STUART OLSON INC. $10.01 (Toronto symbol SOX; TSINetwork Rating: Speculative) (780-454-3667; www.stuartolson.com; Shares outstanding: 24.9 million; Market cap: $270.0 million; Dividend yield: 4.8%) (formerly The Churchill Corp.) provides building-construction, commercial and industrial electrical contracting, earthmoving and industrial insulation services to government and private sector clients. It mainly operates in Western Canada.
In the three months ended June 30, 2014, the company earned $1.4 million, or $0.06 a share, excluding one-time items. A year earlier, it made just $485,000, or $0.02 a share.
Revenue rose 20.2%, to $334.0 million from $277.8 million, thanks to rising construction activity in Western Canada.
As of June 30, 2014, Stuart Olson’s backlog was $2.1 billion, up 16.5% from $1.8 billion a year previous. More importantly, the company has worked through most of the low-profit-margin contracts it took on with acquisitions, or agreed to when its markets were more competitive in 2009 and 2010.
Those deals were a big reason why Stuart Olson’s shares dropped to a low of $7 early last year. The current backlog mainly consists of lower-risk contracts—63% construction-management work and 22% cost-plus arrangements. Tendered work represents 15% of the backlog.
Stuart Olson’s long-term prospects are sound, and the shares have rebounded from last year’s low. Meanwhile, the company’s dividend, which yields a high 4.8%, appears safe.
However, the stock trades at a high 38.5 times the $0.28 a share that Stuart Olson will probably earn in 2014. Moreover, its long-term debt of $161.6 million is a high 60% of its market cap. That adds risk.
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