Yet he admits that he still has to explain the game plan to many investors. He describes D+H as an “evolving hybrid” between a value company and a growth company. While the institutions that account for about 30% of its shareholders do get the vision, a lot of retail investors still assume, “Oh, they are the cheque people.” Much of that retail crowd also remains hungry for income. So in 2012, D+H paid a $1.28 dividend. At recent share prices, that’s a fat 5.3% annual yield. Given the push for growth, D+H’s trailing price earnings multiple has climbed slightly above 20, but it’s still less than 15 times forecast earnings for this year.
Exco Technologies Ltd. (XTC-T)
Top 1000 rank: 300
Revenue: $243 million
Profit: $24.5 million
Three-year share price gain: 110%
The Canadian auto parts sector is full of outsized personalities: the Stronachs at Magna, Fred Jaekel at Martinrea and the Hasenfratzes at Linamar. Brian Robbins, the 66-year-old CEO of Exco, is not one of them. You won’t see the soft-spoken Robbins much in the media. But, oh, what an eye-popping story he has to tell.
Exco concentrates on creating dies and moulds for aluminum parts, as well as making machinery for other manufacturers. At its plant in Newmarket, Ontario, Exco can pour the prototype of a new Maserati engine block in less than three minutes.
The company has grown steadily and deliberately since it was founded by Robbins’s father in 1952, but in recent years the expansion has involved bold new ventures in exotic locales, as Exco has followed automakers to lower-cost countries. In 2002, it opened an interior-trim plant in Morocco, the equivalent of Mexico for European parts-makers. In the past year, Exco has set up a factory in Colombia and bought another in Texas; it has two more plants under construction in Brazil and Thailand. Despite that expansion, Exco is carrying no long-term debt.
So why are Exco’s shares still trading at a lowly 10 times earnings? Of total sales, two-thirds are auto-related, and three-quarters are to North American customers. Robbins says that many investors assume all this business is with the troubled Big Three—GM, Ford and Chrysler. In fact, foreign-owned automakers are big in the mix, which shifts from year to year. “The Big Three are a substantial part of our business, but not the only part,” he says. Nor has Exco been burdened by Stronach-style dual-class shares designed to maintain family control. Robbins owns the biggest stake, but it is just 24%.
Exco has increased its dividend by 125% over the past three years. If that doesn’t generate some excitement among value investors, you have to wonder what will.
Pason Systems Inc. (PSI-T)
Top 1000 rank: 244
Revenue: $387 million
Profit: $39.9 million
Three-year share price gain: 78%
Pason makes electronic sensors and instruments that measure just about every aspect of a drill rig’s performance and transmit the data back to an oil company’s headquarters. So is it an oil-field services stock or a tech stock? “It’s hard to explain even to analysts and institutional investors,” says Swiss-born CEO Marcel Kessler, who has master’s degrees in both engineering and finance.
Either way you look at it, Pason’s performance has been phenomenal. The company was founded in 1978, but the driving force behind it was Jim Hill, an accountant and engineer who became general manager in 1986. He soon bought the firm, and took it public 10 years later. Shares that were then priced at 17.5 cents now trade near $18. The five-cent annual dividend introduced in 2003 is now 52 cents.
The company’s two core products also date back to the 1990s, although they’ve been updated steadily. One is the pit volume totalizer, introduced in 1990, which monitors a rig’s mud system to detect water, gas, oil or other fluids in the well that might cause a blowout. In 1994, Pason introduced its even more comprehensive electronic drilling recorder. “It’s a nervous system for a rig, and it was truly revolutionary at the time,” says Kessler, who succeeded Hill as CEO in 2011 (Hill remains chairman).
Unlike a lot of Canadian oil-field services companies, Pason has already established itself in the United States; indeed, it earns more than half its revenue there. And unlike a lot of Canadian tech companies, Pason has just one major competitor: giant Houston-based drilling equipment maker National Oilwell Varco. But Pason’s electronic drilling recorder has a better than 50% market share in North America, and Kessler says there’s still room to grow internationally—the company has yet to mount a big push into the Middle East.
Pason’s shares are priced attractively from the perspective of either growth or income investors. Revenues are up a third over the past five years, yet the share price is just 12 times forecast earnings for this year. When will Pason stop growing? “Only when we run out of ideas,” says Kessler. With more than 200 engineers on staff who concentrate on R&D, that’s not likely to happen any time soon.
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