Parent and spinoff stock both look for big growth in economic recovery

Heavy equipment distributor Toromont Industries Ltd. completed the spinoff of its natural gas equipment division, Enerflex Ltd., in July 2011. Shareholders received shares of the new Toromont and shares of Enerflex. Here is our latest report on these two Canadian stocks which we follow in our advisory for more aggressive investing, Stock Pickers Digest. TOROMONT INDUSTRIES LTD (Toronto symbol TIH; www.toromont.com) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. It also makes refrigeration systems through its CIMCO division. In the three months ended June 30, 2013, Toromont’s revenue fell 1.3%, to $374.7 million from $379.6 million a year earlier. Record sales at the CIMCO division failed to offset lower equipment sales and rentals, particularly to mining customers. Despite the lower sales, Toromont’s earnings per share rose 9.1%, to $0.36 from $0.33. Cost cuts pushed up profit margins, and Toromont continued to pay down its debt, which lowered its interest costs. The company’s $169.4 million of long-term debt—down from $213.7 million a year ago—is 9.4% of its market cap. Toromont raised its quarterly dividend by 8.3% with the April 2013 payment, to $0.13 a share from $0.12. The shares now yield 2.3%. The company needs an improving global economy to fuel demand from its mining customers. ENERFLEX LTD. (Toronto symbol EFX; www.enerflex.com) rents and sells equipment and services for natural gas production, including compression and processing plants, refrigeration equipment and power generators. Enerflex has a strong position in three expanding markets: U.S. and Canadian shale gas; Australian natural gas from coal beds; and conventional Middle Eastern natural gas, most of which gets converted to liquefied natural gas (LNG) for shipping worldwide. In the quarter ended June 30, 2013, Enerflex’s revenue fell 12.3%, to $311.0 million from $354.6 million a year ago. That’s because the company saw lower sales across all of its markets. Earnings per share fell 4.0%, to $0.24 from $0.25. The company booked $317.5 million of orders in the latest quarter, up 19.0% from $266.8 million a year ago. These deals include a maintenance agreement in Australia worth $70.0 million over an initial eight-year term. This contract is related to all the compression equipment that British Gas is using in Australia. Enerflex holds cash of $78.1 million, or $1.00 a share. Its $95.8 million of long-term debt is just 8.7% of its $1.1-billion market cap. The company raised its quarterly dividend by 16.7% with the January 2013 payment, to $0.07 from $0.06. The stock now yields 2.0%. In the latest edition of Stock Pickers Digest, we examine the earnings forecast for both of these stocks and we look at the prospects for improvement in their major markets—mining for Toromont and natural gas for Enerflex. We conclude with our clear buy-hold-sell advice on these two stocks. (Note: If you are a current subscriber to Stock Pickers Digest, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Toromont and Enerflex have both been profitable companies since their spinoff two years ago. Have you benefited from any spinoffs executed by stocks you owned? Can you think of other companies that might benefit themselves—and their shareholders—by spinning off part of their operations?

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