acquisition strategy
Pat McKeough responds to many personal questions about specific stocks and other topics on investment and the economy 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. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, we had a question on one of the Canadian stocks that is making a transition to the Internet age. Cheque printer Davis + Henderson has moved aggressively to acquire software that performs vital functions for financial institutions. Pat looks at the potential risks and rewards of the company’s growth by acquisition strategy. ...
Davis + Henderson Corp., $21.07, symbol DH on Toronto (Shares outstanding: 59.2 million; Market cap: $1.3 billion; www.dhltd.com), is a leading cheque printer. It also provides software for managing chequing and credit card accounts and technology for approving loans, searching for and registering liens and processing student loans. Davis + Henderson’s clients are mainly financial institutions. It now has over 1,700 banks and credit unions as customers. In April 2011, Davis + Henderson bought Mortgagebot LLC, of Mequon, Wisconsin, for $231.8 million U.S. Mortgagebot sells web-based mortgage software in the U.S. Its software runs on more than 6,000 mortgage websites, and generates mortgage applications for nearly 1,100 banks and credit unions. Davis + Henderson bought Mortgagebot to keep diversifying away from cheque printing and related services, which make up about 40% of its business. Cheque printing is declining as more consumers switch to electronic payment methods....
CHEMTRADE LOGISTICS INCOME FUND $17.15 (Toronto symbol CHE.UN; TSINetwork Rating: Speculative) (416-496-5856; www.chemtradelogistics- .com; Units outstanding: 41.7 million; Market cap: $710.0 million; Dividend yield: 7.1%) is one of North America’s largest providers of removal services for resource firms, such as oil refineries and base-metal processors....
Exchange Income Corp., $28.05, symbol EIF on Toronto (Shares outstanding: 20.6 million; Market cap: $579.6 million; www.exchangeincomecorp.ca), operates in two niche businesses: aviation and specialty manufacturing. The aviation segment consists of regional airlines Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Services and Custom Helicopters. The specialty manufacturing business includes Jasper Tank Ltd., Overlanders Manufacturing, Water Blast Manufacturing, Stainless Fabrication, Inc. and WesTower Communications. The company reported cash flow of $13.4 million in the latest quarter. It paid out $8.6 million, so it should be able to maintain its dividend if its cash flow remains steady. The stock yields 6.0%....
DUNDEE REIT $36.11 (Toronto symbol D.UN; TSINetwork Rating: Speculative) (416-365-3535; www.dundeereit.com; Shares outstanding: 97.7 million; Market cap: $3.7 billion; Dividend yield: 6.1%) owns and manages 22.9 million square feet of office and retail space. The trust has a 95.1% occupancy rate.
In the three months ended December 31, 2012, Dundee REIT’s revenue jumped 51.3%, to $192.0 million from $126.9 million a year earlier. In 2012, Dundee made $2.6 billion of acquisitions and added 9.9 million square feet of office space. These properties supplied most of the revenue increase.
Cash flow jumped 41.4%, to $58.1 million from $41.0 million. However, cash flow per unit fell 8.1%, to $0.57 from $0.62, on more units outstanding (the trust issued new units to pay for the acquired properties).
...
In the three months ended December 31, 2012, Dundee REIT’s revenue jumped 51.3%, to $192.0 million from $126.9 million a year earlier. In 2012, Dundee made $2.6 billion of acquisitions and added 9.9 million square feet of office space. These properties supplied most of the revenue increase.
Cash flow jumped 41.4%, to $58.1 million from $41.0 million. However, cash flow per unit fell 8.1%, to $0.57 from $0.62, on more units outstanding (the trust issued new units to pay for the acquired properties).
...
AutoCanada Inc., $17.30, symbol ACQ on Toronto (Shares outstanding: 19.9 million; Market cap: $507.6 million; www.autocan.ca), has over 1,100 employees at 27 franchised automobile dealerships in six provinces. The company sells numerous brands, but Chrysler vehicles supply 70% of its revenue. In the three months ended September 30, 2012, AutoCanada’s revenue rose 11.0%, to $298.7 million from $269.1 million a year earlier. Earnings per share rose 30.8%, to $0.34 from $0.26. AutoCanada holds cash of $54.3 million, or $2.73 a share, and has low debt....
TransForce Inc., $22.24, symbol TFI on Toronto (Shares outstanding: 92.8 million; Market cap: $2.1 billion; www.transforcecompany.com), is a leading Canadian trucking company. Its fleet is the largest in the country, with 11,330 trucks and 11,850 trailers. The company also has exclusive partnerships that extend its reach into the U.S. Montreal-based TransForce was an income trust from September 2002 to May 2008. It has four main divisions: Package and Courier (which supplies 37% of TransForce’s revenue) delivers parcels between businesses under the Canpar, Loomis Express and ICS Courier banners....
Constellation Software, $124.75, symbol CSU on Toronto (Shares outstanding: 21.2 million; Market cap: $2.6 billion; www.csisoftware.com), sells software to a range of public and private sector clients. In the three months ended September 30, 2012, Constellation’s revenue rose 11.7%, to $226.0 million from $202.3 million a year earlier. All of the increase came from companies that Constellation has recently purchased. Excluding one-time items, earnings per share rose 6.4%, to $1.99 from $1.87. Constellation holds cash of $61.9 million, or $2.92 a share. It has no long-term debt....
NorthWest HealthCare Properties REIT, $13.36, symbol NWH.UN on Toronto (Units outstanding: 38.5 million; Market cap: $514.4 million; www.nwhp.ca), owns 77 income-producing properties, with a focus on medical office buildings. The real estate investment trust (REIT) is Canada’s largest non-government owner and operator of medical office buildings. In all, NorthWest’s properties contain about 4.6 million square feet of leasable area. The REIT’s properties are located in B.C., Alberta, Ontario, Quebec, Nova Scotia and New Brunswick. NorthWest has a 91.3% occupancy rate. The REIT first sold units to the public for $10 each and began trading on Toronto on March 25, 2010....
Martinrea International, $9.02, symbol MRE on Toronto (Shares outstanding: 83.0 million; Market cap: $748.7 million; www.martinrea.com), makes and sells metal parts, assemblies and fluid systems, mainly for the automotive and industrial manufacturing sectors. It has 37 plants, in Canada, the U.S., Mexico, Brazil and Europe. In the three months ended September 30, 2012, Martinrea’s sales rose 21.8%, to $697.2 million from $572.3 million a year earlier. The increase was largely due to higher sales in North America. Before one-time items, earnings per share fell 15%, to $0.17 from $0.20. However, the decline was mostly due to one-time costs to start building new parts, particularly for Ford’s Escape and Fusion vehicles....