The diversity can be hard for investors to grasp. In some ways, TransForce looks like an aggressive growth stock. Over the past two decades, it has bought dozens of trucking companies, and its revenue has quadrupled over the past 10 years. To do that, it has borrowed heavily, however. Long-term debt now totals $860 million, which is slightly greater than shareholders’ equity. But that’s a long way from, for instance, the 3-to-1 debt-to-equity ratio of heavyweight borrower and acquirer Valeant Pharmaceuticals.
On the other hand, many investors appear to have got used to TransForce as a mature income stock. As an income trust from 2002 to 2008, it paid out more than $1.50 annually in distributions some years. Now that TransForce is a corporation again, its dividend is just 52 cents a year—still a respectable 2.6% yield. And last year, TransForce bought back 3.5% of its own stock.
The most reassuring stat is that TransForce’s shares have been trading at a modest 12 times trailing earnings.
Andrew Peller Ltd. (ADW.A-T)
Top 1000 rank: 371
Revenue: $277 million
Profit: $13.0 million
Three-year share price gain: 71%
Canadians weren’t sophisticated drinkers when John Peller’s Hungarian-born grandfather, Andrew, went into the wine business here in 1961. But Andrew believed there was a huge opportunity to foster a European-style culture of wine and food. “He was right, but it took about 30 years,” says his grandson John Peller, 56, president and CEO of the family-controlled company.
The first decade was a struggle. The family moved to British Columbia to work its first vineyards, then back to Ontario to establish more in the Niagara region. And their first hit wine had no Old World pedigree: It was sweet, sparkling Baby Duck, a blockbuster that accounted for an astonishing one-quarter of wine sales in Ontario in the mid-1970s.
The company went public early in its history—in 1970, as Andrés Wines Ltd.—in large part because it had to. “The wine industry is incredibly capital-intensive and the banks did not want to lend us any more money,” says Peller. “And there were no angel investors or private capital in those days.”
Wine and foodie culture began to blossom in North America in the 1980s, and Peller says that his company has been riding a demographic wave ever since. Average Canadian wine consumption has been climbing by about 5% annually for 25 years, yet it is still only about 15 litres per person annually, compared with close to 50 litres in France, Italy and Spain. So Peller says there’s plenty of room to grow.
The Canadian palate is also getting more refined, so Peller’s premium and ultra-premium wines, such as Peller Estates and Trius, are an expanding portion of its business compared with its still-growing cheaper offerings, such as Hochtaler and Domaine D’Or, and its winemaking kits.
Andrew Peller is the only publicly traded Canadian winemaker, and its shares are modestly priced, trading recently at about 11 times trailing earnings, and delivering a dividend yield of about 3%. The challenge can be finding stock. Through a dual-class share structure, the Peller family owns almost two-thirds of the voting shares and controls about a third of the company’s market capitalization. Much of the rest of the voting and non-voting shares are held by individuals and a handful of money managers.
Davis + Henderson Corp. (DH-T)
Top 1000 rank: 183
Revenue: $760 million
Profit: $69.1 million
Three-year share price gain: 69%
Hang in there, publishers: Davis + Henderson proves that there’s life after paper. As recently as 2005, almost 100% of D+H’s revenues came from providing cheques to Canada’s eight largest banks. Now, about 60% of revenues come from delivering technology, software and business-processing services to the banking sector.
CEO Gerrard Schmid says the shift away from paper was deliberate, not desperate. The now 138-year-old company had gone public as an income trust in 2001, and looked like a classic widows-and-orphans value investment—it had the lion’s share of a profitable market and paid out almost all of its free cash as distributions. But revenue from cheque printing had levelled off at about $300 million a year.
In making the leap to digital, executives chose to focus on the firm’s traditional strength—support for retail banking. They also saw a huge potential new market among the thousands of local and regional U.S. banks. Many of them don’t have their own IT departments and need help with online customer service. Since 2006, D+H has bought eight U.S. and Canadian financial technology companies. It is a leading provider of technology used to process car loans—and to collect from delinquent customers. D+H’s revenue has doubled over the past five years, and Schmid says he’s looking for more acquisitions.