acquisition
Pat McKeough responds to many requests from members of his Inner Circle for specific tips on trading stocks as well as questions on investment strategy and the economy. 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 a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.
This week an Inner Circle member asked us about Canadian engineering firm WPS Group. This firm’s growth strategy centres on the steady acquisition of smaller firms. This approach (similar to that of Edmonton-based engineering firm Stantec, a stock we follow in Stock Pickers Digest) has been producing profitable results for WPS. Pat examines all four of the company’s 2014 acquisitions and assesses the risk that comes with the acquisition and integration of new firms.
Q: Dear Pat: I would like to have your opinion on WSP Global. Thank you very much.
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This week an Inner Circle member asked us about Canadian engineering firm WPS Group. This firm’s growth strategy centres on the steady acquisition of smaller firms. This approach (similar to that of Edmonton-based engineering firm Stantec, a stock we follow in Stock Pickers Digest) has been producing profitable results for WPS. Pat examines all four of the company’s 2014 acquisitions and assesses the risk that comes with the acquisition and integration of new firms.
Q: Dear Pat: I would like to have your opinion on WSP Global. Thank you very much.
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WSP Global, $33.70, symbol WSP on Toronto (Shares outstanding: 62.3 million; Market cap: $2.1 billion; www.wspgroup.com), consults on engineering projects for public and private sector clients around the world. It employs about 17,500 people, mainly engineers, technicians, scientists, environmental experts and architects, in more than 300 offices across 30 countries. In the three months ended September 27, 2014, WSP’s revenue jumped 31.8%, to $537.4 million from $407.6 million a year earlier. Earnings per share gained 9.3%, to $0.46 from $0.43. WSP continues to grow rapidly by acquisition. The latest is its $1.35-billion purchase of Parsons Brinckerhoff, U.K.-based Balfour Beatty plc’s professional service business....
REITMANS (CANADA) LTD., $5.94, symbol RET.A on Toronto, is shutting down its underperforming Smart Set chain. Over the next 18 months, it will close 31 locations and convert the other 76 to other banners, including Reitmans or Penningtons (plus-sizes). The closures will result in a $2.2-million charge in the current quarter. To put that in perspective, Reitmans earned $9.6 million, or $0.15 a share, in the three months ended August 2, 2014. That was down 5.9% from $10.2 million, or $0.16, a year earlier. Reitmans had tried rebranding Smart Set, which was selling lower-priced, fashionable clothing to young women, but its efforts were unsuccessful. Its plan involved shifting the stores toward women in their late 20s and early 30s, as well as raising prices....
United Technologies fell slightly in late November, after Louis Chenevert, its chief executive for the past six years, retired suddenly. However, new CEO Gregory Hayes (who is also a former vicepresident) will likely continue Chenevert’s focus on the company’s main aerospace and construction divisions. These businesses operate in cyclical markets, but their outlook is bright. Airlines are replacing their aging fleets, increasing demand for jet engines and other parts, while developing countries’ongoing urbanization fuels building-product sales. United Technologies also has another advantage many competitors can’t match: because of its many subsidiaries, it can offer construction clients an integrated package of building products, such as elevators, heating and fire-control systems....
Windstream is spinning off some of its real estate assets, while Frontier (see box) recently expanded by acquisition. Both approaches should let these telecoms maintain their above-average dividend yields. However, their heavy focus on rural areas, plus the rising cost of expanding and upgrading their networks, limits their growth prospects. WINDSTREAM HOLDINGS INC. $10 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.8 million; Market cap: $6.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 10.0%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue by selling high-speed Internet and other communication services to 357,700 businesses....
FRONTIER COMMUNICATIONS CORP. $7.06 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 1.0 billion; Market cap: $7.1 billion; Price-to-sales ratio: 1.5; Dividend yield: 5.7%; TSINetwork Rating: Average; www.frontier.com) recently paid $2.0 billion for AT&T’s traditional phone business in Connecticut. The company now has 3.0 million residential and business customers in 28 states. Excluding acquisition-related costs, Frontier earned $47.7 million, or $0.05 a share, in the third quarter of 2014. That’s down 15.6% from $56.5 million, or $0.06 a share, a year earlier. Even with the AT&T operations, revenue fell 3.7%, to $1.14 billion from $1.19 billion, as lower telephone revenue offset higher sales of Internet services. The company borrowed most of the cash it needed for this purchase, which increased its long-term debt to $9.2 billion, or 1.3 times its market cap....
CANADIAN REIT $49.40 (Toronto symbol REF.UN; Units outstanding: 69.3 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.5%; www.creit.ca) owns 198 properties, including retail, industrial and office buildings, across Canada and in Chicago. These holdings contain almost 24.1 million square feet of leasable area. The trust’s occupancy rate is 95.3%.
In the three months ended June 30, 2014, Canadian REIT’s revenue rose 3.5%, to $102.0 million from $98.6 million a year earlier. Cash flow per unit gained 4.2%, to $0.74 from $0.71.
Canadian REIT added $191.1 million worth of new buildings in 2013. That followed $401.9 million of property purchases in 2012, including a 50% stake in Calgary Place, a 575,000-square-foot office and retail complex, for $156.0 million. So far this year, it has made one acquisition: a 261,000-square-foot industrial property near Toronto’s Pearson International Airport for $29.3 million.
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In the three months ended June 30, 2014, Canadian REIT’s revenue rose 3.5%, to $102.0 million from $98.6 million a year earlier. Cash flow per unit gained 4.2%, to $0.74 from $0.71.
Canadian REIT added $191.1 million worth of new buildings in 2013. That followed $401.9 million of property purchases in 2012, including a 50% stake in Calgary Place, a 575,000-square-foot office and retail complex, for $156.0 million. So far this year, it has made one acquisition: a 261,000-square-foot industrial property near Toronto’s Pearson International Airport for $29.3 million.
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CAE INC. $15 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 265.3 million; Market cap: $4.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 1.9%; TSINetwork Rating: Average; www.cae.com) gets 55% of its revenue by selling flight simulators and pilot-training services to commercial airlines. Another 40% comes from simulators and training for military clients, mainly in the U.S.
CAE gets the remaining 5% of its sales by making medical-simulation products, such as mannequins, for training nurses and medical students.
Steady growth in revenue, earnings
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CAE gets the remaining 5% of its sales by making medical-simulation products, such as mannequins, for training nurses and medical students.
Steady growth in revenue, earnings
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ENCANA CORP. $21 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 741.1 million; Market cap: $15.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.encana.com) recently narrowed its focus from around 30 unconventional natural gas properties to just six. These fields also produce significant amounts of oil and natural gas liquids, such as butane and propane.
The company now expects that liquids will account for 75% of next year’s operating cash flow, two years ahead of its original target.
Encana’s revenue rose 31.8%, from $6.7 billion in 2009 to $8.9 billion in 2010 (all amounts except share price and market cap in U.S. dollars). It then fell to $5.2 billion in 2012. However, revenue recovered to $5.9 billion in 2013 and could reach $7.0 billion in 2014.
Earnings dropped from $2.35 a share (or a total of $1.8 billion) in 2009 to $0.54 a share (or $398 million) in 2011. They then rebounded to $1.35 a share (or $997 million) in 2012, but fell to $1.09 a share (or $802 million) in 2013.
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The company now expects that liquids will account for 75% of next year’s operating cash flow, two years ahead of its original target.
Encana’s revenue rose 31.8%, from $6.7 billion in 2009 to $8.9 billion in 2010 (all amounts except share price and market cap in U.S. dollars). It then fell to $5.2 billion in 2012. However, revenue recovered to $5.9 billion in 2013 and could reach $7.0 billion in 2014.
Earnings dropped from $2.35 a share (or a total of $1.8 billion) in 2009 to $0.54 a share (or $398 million) in 2011. They then rebounded to $1.35 a share (or $997 million) in 2012, but fell to $1.09 a share (or $802 million) in 2013.
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BMTC GROUP, $16.00, symbol GBT.A on Toronto, is one of Quebec’s largest retailers of furniture, electronic goods and household appliances, with 36 stores. In March 2012, BMTC introduced a new banner, Economax, which offers lower-priced products. The company rebranded four outlets that had been Brault & Martineau liquidation centres. In 2013, BMTC opened four more EconoMax stores. It added another, in Joliette, in March 2014, and an additional one, in LaSalle, on October 24, 2014. BMTC is now considering purchasing land in Drummondville for a new store that would open in late 2015....