German IPO ray of light for ATS Automation
T R A D I N G D E S K UNDERVALUED: ANALYSTS Canadian firm’s multiple appears low by comparison
Q- Cells, a German solar power company, is about to offer about 22% of itself in an initial public offering worth about ¤280-million. More importantly, the implications of the offering extend into Canada. Or at least they should, according to Sprott Securities analyst MacMurray Whale.
ATS Automation Tooling System Inc. is a volatile stock with a solar power group. That chuck of the business is comprised of two parts — the profitable Photowatt operation and the unprofitable Spheral Solar Power (SSP) outfit. The solar group generates about 22% of ATS’s total revenue.
And according to Mr. Whale’s calculations, ATS’s solar group is “highly undervalued” given what Q Cells is about to get for its business. Q Cells is expected to be priced at five times sales or 40 times earnings. Another solar company, SunPower Corp., is set to go public at four times sales, Mr. Whale calculates.
Investors haven’t been so generous with ATS’s solar group. Investors value it at about two times sales in fiscal 2007, Mr. Whale said in a research note yesterday.
Perhaps part of the pricing discrepancy between ATS’s solar group and it German counterpart is that ATS’s solar group is comprised of two parts — one profitable and one not. ATS rose 8% or $1.08 to $15.18 yesterday in Toronto. Carrie Tait Misguided For the second time in two months, furniture maker Dorel Industries Inc. told the market its 2005 earnings guidance was too rich. The announcement, which came earlier this week, prompted the analysts to cut their target prices on the Montreal-based company.
Claude Proulx, an analyst at BMO Nesbitt Burns, is now the most bearish analyst on Dorel. He cut his target price to $32 from $40.50 yesterday.
Dorel said its earnings after tax in 2005 would be lower than in 2004. Pre-tax earnings, however, are still expected to come in above 2004 levels. Earnings per share should total between US$2.60 and US$2.75, the company said. Given this announcement, Mr. Proulx lowered his 2005 earnings estimate to US$2.75 from US$3.05 and dropped his 2006 estimate to US$3 from US$3.35.
Dorel closed at a 52-week low of $31 yesterday, losing $3.75 the last two days. Mr. Proulx said Dorel “looks relatively inexpensive” on a price to earnings basis. But that doesn’t matter.
“We think the stock is unlikely to rebound until earnings momentum turns positive again,” the analyst said in a research note. Carrie Tait Trust blues
Investors in Air Canada’s parent ACE Aviation Holdings Inc. have apparently been spooked by Ottawa’s move to stop issuing advance tax rulings for income trusts, driving shares down nearly 10% in two days. The restricted voting shares closed $35.85 yesterday.
The uncertainty created by Finance Minister Ralph Goodale’s move against trusts would seem to throw a sizable wrench into ACE Aviation’s business strategy, which relies heavily on finding ways to “unlock” the value of its various airline-related subsidiaries.
Indeed, ACE has so far partially spun off part of its Aeroplan loyalty program as an income trust and said last month it was preparing a similar deal for Air Canada’s regional carrier Jazz. Analysts, meanwhile, have been speculating about a spinoff of the company’s maintenance arm, Air Canada Technical Services ( ACTS).
Steve Garmaise, an analyst at Genuity Capital, noted in a research note that Jazz has not applied for an advance tax ruling and does not need one to IPO.
“ We believe that investors are overreacting to the federal government’s delay of advanced tax rulings for trust conversions,” he wrote. Moreover, he argues that, even if the trust market dries up, ACE would still be in a position to spin off Jazz and ACTS as standalone public companies, thanks in part to about $5-billion in tax benefits that stem from its restructuring. Chris Sorensen Lost in translation?
You can thank Hugo Chavez, the president of Venezuela, for the wild ride of
Crystallex International Corp. this week. The shares fell 48% on Tuesday, after Mr. Chavez appeared to suggest that the Canadian mining company may not be allowed to build the Las Cristinas gold mine — the company’s key asset and one of the largest undeveloped gold projects in the world — on his watch.
However, Catherine Gignac, an analyst at Wellington West Capital Markets, believes that there is actually limited downside risk to Crystallex shares now. Indeed, there is strong support for the mine from the state governor and the local mayor.
“It appears the negative comments attributed to Hugo Chavez cannot be validated and were likely taken out of context. There is no valid or logical reason why Crystallex cannot develop the mine,” Ms. Gignac said.
She maintained her “strong buy” recommendation on the stock and a 12-month price target of $7. The shares rebounded 31% or 51¢ to close at $2.16 yesterday. David Berman Huh? Mr. Chavez’s remarks did more than spook Crystallex investors. Geoff Stanley, a BMO Nesbitt Burns analyst, downgraded
Hecla Mining Company to “market perform” from “outperform” yesterday in light of Mr. Chavez’s comments.
Hecla will likely be hurt as nervous investors flee, the analyst predicted. From there, Mr. Stanely is uncertain what happens.
Mr. Chevez’s comments will have a “negligible” effect on Hecla’s “current operating, development, and exploration activities,” Mr. Stanley predicted. But “nationalization of mining could also impact Hecla’s ability to acquire and develop additional assets in the country,” Mr. Stanley said
Or, maybe not.
“Conversely, it could eliminate much competition and provide Hecla with a competitive advantage in the region,” the analyst said.
Mr. Stanley left his target price on Hecla unchanged at US$4.75. Hecla rose US30¢ to US$4.21. Carrie Tait
Financial Post
catait@ nationalpost. com