This firm recently announced that its CEO will step down to head up the Bank of Nova Scotia. The company has appointed Kevin Parkes as his replacement.
Mr. Parkes will likely continue the company’s current strategy of expanding its product support (equipment maintenance) business. The company’s improving efficiency should also give it more cash for dividends.
Meanwhile, the stock trades at 11.7 times the company’s 2023 earnings forecast.
The Profits from Hidden Value
Learn everything you need to know in 7 Pro Secrets to Value Investing for a FREE special report for you.
Canadian Value Stocks:
FINNING INTERNATIONAL INC. (Toronto symbol FTT; www.finning.com) sells and services Caterpillar-brand heavy equipment in Western Canada, South America, the U.K. and Ireland.
Canada is Finning’s biggest market, contributing 51% of net revenue. Its other markets in order of revenue are South America (32%) and the U.K. & Ireland (16%).
The servicing of equipment provides 57% of revenue, while the sale of new equipment provides 33%; the balance comes from the sale of used equipment, rentals and fuel.
Finning’s free cash flow (regular cash flow less maintenance capital expenditures) was a negative $354 million in the 12 months ended September 30, 2022. That’s because the company is spending more to build up its inventories as demand continues to recover from COVID-19 lows. However, Finning expects that its free cash flow rebounded strongly in the fourth quarter of 2022.
Revenue rose 24.7%, from $6.27 billion in 2017 to $7.82 billion in 2019. That gain was largely driven by rising commodity prices, which increased demand for heavy equipment. In 2019, the company also paid $241 million for 4Refuel, which provides on-site refuelling to 3,400 companies in the construction, transportation, oil and gas, and power generation industries. However, revenue fell 20.7% to $6.20 billion in 2020 as COVID-19 hurt commodity prices. A year later, revenue increased 17.6% to $7.29 billion on higher sales from all lines of business.
Value Stocks: Growing order backlog and sound balance sheet add safety
Thanks to savings from a restructuring plan, the company’s earnings increased by 17.6%, from $229 million in 2017 to $269 million in 2019. Due to fewer shares outstanding, earnings per share gained 21.3%, from $1.36 to $1.65.
The drop in revenue caused earnings in 2020 to decline 30.9%, to $186 million, or $1.14 a share. However, they rebounded by 84.9% to $344 million, or $2.18, in 2021.
Higher prices for oil and other commodities continue to spur demand for Finning’s equipment and services. Revenue in the third quarter of 2022 rose 20.5%, to $2.11 billion from $1.75 billion a year earlier. Per-share earnings also jumped 59.0%, to $0.97 from $0.61.
Finning’s improving order backlog also cuts your risk. At the end of the most-recent third quarter, it stood at a record $2.5 billion, up 56% from a year earlier.
The company’s balance sheet is sound. It ended the quarter with cash of $120 million, and its long-term debt of $836 million is a moderate 15% of the company’s market cap.
Finning will probably earn $3.10 a share in 2023, and the stock trades at a low 11.7 times that forecast.
The company raised its quarterly dividend by 4.9% with the June 2022 payment, to $0.236 a share from $0.225 a share. The new annual rate of $0.944 a share yields 2.6%.
Recommendation in The Successful Investor: Finning Int’l Inc. is a buy.