Skip to main content

Vancouver-based Finning International is the world’s largest dealer of Caterpillar equipment.

Seth Perlman/AP

The euphoria that lured investors to Finning International Inc"s shares has fallen by the wayside.

In January 2012, the Vancouver-based company, which sells, services and leases heavy-duty machinery for the mining, energy and power sectors, struck a $465-million (U.S.) deal to buy a unit of Caterpillar Inc. that specialized in mining machinery.

Investors initially reacted with glee, and within a month the stock popped roughly 25 per cent. But the quick rise was short-lived, and now the shares are worth less than they were right before the deal was announced.

Story continues below advertisement

The root problem: mining isn't a very sexy sector right now. Finning was heavily skewed toward mining to begin with, but the acquired business, named Bucryus, was particularly focused on mining equipment.

"It won't be news for you that we don't expect to have a very active year for mining new equipment sales," chief operating officer Juan Carlos Villegas said on the company's last quarterly call.

First-quarter sales in Canada, where mining is a key sector, were down 20 per cent for the same period a year ago. And Canada accounts for half of Finning's revenues, so what happens here has a big impact on the bottom line.

To counter, Finning likes to point out that even though mining is soft, new South American sales – a key region for the Bucyrus unit – more than offset the Canadian and U.K. slump.

Plus, Finning makes a big chunk of money from servicing existing equipment – something its clients are doing in order to get a longer life out of existing machinery that they already own.

"As suspected we have seen mining customers reduce spending on new equipment, however, copper at $3-plus (U.S.) is still a favourable equation and with the current equipment population active and at full capacity, we expect another strong year in product support," Mr. Villegas said.

Given this diversity between new products and servicing, some people think Finning's been unfairly punished in the markets. "Finning looks particularly beaten up to us," noted Raymond James analyst Ben Cherniavsky. The company continues to churn out year-over-year earnings per share growth – though that's boosted by the acquisition – and its stock has only traded down to this price-to-earnings multiple three times in the past 15 years, he found.

Story continues below advertisement

But a recovery will largely depend on the strategy put in place by new chief executive officer Scott Thomson, who was appointed in May. Mr. Thomson was most recently the chief financial officer of Talisman Energy, so he is both an outsider to Finning, as well as an outsider to the industry.

The upshot is that he has international experience and plans to stay with the company for quite some time, allowing him to oversee a long-term strategy.

The question now is how well Mr. Thomson can pivot the company to instill some investor confidence again. Failing that, the stock price could be stuck in a long slog, given that the outlook isn't particularly rosy for many miners.

(Tim Kiladze is a Globe and Mail Reporter.)

Return to Streetwise home page.

The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to subscribers of Globe Unlimited. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies