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Finning’s Bucyrus rights pickup a winning deal
By Financial Post · January 20, 2012 · 3:48 am · Leave a Comment
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By Eric Lam
Finning International Inc., which holds the franchise selling rights for Caterpillar Inc. in Canada, has acquired the distribution rights to mining equipment producer Bucyrus.
The move is seen as a positive one for the company, despite some near-term risks, Ben Cherniavsky, analyst with Raymond James, said in a note to clients.
“We view the integration of this mining-intensive product line as a very compelling opportunity for Finning,” he said.
The deal will cost Finning about US$465-million and generate about US$700-million in revenues in 2012. It gives the company rights access to products and support services in portions of South America and western Canada as well as the United Kingdom.
“The near-term implications of this transaction on the company’s balance sheet continue to concern us, and there are still some operational headwinds that Finning must address (primarily in Canada),” he said. “However we have opted to upgrade our rating on the stock at this point because we believe that clarity on these issues has improved somewhat over the past few months and, as such, the market will be increasingly interested in the company’s longer-term EPS potential, which we still peg in the $2.50 to $3.50 range.”
Mr. Cherniavsky estimates the deal will add about 6¢ of EPS in 2012, 16¢ in 2013 and as much as 24¢ in 2014.
He’s upgraded Finning to outperform while raising the target price to $28.50.
