Steve,
I don't know if the interest rates are really affecting UDI that mutch, since its dividend yield is only around 1%. Short-term T-bills are yielding around 2.75% (1-month), 2,88% (3-month), 3.31% (1-year). The interest sensitive stocks in Canada have been really soaring. For instance, the Canadian banks were all yielding close to 5% at the start of the year. Since then they have been increasing dividends. They are currently yielding around 4%. I'm not sure exactly how much their prices have increased but I think it's around 50%.
The third quarter earnings were down on a per share basis. If UDI's fourth quarter isn't better than last year, then its earnings for the year probably will be about the same as last year. Are earning likely to be better than last year? The P/E on the stock is about 10.1 (the way I figure it), which means that the market isn't really pricing this stock like its profit is going to go up much. Part of this is because of dilution following their recent underwriting where the number of shares outstanding leaped from 39.5M to 44.5M. As a result the EPS may be flat, even though the net profit would be up by > 10% (i.e., last year $77M this year maybe something like $85-90M).
I think that they have a couple of good opportunities to make more money that hopefully will start making some impact soon (i.e., in the 4th quarter of this year). Here are some of the things that I think should be considered:
1. The recently acquired subsidiaries should start making more money soon (unless they paid too much for them, or they mismanage them - but I don't think that that's too likely).
2. Their program to improve margins: will its success continue? Will it meet their targets of 3% increase in productivity over the 3-year period ending in 1997?
3. The backlog in their building procucts operations is rising. Will this continue? Will it rise more?
4. Will their sales outside North America increase from 18% in 1995? Is their international presence increasing? Countries in Asia are building and rehabilitating lots of fossil fired power stations - how many cooling towers is UDI selling there? Probably none. They sell in Europe (18%) and North America (USA 80%, Canada 2%). Their big challenge (opportunity) is to get into the Asian markets and try to make some money there. I don't have any idea how long the "Asian Economic Boom" is going to last (decades perhaps with a few crashes along the way) but I'm quite sure that it will last long enough for UDI to make some money there (if management plays the cards right). Maybe some of those pre-engineered metal buildings would look nice in a Shanghai industrial subdivision.
5. They still have about $150M US in cash assets - I think that they were going to use some of this money in the purchase Commercial Intertech, but Commercial Intertech successfully fought off UDI's takeover bid. UDI could be lining up some other company as a takeover target right now.
Anyways, I like the stock, they are in good financial shape (for instance long-term debt is only $276M), and it operates in an area where I think that there's lots of opportunity right now.
Regards,
John Sladek |
