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. Toromont also makes refrigeration systems through its CIMCO division.
In the three months ended December 31, 2012, higher equipment sales and rentals, particularly to mining customers, pushed up Toromont’s revenue by 5.6%, to $431.1 million from $408.4 million a year earlier.
Earnings per share rose 34.1%, to $0.59 from $0.44, on the higher sales and improved profit margins.
The stock trades at 14.8 times Toromont’s forecast 2013 earnings of $1.60 a share.
Toromont has raised its quarterly dividend by 8.3% with the April 2013 payment, to $0.13 a share from $0.12. The shares now yield 2.2% on an annualized basis.
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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.
The company has a strong position in three expanding markets: U.S. and Canadian shale gas production; Australian natural gas from coal beds; and conventional Middle Eastern natural gas, which is converted to liquefied natural gas (LNG) for shipping.
In the quarter ended December 31, 2012, Enerflex’s revenue rose 9.8%, to $421.6 million from $383.8 million a year ago. Earnings per share rose 59.1%, to $0.35 from $0.22, due to the higher revenue and improved profit margins.
The stock trades at 12.8 times Enerflex’s forecast 2013 earnings of $1.02 a share. The company raised its quarterly dividend by 16.7% with the January 2013 payment, to $0.07 from $0.06. The stock now yields 2.2%.
In the latest edition of Stock Pickers Digest, we look at the financial outlook for both of these stocks. For Enerflex in particular, we look at whether a slowdown in natural gas drilling by its customers in the northern U.S. and Canada will be offset by stronger orders from southern U.S. and international customers. We conclude with our clear buy-hold-sell advice on both of these stocks.
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History tells us that spinoffs tend to be successful more often than not, but of course there have been a number of spinoffs that did not do well. What is the first thing you think investors should look for in trying to judge whether to invest in a spinoff? Let us know what you think.
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