ShawCor’s dominance in pipeline coating has profits soaring

SHAWCOR LTD. (Toronto symbol SCL; www.shawcor.com) gets 90% of its revenue by making sealants and coatings that keep oil and gas pipelines from rusting. The remaining 10% comes from manufacturing industrial products, such as electrical wire and protective sheaths. The company continues to benefit from recent acquisitions that have increased its North American manufacturing capacity. As well, demand for its pipeline-coating services continues to rise in Asia, Latin America and Europe. Asia now supplies 39% of ShawCor’s revenue, followed by North America (38%), Europe (15%) and Latin America (8%). In the three months ended June 30, 2013, ShawCor’s revenue jumped 39.9%, to a record $457.3 million from $326.9 million a year earlier. That’s mainly because the company paid $30 million for the 49% of Socotherm LaBarge LLC that it did not already own. Texas-based Socotherm coats and insulates pipelines for deepwater oil and gas projects. Its clients operate in the Gulf of Mexico and off Africa’s west coast.

Stock advice: ShawCor’s order backlog keeps growing

Earnings soared 152.2%, to $53.9 million, or $0.90 a share. A year earlier, ShawCor earned $21.4 million, or $0.30. The company ended the quarter with an order backlog of $778 million, up 4% from a year ago. ShawCor is now bidding on over $800 million of new contracts. It is also looking to win pipeline-coating deals if regulators approve new liquefied natural gas projects on B.C.’s west coast. ShawCor’s long-term debt of $366.2 million is a low 14% of its market cap. It also holds cash and investments of $97.2 million, or $1.63 a share. The $0.50 dividend yields 1.2%. In the latest edition of The Successful Investor, we look at ShawCor’s prospects for winning new contracts. We also consider the company’s earnings outlook for 2013 and into next year. We conclude with our clear buy-sell-hold advice on the stock. (Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members There has been a good deal of debate on the relative merits of shipping oil by pipeline or by train, especially since the explosion in Lac Megantic, Quebec. Some environmentalists even brandish the potential hazards involved in shipping oil as an argument against the use of fossil fuels. What do you think?

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