acquisition strategy
CML Healthcare Income Fund, $9.99, symbol CLC.UN on Toronto (Shares outstanding: 89.7 million; Market cap: $896.1 million) is one of Canada’s largest health-care diagnostic services providers. CML (or Canadian Medical Laboratories) has two main business segments: Laboratory Services and Imaging Services. Laboratory Services accounts for 45% of CML’s revenue, and performs a wide range of medical tests through its Ontario laboratory network, which includes the company’s central laboratory in Mississauga and 121 specimen-collection centres. The size of CML’s lab network lets it take advantage of economies of scale that are not available to smaller labs. About 85% of the company’s lab revenues are fixed by an agreement with the Ontario Ministry of Health. Imaging Services, which supplies 55% of CML’s revenue, provides medical-imaging services, such as magnetic-resonance imaging (MRI), computed tomography (CT), X-ray, ultrasound and mammography. The company provides these services through 109 medical-imaging clinics. Seventy-eight of these clinics are in Ontario, 19 are in B.C., nine are in Alberta, two are in Manitoba and one is in Quebec....
Members of our Inner Circle service often ask for our portfolio investing advice on stocks they are thinking of buying that we don’t cover in our newsletters. These companies range from the most speculative penny mines to large multinational corporations.
Many of these stocks fall into a grey area....
Many of these stocks fall into a grey area....
Americas Energy Company, $2.60, symbol AENY on the Nasdaq bulletin board (Shares outstanding: 53.5 million; Market cap: $139.2 million), aims to build a portfolio of energy projects in the U.S. and Canada. In late 2009, Americas Energy changed its name from Trend Technology Corporation when it bought Americas Energy Company. Americas Energy is now starting to produce thermal coal (used for power generation) from a surface mine in Kentucky. As well, it is exploring for metallurgical coal (which is used for steelmaking) at a project in Tennessee. The company is also considering buying several other coal projects, as well as an oil-and-gas project in southeastern Kentucky. Americas Energy has not yet reported any revenue. The outlook for coal is positive, and Americas Energy’s properties are all in established mining areas near ready markets....
Artis REIT, $11.32, symbol AX.UN on Toronto (Units outstanding: 43.5 million; Market cap: $492.4 million), owns industrial, office and retail properties in western Canada. Artis’s industrial properties account for 39.0% of its leasable space, followed by office (32.7%) and retail (28.3%). Artis continues to grow by acquisition. It recently agreed to pay $115.3 million for a number of properties in western Canada, including four Alberta industrial properties priced at $85.2 million. Three of these are in Edmonton and one is in Calgary. The deal also includes $5.8 million for retail property in Fort McMurray, Alberta. The new properties will increase the company’s leasable space to 8.4 million square feet in 105 properties. Geographically, its leasable space breaks down as follows: Alberta (49.7%), Manitoba (31.6%), B.C. (11.0%) and Saskatchewan (7.7%)....
IESC-BFC, $14.49, symbol BIN on Toronto (Shares outstanding: 82.3 million; Market cap: $1.2 billion), changed its name from BFI Canada, effective June 1, 2009. That’s when BFI Canada amalgamated with its wholly owned subsidiary, IESI-BFC Ltd. The company will continue to operate as BFI Canada in Canada, and as IESI in the U.S. IESI-BFC is one of North America’s largest solid-waste management companies. However, its business does not include any management, collection or disposal of hazardous or liquid waste....
Consumers’ Waterheater Income Fund, $6.34, symbol CWI.UN on Toronto (Units outstanding: 49.5 million; Market cap: $314 million), owns a portfolio of about 1.3 million installed gas-fired water heaters. These are mainly rented to residential customers in Ontario. About 40% of the 3.4 million households connected to the Ontario natural-gas system rent from the fund. These are mainly located in the Greater Toronto Area. Direct Energy (formerly part of Enbridge Inc.) services the fund’s water heaters and gets 35% of most rental revenue. In June 2006, Direct Energy sold its 19.9% equity interest in the fund. Enbridge started the water-heater rental program in the late 1950s, to encourage Ontario customers to switch to natural gas. This, in turn, would build year-round demand for Enbridge’s gas supply. Through the rental program, homeowners can install and maintain their water heaters with no capital outlay. The Canadian water-heater rental market is mainly limited to Ontario....
SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales. Thanks to Neilson, as well as Saputo’s earlier acquisition of a Wisconsin-based cheese maker for $161 million, its revenue rose 14.5% in the fiscal year ended March 31, 2009, to $5.8 billion from $5.1 billion in the prior year....
All three of these leading Canadian food processors are down from their 2008 highs. However, they should all benefit from falling prices for wheat and other raw materials. As well, the recession may actually help their sales by prompting more people to eat at home. Even so, we only see two of them as buys right now. SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales....
AltaGas Income Trust, $16.30, symbol ALA.UN on Toronto (Units outstanding: 76.8 million; Market cap: $1.3 billion), mainly extracts, processes and distributes natural gas. It also processes natural-gas liquids. AltaGas has four segments: 1) The energy-services division (57% of revenue) has two main components: an energy-management business that provides consulting and supply-management services, and a gas-services business that buys and sells natural gas and electricity. This operation also transports and stores natural gas....
ALIMENTATION COUCHE-TARD $13.27 (Toronto symbol ATD.B: SI Rating: Extra Risk) (1-800-361-2612; www.couche-tard.com; Shares outstanding: 193.1 million; Market cap: $2.6 billion) has agreed to buy 450 On the Run convenience stores in the U.S. from Exxon-Mobil. It will also convert 43 locations in Phoenix, Arizona, to its Circle K brand. Couche-Tard minimizes the risk of its growth-by-acquisition strategy by looking for profitable, well-managed chains that have room to grow. The company does a good job of integrating new acquisitions, and it could buy more of the 2,100 On the Run stores that ExxonMobil still owns. Alimentation Couche-Tard is still a buy.