leader Colonel Moammar Gadhafi built for $25 billion, is a massive network of pipelines that transports 6.5 million cubic metres of water per day from the Nubian Sandstone Aquifer, located deep underground in the desert, to Tripoli, Benghazi and the Libyan coastline. The project is the largest underground network of pipes and aqueducts in the world.
The authority will use the equipment in Pure’s latest shipment to monitor up to 600 kilometres of pipeline, bringing the total length of monitored pipe to about 1,200 kilometres. The Man-Made River Authority has over 4,000 kilometres of pipeline within its network.
Pure Technologies’ Libyan project holds lots of promise, but in the most recent Inner Circle Q&A, Pat looks at whether the company’s North American business can offset the political risk added by its presence in that volatile nation. He concludes with his clear buy-hold-sell advice on the stock.
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