Héroux-devtek stock hits record high
Comes on heels of $5 dividend announcement
Corporate executives who make splashy business moves designed to unlock true shareholder value, a much-abused business cliché, often end up frustrated when markets react with a big yawn.
Not so Héroux-Devtek Inc. The least you can say is that in the case of the Longueuil aircraft landinggear company, the strategy has worked nicely.
Languishing for years before Héroux sold a big and growing part of its business in July, its stock hit an all-time high Friday after it announced a second share-jolting tonic: a $5-per-share payout.
It was the second move designed to boost its stagnant stock. Héroux president Gilles Labbé complained in July that the company had done all it could operationally, increasing revenues, profits and products, but that still the markets had failed to reward those initiatives.
On Aug. 31, Héroux closed the sale of its aerostructures and industrial turbine businesses to Portland, Ore.-based Precision Castparts Corp. for $300 million, considered an excellent premium for the division. The company will develop its core landing-gear business, including long-discussed potential strategic acquisitions, likely in the U.S.
The sale lit a fire under the shares, which gained another 2.74 per cent Friday after the $5 dividend was announced, closing at $13.49.
Héroux shares have doubled since the beginning of the year, most of the gains realized after the Precision deal was struck.
Before Friday, Héroux-Devtek’s previous stock high over 16 years was $11.70 a share, a peak hit on Aug. 2, 2001, just before the general meltdown of aerospace stocks after 9/11. At the depth of the recession, its stock sank to its lowest level since being listed in 1996, slumping to $2.79 on Dec. 31, 2008.
Labbé and Héroux chief financial officer Real Bélanger said in a teleconference call that after the $160-million dividend payout to reward shareholders, the company will still be in a strong financial position to pursue its expansion and acquisition goals.
Bélanger said the firm has drawn only $21.6 million of $150 million in available credit.
The special dividend will be paid on Dec. 19 to shareholders of record on Nov. 20. It will involve a capital reduction and repayment of $2.70, making it more attractive for tax purposes, and a cash dividend of $2.30. The company will hold a special shareholders’ meeting on Dec. 18 to approve the payout.
Analyst Cameron Doerksen of National Bank Financial took Héroux off his “action list” — stocks the bank recommends to clients — a reflection of its success in achieving much of its unrealized potential.
“In the short term, I don’t see much upside,” said Doerksen, who lowered his rating one notch on “soft (profit) margins” in the second quarter, as well as his 12-month target to $15 from his previous $15.50.
He added that the $5 per share dividend was roughly in line with his expectations, deduced from management guidance.
Speculation has been rampant that Héroux-Devtek may sell itself outright, but Doerksen said he doubted it.
In aerostructures, many other players made it difficult for Héroux to grow, he noted, unlike in landing gear, a sector in which it’s a leader and where there are fewer rivals.
Doerksen said he believes “the company has one or two potential targets identified, and if a deal is ultimately consummated could serve as a catalyst for a higher valuation on the stock.”