Canam Group Inc.

Description
Canam Group Inc. (TSE:CAM) is an industrial company operating 12 plants specialized in the design and fabrication of construction products and solutions, which are marketed by seven business units in the commercial, industrial, institutional, multiresidential, and bridge and highway infrastructure markets. Canam Canada specializes in the fabrication of steel joists, joist girders and steel deck. Hambro offers a range of structural components, including its D500 composite floor system, Hambro girders and transfer slabs. Canam United States designs and fabricates open-Web joists and structural trusses. Structal-Heavy Steel Construction specializes in the fabrication of heavy structural steel components. Canam International exports Canam Group’s expertise. Structal-Bridges specializes in the design, fabrication and erection of bridges. Technyx markets outsourcing services.

Canam group is in acquisition mode. It uses the current economic conditions to buy out others in difficulty. In 2010 it completed the purchase of FabSouth and a steel us company called CMC which had 2 plants in US.

Management
Dutil family is in this business for over a decade. Marcel Dutil (father) owns 12% of the business. He retired from management late in 2010 and Marc Dutil (son) took the effective control. This family have a strong incentive returning shareholders value. They have a big salary compared to net income (500k) but have applied a freeze on salaries early in 2009 to react to declining market conditions.

Financials
Canam group Inc. have been profitable for the last years. Recession have taken a big chunk of revenues but profitability remained strong (profit droped 50% in 2009). 2010 year seems to be baddest year in CAM history. The company is currently loosing money. Not a lot (0.02¢ per share), but still loosing. We’ll see on forth quarter earnings if it ends the year profitable or not. It probably will, but it will not be a decent profit. Despite the revenue shocks, the company now trades at a P/E multiple under 8.5 using earnings average over the last four years.

CAM is in the construction universe and this market was hit hard by recession. Canceled order, price compression, agressive competitive bids. All these forced the company to adjust prices down. The reputation of Canam is high. They are winning orders after orders in the last year. Contracts backlog is over 564M$!

Current price to book is around 0,5. You get all the patents and knowledge over and above assets at half the price of building new ones!

Returns
In sept 2010 a new quarterly dividend was established at 0.04. This gives us 0.12$/year so a yield of 1.75%. Not great, but better returning cash to shareholders than making bad acquisitions.

Considering MrMarket reactivity to changes in earnings, as soon as this company returns to regular earnings, a price per share of 8.25$ (P/E 10) is reasonable. This does not include any earnings from 2010 acquisitions. Let’s assume these acquisitions adds 0.10$ in earnings per share it would boost share price to the 9$ mark.

We then have a 28% margin.

Risks
Company CEO just changed.
Construction business is not back to normal yet.
Acquisition history does enhance shareholders value but cannot be predicted for the future. One bad acquisition could be enough to tear down the company in pieces.
Cannot predict market turnover timing.

Disclosure : Author has a position in CAM.

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Posted in CAM, TSE
2 comments on “Canam Group Inc.
  1. […] my previous blog on Canam (TSE:CAM), I valued 2010 acquisition at 0.10$ per share profit to calculate a 9$ value to […]

  2. […] while ago we discussed Canam on this site. I also discussed it Canam on portfolio update saying I would sell off my position in CAM soon […]

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